On January 28, 2013, U.S. District Judge William H. Pauley III entered an order authorizing the Internal Revenue Service to issue a summons requiring UBS AG (“UBS”) to produce information about U.S. taxpayers who may hold accounts at the Swiss bank Wegelin & Co. (“Wegelin”) and other banks based in Switzerland. Specifically, the IRS summons seeks records of Wegelin’s United States correspondent account at UBS, which will allow the United States to determine the identity of the U.S. taxpayers who hold or held interests in financial accounts at Wegelin and other Swiss financial institutions that used Wegelin’s UBS correspondent account. Wegelin pled guilty in Manhattan federal court on January 3, 2013, to conspiring with U.S. taxpayers and others to hide more than $1.2 billion in secret Swiss bank accounts and to conceal the income they generated from the IRS. As part of its guilty plea, Wegelin agreed to pay approximately $20 million in restitution to the IRS and an additional $22.05 million criminal fine. In addition, Wegelin also agreed to a civil forfeiture of $32 million, $16.2 million of which was seized and forfeited by the Government from Wegelin’s correspondent account with UBS in Stamford, Connecticut.
According to the Government’s Indictment and forfeiture Complaint, Wegelin and at least two other Swiss banks used Wegelin’s Correspondent Account to covertly launder U.S. taxpayers’ funds from their undeclared accounts in Switzerland. As stated in the papers filed with the district court, the IRS has reason to believe that these funds were transferred in a manner designed to reduce the risk of detection by U.S. authorities, so that the account holders could continue to avoid paying taxes due and owing to the IRS.
The Court granted the IRS permission to serve what is known as a “John Doe” summons on UBS. John Doe summonses are used by the government to obtain information about possible tax fraud by individuals whose identities are unknown. This John Doe summons directs UBS to produce records identifying U.S. taxpayers with accounts at Wegelin and other Swiss banks that used Wegelin’s Correspondent Account.
“Today’s summons is the latest step in our efforts to identify and prosecute U.S. taxpayers who think they can evade their legal responsibility to pay taxes by secreting their money away in anonymous offshore accounts at Wegelin and other banks,” Preet Bharara, U.S. District Attorney for the Southern District of New York, said in a statement.
As we discussed in many of our posts, federal tax law requires U.S. taxpayers to pay taxes on all income earned worldwide. U.S. taxpayers must also report foreign financial accounts if the total value of the accounts exceeds $10,000 at any time during the calendar year. A willful failure to report a foreign account can result in a penalty of up to 50 percent of the amount in the account at the time of the violation. Former IRS Attorneys of Holtz, Slavett & Drabkin, APLC are available to meet with you and answer your questions about foreign bank accounts and reporting requirements. To schedule a consultation, please call (310) 550-6200.