US 2 Pursue Enforcement in Spite of Foreign Laws-"OUR interest..substantially outweighs.. https://t.co/NcOtApc8SQ Who r they 2 decide?
— Patricia Moon (@nobledreamer16) November 5, 2016
Philadelphia Tax Conference Wednesday, November 2, 2016:
“We will pursue enforcement of a Bank of Nova Scotia summons when a domestic entity has dominion or control over records located outside the United States, even where the domestic entity asserts that production may be a violation of foreign law, if our interest in combatting tax evasion substantially outweighs the interest in foreign jurisdictions in allowing banks to preserve the privacy of their customers.“
V. CONCLUSION
Absent direction from the Legislative and Executive branches of our federal government, we are not willing to emasculate the grand jury process whenever a foreign nation attempts to block our criminal justice process. It is unfortunate the Bank of Nova Scotia suffers from differing legal commands of separate sovereigns, but as we stated in Field:
In a world where commercial transactions are international in scope, conflicts are inevitable. Courts and legislatures should take every reasonable precaution to avoid placing individuals in the situation [the Bank] finds [it]self. Yet, this court simply cannot acquiesce in the proposition that United States criminal investigations must be thwarted whenever there is conflict with the interest of other states.
In re Grand Jury Proceedings. United States v. Field, 535 F.2d at 410.
For the reasons stated above, the judgment entered by the district court is
AFFIRMED.
*****
I am not at all suggesting that minnows would have any need to be overly fearful. Given our government’s recent “throwing us under the bus”, I have little faith they will do anything to fight this if it becomes larger in scope.
If a bank acted outside of the tidy IGA arrangement and was involved in the exchange of private taxpayer information to the IRS (a PIPEDA violation-even if against US Persons), wouldn’t the bank open itself up to being sued?
I think it is totally possible Harden, Van deMark etc, may not be of much help given the overall shift regarding extraterritorial tax…..
********
Principal Deputy Assistant Attorney General Caroline D. Ciraolo Delivers Keynote Address at the American Bar Association’s 27th Annual Philadelphia Tax Conference
Philadelphia, PA United States ~ Wednesday, November 2, 2016
Remarks as prepared for delivery
Excerpts concerning “offshore” efforts:
In addition, since 2008, the department, working with our colleagues in IRS Criminal Investigation (IRS-CI), charged more than 160 U.S. accountholders with tax evasion and willful failure to report foreign accounts and more than 50 individuals who assisted in this criminal conduct. We also reached resolutions with nine foreign financial institutions outside of the Swiss Bank Program and continue to pursue investigations of entities located within and outside Switzerland.
Our criminal offshore enforcement efforts have encouraged participation in the IRS offshore voluntary disclosure programs, through which more than 55,000 taxpayers have come into compliance and paid nearly $10 billion in tax, interest and penalties since 2009. In addition, filing of Reports of Foreign Bank and Financial Accounts (FBARs) has increased from 332,000 reports for calendar year 2007, to over a million reports for 2015.
Our civil trial attorneys also furthered our offshore tax enforcement efforts, seeking the issuance of John Doe summonses to identify U.S. taxpayers whose identities are unknown and who are engaged in violations of the internal revenue laws and initiating summons enforcement proceedings to assist the IRS in conducting its examinations and determining the accurate tax due. The information we seek is often located in the United States; however, as we recently demonstrated in a district court in Miami, we will pursue enforcement of a Bank of Nova Scotia summons when a domestic entity has dominion or control over records located outside the United States, even where the domestic entity asserts that production may be a violation of foreign law, if our interest in combatting tax evasion substantially outweighs the interest in foreign jurisdictions in allowing banks to preserve the privacy of their customers.
Our civil trial attorneys also are actively engaged in suits involving penalties assessed for failing to file FBARs. These suits include affirmative litigation to collect unpaid penalties, and defensive litigation raising a variety of issues. We have approximately three dozen cases involving FBAR issues pending, the vast majority of which include a willfulness penalty for at least one of the years at issue. These suits have raised issues related to the computation of the penalty, burden of proof, service of process abroad, definition of a foreign account, corresponding assessments on spouses, venue, jurisdiction, and challenges under the Administrative Procedures Act.
UPDATE
I was curious what Ms. Ciraolo was referring to “recently in Miami” was about; not sure this is it but it is related.
