Post by conflict on Mar 19, 2016 2:36:07 GMT 4
IRS/DOJ Summons Seeks to Break Singapore Bank Secrecy on Non-Resident's Account
March 7, 2016
In late February 2016, the Justice Department filed an action
in federal court to compel UBS's branch in Miami to produce bank
records of a Singapore account purportedly owned by a taxpayer who lives
in China and is under IRS audit. With a tactic not used in several
years, this heralds the opening of a new front in the U.S. enforcement
effort against unreported foreign assets. Much of the activity in the
last eight years has been aimed at Switzerland, where the U.S. can
declare victory. The Miami summons action reflects that the
government will pursue money transferred out of Switzerland,
particularly into Singapore, and that the IRS and DOJ have additional
ways to overcome foreign bank secrecy laws, whether or not the taxpayer
under scrutiny lives in the U.S.
The new case, United States v. UBS AG (S.D.Fla.), seeks to
enforce a "Bank of Nova Scotia" summons, a summons type named after an
important 1982 appellate decision, where a court compelled the Miami
branch of Scotiabank to produce records from the Bank's Cayman branch
notwithstanding Cayman secrecy laws. The Bank complied; had it not, the
court could have imposed substantial fines on the Miami bank until the
Cayman records were delivered to the IRS.
During the past eight years of aggressive U.S. enforcement in the
foreign account area, the Justice Department has not resorted to this
method of obtaining foreign bank records. Instead, the IRS/DOJ issued
"John Doe" summonses, treaty requests, and "required record" summonses
to taxpayers under audit or criminal investigation, among other tactics.
Now, the DOJ and IRS want records from Singapore, a bank secrecy
jurisdiction long thought to have attracted money flowing out of
Switzerland once the U.S. crackdown began. Because the taxpayer lives
in China, the IRS cannot serve a summons directly on him, and as the
U.S. and Singapore have no tax treaty, the government issued a "Bank of
Nova Scotia" summons. The IRS is demanding that the Miami branch of UBS
retrieve from Singapore the sought-after bank statements, irrespective
of Singapore law.
The case is significant for many reasons, but three stand out. First,
it is a tangible example of the vigorous U.S. enforcement effort to
"follow the money" out of Switzerland to Singapore and other bank
secrecy countries. This effort is enhanced by voluminous data provided
by Swiss banks to the DOJ regarding "leaver" accounts -- those that
closed when the U.S. started to push against secret Swiss accounts.
Second, to the extent the IRS or DOJ cannot otherwise easily obtain
records, they will now implement a powerful tactic to attempt to
override foreign secrecy laws; in most reported cases in this area,
federal judges have ruled that U.S. law prevails over foreign bank
secrecy laws. Third, the U.S. shows no sign of relaxing enforcement
efforts simply because a taxpayer may live outside the reach of U.S.
All interested constituents -- individual taxpayers, financial
institutions, and third parties who help manage assets for Americans
outside the U.S. -- should take immediate note of this. The IRS and DOJ
will welcome any party who comes forward to report conduct that may have
violated U.S. law, and in general, those who make a voluntary
disclosure prior to discovery by the government will get far more
lenient treatment. Otherwise, we will likely see many more such actions
aimed at unreported foreign accounts and assets, even in the face of
local bank secrecy laws.