Over a decade ago, Bradley Birkenfeld blew the whistle on foreign tax evasion schemes involving Swiss banks. Bradley received a $104 million whistleblower award (the largest ever), his former employer UBS paid $785 million in fines and the hunt was on!
First the IRS concentrated on Swiss Banks. Many were prosecuted. One of the oldest banks in the world, Wegelin, was criminally prosecuted and promptly shut its doors.
Americans who were using Swiss banks to evade taxes were in for a rude awakening. In addition to paying hundreds of millions in fines, the banks were forced to disgorge the names of their American clients. Other countries piled on as well.
Hiding money in Swiss banks to evade taxes was no longer a safe bet.
Many people repatriated their money into the United States. Some took advantage of an amnesty program designed to soften the blow. But others thought they could beat Uncle Sam and move their money to other offshore jurisdictions. Some of these countries even advertised that they wouldn’t cooperate with the IRS.
Over the next decade we watched the IRS slowly cast a wider net. Israeli banks… Caribbean banks… even banks in countries that many people never heard of such as Liechtenstein. Although some of these banks claimed the United States had no jurisdiction, they were in for a rude awakening.
Some had branches in the United States giving the U.S. courts jurisdiction. And those that didn’t? If they wanted their instruments to be honored in the United States or if they wanted trade or accept U.S. dollars, they had to play ball.
There are still a few “safe” havens in the world to stash your cash, but most aren’t very safe. Tiny island nations or places like North Korea. Once again, the smart money either came into compliance or found a new scheme.
Hiding Money in Offshore Insurance
Last week the Department of Justice announced it was fining Zurich Insurance $5.1 million for assisting Americans who were evading the IRS. According to a Justice Department prepared statement, “From Jan. 1, 2008, through June 30, 2014, Zurich issued or had certain insurance policies and accounts of U.S. taxpayer customers, who used their policies to evade U.S. taxes and reporting requirements.”
The fine was part of a formal non-prosecution agreement with Zurich Life Insurance Company Ltd, headquartered in Switzerland and Zurich International Life Limited headquartered in the Isle of Mann. Both are notorious tax havens.
If you are a customer of Zurich Insurance and have an unreported account with a cash value, watch out! As part of the settlement, Zurich agreed to cooperate with the feds. Invariably that means turning over the names of their U.S. customers or customers having some nexus to the United States.
Prosecutors say that the two Zurich Insurance companies had a combined total of 420 U.S. customers with policies having an aggregate cash value of $102 million.
A cash value life insurance policy from an offshore insurance company is no different than a foreign bank account. These accounts aren’t illegal, but not reporting them to Uncle Sam or not paying tax on the income from these accounts is illegal.
In announcing the settlement, the Justice Department said, “The Tax Division remains steadfast in its goal of ending the use of offshore banking and insurance products when used to commit tax evasion. This resolution with Zurich should serve as a strong message to those who use offshore bank accounts and insurance products to evade taxation that the Department of Justice is committed to stopping such fraud.”
Whistleblowers and Offshore Tax Evasion
Many of the largest offshore tax evasion cases have been initiated based on tips from whistleblowers. We have seen cases were tipsters alerted authorities to high net worth individuals hiding money offshore as well as bankers reporting their employer for these illegal acts. (Remember Bradley Birkenfeld, before receiving the largest whistleblower award ever, he was a director at UBS.)
The IRS whistleblower program pays large awards to people with inside information about tax fraud. That includes offshore tax fraud.
Unlike other whistleblower programs, whistleblowers can usually remain anonymous too. (There are no guaranties, of course, but unless the wrongdoer goes to trial the whistleblower identity – and even the fact that there was a whistleblower can remain anonymous. Mr. Birkenfeld’s identity became public because he chose to let the IRS publicize the award.)
No one likes paying taxes. We have found, however, that most people dislike people who cheat on their taxes even more. The theory goes like this… “I hate taxes but pay them because it is the law, why should anyone else get away with not paying their fair share.” Banks and offshore insurance companies that assist wealthy Americans in tax evasion get even less sympathy.
As indicated earlier, offshore insurance policies with cash value should be reported to the IRS. If you are a policy holder with such an account, speak to a CPA with offshore reporting expertise. [We don’t do that type work but can refer you to an accounting firm that does.]
It is questionable whether the insurance policies at issue in the Zurich Insurance case even qualified as insurance. The Justice Department says Zurich sold insurance products to U.S. taxpayers that were “unit linked,” meaning the cash surrender value and death benefit amount were linked to the value of specified investments. With these policies, the American policyholder had a suite of specialized investment options, allowing them to obtain higher returns. “Some of these unit-linked policies offered a base death benefit that was nearly equivalent to the cost of the policy itself, and in some instances was fully funded by transfers from offshore bank accounts. Upon redemption, the U.S. taxpayer would receive the premium amount plus any investment earnings on the policy less a very small percentage for putative risk and fees,” says the government.
In other words, the insurance was really nothing more than an investment account.
Why is that important? The holders of unreported accounts are always responsible for making sure their accounts are properly reported. Given the type of “insurance” offered here, it becomes clear that Zurich knew or should have known that the Americans purchasing these policies were doing so to evade taxes.
We are actively seeking anyone with inside knowledge of unreported offshore insurance accounts – or any other accounts. The IRS can pay an award of up to 30% of any tax, interest and penalties collected. From the wrongdoer. In a case with a $5.1 million dollar recovery, that could mean an award of $1.5 million.
Not a U.S. citizen? Don’t worry. The IRS knows that some of the best information about offshore tax evasion comes from foreign bankers and “offshore service” companies.
To learn more, visit our offshore tax fraud whistleblower information page. Ready to see if you qualify for an award? Contact us online, by email *protected email* or by phone at 414-704-6731 (direct). All inquiries protected by the attorney – client privilege and kept strictly confidential. Case accepted worldwide.
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