Switzerland Defeated, the U.S. Turns Against Accounts in Other Countries
NB-note use of the word “defeated” – the country of Switzerland is “defeated” – Really….the mindset is unreal……
Two weeks prior to the Cayman guilty pleas in New York (March 9, 2016), in a different offshore banking prosecution in Miami, DOJ requested that a federal court issue a “Bank of Nova Scotia” summons to UBS in Miami. The summons demanded the records of a UBS account in Singapore belonging to a U.S. taxpayer in China. In the past, DOJ has repeatedly used “John Doe” summonses against foreign banks (including in Switzerland, Belize, India and the Caribbean) to obtain information about a broad class of U.S. taxpayers unknown by specific name. “Bank of Nova Scotia” summonses have not been used as frequently until now. They derive from a court case where a U.S. court compelled a branch of Scotiabank in Miami to disclose information to DOJ regarding a Scotia branch in the Cayman Islands, notwithstanding Cayman’s secrecy laws.
In the present case, UBS will argue that Singapore’s bank secrecy laws prevent UBS from providing the account records to DOJ. The parallel argument applied, of course, to accounts at UBS in Switzerland when DOJ prosecuted UBS in 2008. And yet, Swiss bank secrecy failed for UBS (and its U.S. clients) in 2009. Because of UBS’ substantial presence in the U.S., it was forced to settle with DOJ or else face penalties against UBS’ banking licenses and assets within the United States. For the same reason, we can expect that, just like the Swiss account records, the UBS Singapore account records will ultimately be handed over to DOJ.
Notwithstanding UBS’ vulnerability with respect to its U.S. assets, it is unlikely that the state of Singapore would risk its financial reputation to protect non-compliant accounts. Singapore makes a significant amount of money from legitimate international banking and finance and would not jeopardize this by being “blacklisted” as an uncooperative tax haven, as it was a decade ago. To this end, in 2014 Singapore signed FATCA, whereby Singapore financial institutions report information about U.S. account owners to the Inland Revenue Authority of Singapore, which in turns furnishes the data to the IRS. In addition, a new Singapore regulation requires banks to identify all accounts that may harbor the proceeds of tax evasion, and close them. Failure to abide by this new law will result in criminal charges for the Singaporean bankers.
It is of course no surprise that DOJ and the IRS are pursuing undisclosed accounts in Cayman and Singapore. The U.S. has not limited its enforcement activity to non-compliant accounts in Switzerland alone. Within the last couple of years, DOJ has moved against banks and financial institutions in the Caribbean (CIBC First Caribbean, Stanford Bank and Butterfield Bank in the Bahamas, Barbados and elsewhere), Belize (Belize Bank International Limited and Belize Bank Limited), Panama (Sovereign Management) and India (HSBC India). We expect that other financial institutions, in other jurisdictions, are being investigated as well.
The settlement by some one hundred Swiss banks with DOJ, whereby in exchange for paying fines and naming U.S. account holders the banks avoid prosecution, has now freed up manifold resources at DOJ and IRS to examine and prosecute other financial institutions beyond Switzerland. Moreover, the account information handed over by the Swiss banks when settling with DOJ provided DOJ with a road map of funds leaving Switzerland and where these funds went, the so-called “leaver accounts”. DOJ and IRS are especially driven to investigate and prosecute these account holders, as they show an added level of intent to deceive the IRS. Many of the leaver accounts went to jurisdictions like Dubai, Israel, Singapore, Hong Kong and Panama. These jurisdictions are now targets of DOJ investigation.
In the eyes of the IRS, there are no minnows.
Am I the only one concerned over the “corresponding assessments on spouses” in the above?
Wonderful how Obama respects international law and norms. He should dispense with the niceties and carpet bomb Zurich, Ottawa, Paris etc until they hand over the banking records.
Don’t give him any ideas.
“The information we seek is often located in the United States; however, as we recently demonstrated in a district court in Miami, we will pursue enforcement of a Bank of Nova Scotia summons when a domestic entity has dominion or control over records located outside the United States, even where the domestic entity asserts that production may be a violation of foreign law, if our interest in combatting tax evasion substantially outweighs the interest in foreign jurisdictions in allowing banks to preserve the privacy of their customers.”
This isn’t looking too good. The slippery slope is in progress.
Disgusting.
Individuals and their governments outside the us must adhere to international law, respect sovereignty, unless the banking client is only a us citizen.
Even then, individuals should realize the tax system is of “voluntary compliance” through intimidation and fear tactics.
All this is happening because of privately owned central banks,….
I reacted initially thinking they were referring to levies. But when I looked up a Bank of Nova Scotia Summons, its was about information. Not that that is good, but …………
If I recall correctly from the previous discussions of this case on IBS, it was about the US seeking bank records as evidence, and the issue was whether UBS could refuse to co-operate, relying on Singapore law for protection.
Re-googling, here’s the link to discussion of the issues on the Federal Tax Crimes blog:
http://federaltaxcrimes.blogspot.co.uk/2016/03/us-summonses-singapore-bank-records.html#more
I.e., using a sprat to catch a mackerel.
Actions by the US confirm every day that my decision to renounce was the correct (and only!) choice for me.
Likewise.
However, this case also reinforces (for me) the view that the IRS is likely to pursue only those against whom they already have evidence which they think will stand up in court.
What is defensive litigation? Does it mean litigation where the IRS is the defendant? If so, does this mean the IRS is fighting 36 (approx) cases where they’re being sued on grounds relating to computation of the penalty, burden of proof, service of process abroad, definition of a foreign account, corresponding assessments on spouses, venue, jurisdiction, and challenges under the Administrative Procedures Act?
To clarify, my question is:
What is defensive litigation? Does it mean litigation where the IRS is the defendant? If so, does this mean the IRS is fighting 36 (approx) cases where they’re being sued on grounds relating to computation of the penalty, burden of proof, service of process abroad, definition of a foreign account, corresponding assessments on spouses, venue, jurisdiction, and challenges under the Administrative Procedures Act?
That’s what you get when Canadian banks set up in the US. Canada should make them illegal as they make their Canadian branches Trojan Horses for US attacks on Canada’s sovereignty.
There are some interesting points here. David Treitel has spoken in the past of the obligation of any tax accountant to assure that clients are compliant with foreign as well as UK tax law. (I leave apart here the issue of lack of secrecy/privilege for anything revealed to an accountant other than via an attorney and a Kovel letter). My attention has been drawn to a UK bill that reminds me of the the US Foreign Corrupt Practices Act, which proposed to solve world corruption by prosecuting firms, US and other, that bribed foreign government officials or allowed their agents to do so: https://www.gov.uk/government/consultations/tackling-tax-evasion-a-new-corporate-offence-of-failure-to-prevent-the-criminal-facilitation-of-tax-evasion
Foreign secrecy laws and, on occasion, professional (but not, or not yet, Priests’ as far as I know) privilege and bars to disclosure have never been an obstacle to USG pursuit of evidence. The threat of prosecution abroad has been no defence.
Having attended investment lectures back in the day when Swiss (and other) bankers promoted their financial services on the basis that they had no US presence and could not be subjected to the US courts — something I contested at the time — I cannot feel sorry for them now. The data issue comes down to whether the US presence can force transmission of documents. And whether “US presence” includes correspondent relationships, visits (even on holiday) of corporate officers, and the rest.
U.S. “exceptionalism” can be seen as U.S. imperialism. Nothing new there. There was a time when consular courts and extraterritorial law were norms. Maybe in the tax realm we’re going back there. And there’s actually nothing new about countries making it difficult or impossible to renounce nationality/allegiance: hence the old Bancroft Agreements and the accords between the USA and the USSR and East European countries about the status of expatriates visiting the places of their birth on U.S. passports and with tourist visas.
Back to the subject: it’s nothing new for a defendant in a U.S. court to be charged with bringing to court evidence that it cannot export from its home country, and being found in contempt or having issues presumed in favour of the other party, if it failed to do so. And there is nothing new in retrospective tax laws, even laws relating to tax crimes. What will be interesting is how the concept of “US Personhood” plays out, how foreign courts and human rights tribunals deal with disproportionate penalties levied against persons with no real connection to the USA. As far as I know, the IRS and the USG in general is avoiding such issues insofar as they relate to those who never have taken up rights of citizenship and have no income, assets or heirs in the USA.
But the Scotiabank case was no surprise. It’s common imperialism. And there are lots of other cases, before and since, along the same lines. I am reminded of United States v. Field, 532 F.2d 404 (5th Cir. 1976) (“Alien’s Fifth Amendment and International Law Defenses Held Invalid Before Federal Grand Jury Investigating Tax Evasion Schemes Involving Foreign Banks”). And the Dan Horsky case, now in the news, with a $100 million penalty just paid and a guilty plea in process for the criminal case. (Of course with British and Israeli citizenship as well as the U.S. kind, one wonders, thinking of Marc Rich, why was he still in the USA? But what do I know.)
@Andy05 “What will be interesting is how the concept of ‘US Personhood’ plays out, how foreign courts and human rights tribunals deal with disproportionate penalties levied against persons with no real connection to the USA. As far as I know, the IRS and the USG in general is avoiding such issues insofar as they relate to those who never have taken up rights of citizenship and have no income, assets or heirs in the USA.”
It’s also “interesting” is grappling with the two sentences above. The latter sentence says that for accidental Americans the IRS and USG is [are] avoiding “such issues”. Reference back to the first sentence leaves ambiguity as to what issues are being avoided.
Is the USG avoiding “how foreign courts and human rights tribunals deal with disproportionate penalties” (the penalties being freely assessed against accidentals, thereby giving lots for foreign courts and tribunals to deal with)? Or is it that the IRS and USG are avoiding assessing disproportionate penalties against accidentals in the first place (thereby giving rise to near nothing for foreign courts and tribunals to deal with)?
Either way, I’m bewildered. Given that a USG has enacted FATCA, and an IRS has implemented FATCA, how can you seriously state that, “As far as I know, the IRS and the USG in general is avoiding such issues”?
@Shovel
If the US is avoiding accidentals, it’s only by accident.
It seems the DoJ has an “Affirmative Litigation” unit and a “Defensive Litigation” unit: https://www.justice.gov/usao-edmi/civil-division
Assuming Ciraolo was using the terms in that way, then apparently the US is indeed facing 36 (approx) separate lawsuits over FBAR issues. It would be interesting to know more about these lawsuits. The US can be very careful about which “affirmative litigation” cases it chooses to pursue into court, and only pick the sure bets. But when the shoe is on the other foot, and it’s the USG that is being sued, presumably the USG has less power to control either the issues under contention or the eventual outcome. “Service of process abroad” being particularly interesting (IMO).
Again, the US is NOT pursuing us. Anyone in fear of the USG, bankers, and anyone wanting the whistleblower reward is.
I am putting this comment up for David Lesperance, who continues to have trouble trying to post.
Before putting this up I asked him:
“…..but it seems it could only apply to non-payment of tax related to the funds in the particular account; i.e., the IRS cannot go in and try to collect say, non-pmt of tax on employment income can it? What I meant here, is that I was/am assuming just by the way QI is described when trying to read about it, that it applies to investment income-dividends etc. I certainly have never filled out a W8 or W9 when I opened savings, chequeing, RRSP. TFSA or RESP accounts. So prior to FATCA, I am not sure how any bank could have any idea who is US other than those required to fill such forms out when investing in stocks etc
His answer:
David S. Lesperance
Barrister and Solicitor
Lesperance & Associates
http://www.lesperanceassociates.com
Patricia Moon. This sounds like complete BS. Please get a second opinion from a qualified expert. There are 2 kinds of qualified intermediaries. One has to do with exchange of real estate to a defer taxes- not an issue here. The other is an obligation of a US business to withhold tax at source for non US shareholders and recipients of other payments such as interest.
Paricia Moon Imagine I decide to open a trading account with TD or RBC or CIBC or whomever.
I give them a drivers licence for ID’
They ask me if I intend to deal in US securities and , for the sake of argument, I say yes please.
They will then ask me to fill in either a W9 or a W8- Ben. That’s the extent of it.
The last time I opened a trading account the application asked point-blank if I was a US citizen. I lied and answered no because I thought it was none of their damn business and because it seemed it would just be simpler to be 100% Canadian, period. (This was long before the FATCA/FBAR/CBT s–t storm. It turned out to be a lucky call in the end.)
Later on, I bought and held dividend paying US stocks. The institution withheld 15% (the treaty rate, I believe) and the balance showed up in my account. At tax time I claimed a foreign tax credit for the tax withheld. It seemed perfectly normal to me at the time (and still does) that the IRS would get first crack at taxing US source income. I never filled out a W-anything and never will. This is Canada. At this point in time, knowing what I now know, I refuse to buy US stocks and have long since sold the ones I once owned.
“If the IRS says to a QI that a client of theirs owes X$ tax, then the QI will seize any assets they have in their control up to X$.”
I think these QI’s are only NON-US institutions. US institutions already had to deduct withholding before the QI scheme was hatched.
I’ve only seen this applied to withholding from income and gross sales proceeds of securities. I haven’t seen it applied to liens and levies. But as some Brockers have pointed out in other threads, the US is working hard to ignore (and maybe overturn) court rulings so maybe will gain power (and maybe legal authority) to collect all kinds of asserted debts.
The US doesn’t always have to provide due process when seizing property. Sometimes the US pretends to offer due process but doesn’t really provide it; other times the US doesn’t even pretend. The 5th Amendment doesn’t allow this but the US doesn’t have to obey antique pieces of paper written by dead white men.
Maybe before opening an account you’d better ask the institution if they’re a QI.
“Later on, I bought and held dividend paying US stocks. The institution withheld 15% (the treaty rate, I believe) and the balance showed up in my account. At tax time I claimed a foreign tax credit for the tax withheld. It seemed perfectly normal to me at the time (and still does) that the IRS would get first crack at taxing US source income.”
Yes 15% is the treaty rate between the US and Canada. Yes the source country gets first crack. I declared total amounts of income as income on both returns. Before the invention of QI, on Canadian returns I took foreign tax credits for the amount of US tax on US sourced income, and on US returns I took foreign tax credits for the amount of Canadian tax on Canadian sourced income. I declared the total amounts of income as income, and the total amount of tax would be whichever country’s rate was higher. Since my US tax usually came out to zero (i.e. the IRS refunded US withholding after around two years) it was possible to make these computations when filing returns. Otherwise I don’t remember how I avoided an infinite loop in computing how each country’s expected refund would affect the other country’s foreign tax credit.
Then I moved to Japan. Withholding from Canadian sourced income was 10%, the treaty rate between Canada and Japan. Withholding from US sourced income was 15%. Later I learned that the treaty rate between the US and Japan was 10%. I assume withholding continued at 15% because US payers only knew they were sending payments to Canadian stockbrokers, so payers didn’t know my place of residence just like they didn’t know my citizenships. Again usually my US tax was zero and usually they IRS paid refunds about two years later.
Then QI came in and the shitstorm started.
After a QI closed my account in Canada and I found a broker in the US, the shitstorm continued.
Now as a US Non-Resident Alien whose correct forms are W-8BEN and 1042-S (and CLN when required), US withholding continues at the treaty rate, and it’s no longer refundable, but subsequent years no longer add to the shitstorms.
When US withholding is deducted from gross sales proceeds instead of interest and dividends, does anyone know how to declare it?
The broker reports it on Form 1099 so I declared it as reported on Form 1099, and in recent years I’ve learned that that’s how IRS data entry clerk Monica Hernandez was able to embezzle it, but that’s not the only complication. In October 2016 I discovered that in 2010 the IRS added this kind of declaration to their list of frivolous positions! When a declared amount of withholding is larger than the income and disproportionate to income, the declaration is “obviously false” and frivolous. Well of course withholding from gross sales proceeds (which is not income) is likely to exceed the capital gain (which is income). And imagine if the sale resulted in a capital loss. So even though the amount of withholding isn’t actually false, it is “obviously false” and therefore frivolous.
This might explain why US Court of Appeals for the Federal Circuit overturned the IRS’s adiminstrative acceptance of my refiled 2005 return but upheld the IRS’s administrative acceptance of my refiled 2007 return. The IRS had accepted both refilings, obeying IRS instructions to commit perjury, without any IRS demand to fabricate a social security number for my wife or violate US Supreme Court rulings. Why did the Federal Circuit accept one but not the other? My recent discovery could explain it, since the sale of shares was the only apparent difference between those two returns.
Anyone know how to declare an “obviously false” and frivolous but actually true declaration? (Even when committing perjury in the jurat, which can’t be avoided.)