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In 2006, the U.S. Senate reported $100 billion per year in taxes not
being paid for U.S. Taxpayer offshore assets. Subsequently UBS, the
largest Swiss Bank, was investigated for criminal tax evasion.

In February 2009, UBS AG, Switzerland¶s largest bank, entered into a

deferred prosecution agreement with the U.S.:
1. Admitting guilt on charges of conspiring to defraud the U.S. by
impeding the IRS tax collection.
2. Paid $780 million in fines, penalties, interest and restitution.
3. Agreed to provide the identities and account information of more than
4,000 U.S. Taxpayers with ³cross-border´ UBS accounts.
,-./-0/)'" Confirmed that, as part of the UBS deferred
prosecution agreement ($780M fine), UBS supplied the IRS with the
names of 323 Americans who wired money from their U.S. accounts
to Switzerland. All the documents UBS turned over, however, were
US records (not Swiss records).
..-.1-0/   2  The Swiss government said it would
turn over to US authorities by August 2010 the names of U.S.
Taxpayers with UBS accounts of more than 1 million Swiss francs
($993,000), and also those holding suspicious accounts as low as
250,000 francs.
.-3-.04!" Confirmed that UBS agreed to disclose to
the American authorities the names of 4,450 wealthy Americans
suspected of dodging taxes through secret offshore accounts (in
addition to the 323 already disclosed; Total: Nearly 4,800

The IRS is prosecuting:

1. U.S. Taxpayers who fail to report offshore income.
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2. Third parties who obstruct tax collection and commit conspiracy to
impede tax collection face two separate felonies, which together may
be punished by up to 8 years in prison.
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3. FBAR Filings
U.S. Taxpayers who have failed to disclose the foreign account under
Form 1040 commit perjury (i.e., they are required to list any foreign
accounts under Form 1040/Schedule B, Part III, Question 7(a)).
Taxpayer perjury is a willful violation. If a U.S. Taxpayer willfully
violates tax reporting requirements while violating other laws of the
United States, (or as part of the pattern of any illegal activity involving
more than $100,000 in a 12 month period), such U.S. Taxpayer will
be subject to a monetary fine of not more than $500,000 or
imprisoned for not more than 10 years or both (31 USC 5322(b), 31
C.F.R. 103.59 (Criminal Issues)).

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The 6 year statute of limitations applies to income (in excess of

$5,000) omitted from an income tax return, attributable to foreign assets for
which a foreign financial disclosure is required (i.e., foreign financial assets
greater than $50,000).

The 6 year statute of limitations is effective for tax returns filed after
3/18/10 (and for any other tax return for which the assessment period has
not year expired as of 3/18/10, i.e., Tax Year 2006 forward).
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Third party conspirators who benefit from tax evasion by U.S.

Taxpayers include:
a. Banks (who receive U.S. Taxpayer funds).
b. U.S. Tax Professionals (Lawyers, Accountants) who
recommend and participate in the tax evasion.
c. Tax Promoters who facilitate tax evasion schemes.

Criminal Attorney, Sanford Passman, Esq., discusses the UBS case

and Co-Conspirator criminal penalties for facilitating tax evasion, including:
1. Hidden Income in Offshore Banks and Brokerage Accounts
2. Nominee Owners (acting on behalf of U.S. Taxpayers)
3. Offshore Debit and Credit Cards
4. Undisclosed Wire Transfers (Unreported Income)
5. Foreign Trusts
6. Private Annuities

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18 U.S.C.A. §371 is the Federal Statute for conspiracy which

provides that: "If two or more persons conspire either to commit any
offense against the United States, or to defraud the United States, or any
agency thereof in any manner or for any purpose, and one or more of such
persons do any act to effect the object of the conspiracy, each shall be
fined not more than $ 10,000 or imprisoned not more than five years, or

Violations of the Internal Revenue laws speak to a statute of

limitations of three years after the commission of the offense.

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Offenses include: willfully aiding or assisting in, or procuring,

counseling, or advising, the preparation or presentation under, or in
connection with any matter arising under, the Internal Revenue laws, of
a false or fraudulent return, affidavit, claim or document (whether or not
such falsity or fraud is with the knowledge or consent of the person
authorized or required to present such return, affidavit, claim or

Offenses include: willfully failing to pay any tax or make any return
(other than a return required under authority of Part III of Subchapter A of
Chapter 61) at the time or times required by law or regulations; for offenses
described in Sections 7206(1) and 7207 relating to false statements and
fraudulent documents.

Offenses for conspiracy arise under Section 371 of Title 18 of the

United States Code (Conspiracy), where the object of the conspiracy is to
attempt in any manner to evade or defeat any tax or the payment thereof.

If an individual or individuals charged with committing any of the

offenses articulated above, are outside the United States or are fugitives
from justice, within the meaning of Section 3290 of Title 18of the
United States Code, the Statute of Limitations is tolled.

When individuals attempt to repatriate into the United States, the

funds contained in the undisclosed foreign bank accounts, they may be
culpable for money laundering. Individuals who maintain foreign bank
accounts where disclosure of said bank accounts is not revealed pursuant
to law, and who would be culpable under the various offenses recited
above, may be culpable for money laundering (specifically 18 U.S.C. 1956
and 1957, which is part of the Money Laundering Control Act of 1986).

18 U.S.C 1956 penalizes individuals who knowingly and intentionally

transport or transfer monetary proceeds from specified unlawful activities.
While the funds reposing in the foreign bank accounts may have been
derived from lawful activities conducted within or without the United States
by American citizens, the various violations of the Internal Revenue Code
and the conspiracy statute, could well subject individuals to charges of
money laundering.

If in fact the unreported bank accounts contained funds derived from

unlawful activities, it may subject individuals to not only violations of
Federal statutes but California statutes as well (e.g., California Penal
Code §§ 182 and 186.10, which deal with conspiracy and money

With the foregoing in mind, and with specific attention to the UBS
matter concerning Switzerland's largest bank, the defendant bank entered
into a plea agreement with the United States Government, that consisted
of a $780M monetary fine and the obligation by the bank to deliver to U.S.
authorities the identity of United States citizens who maintain accounts with
the bank and the attendant information concerning the contents and
transactions of those accounts.

The Swiss Government has issued an edict mandating that the

bank cease and desist "turning over" the identities of those U.S citizens
and the attendant information, and there is presently pending in
Switzerland, legislation to address that issue.

Faced with the dilemma of either breaching the plea agreement

entered into with the U.S., or suffering sanctions from the Swiss
Government, UBS proposed a course of conduct which insulates itself from
conflicts with the Swiss Legislature and the United States authorities.

The action proposed by UBS was to send to each U.S. Taxpayer

who maintained bank accounts with UBS abroad, a USB stick containing
the respective bank records of those U.S. Taxpayers.

A USB stick is identical to a "flash drive" and places all the bank
information sought by the U.S. authorities in the hands of the individual
account holders (whose identities were revealed by a former UBS banker
by the name of Bradley Birkenfeld to the United States authorities in the
hopes that it would be a benefit to him when he was sentenced by the
United States for banking violations).

It is the opinion of this author that UBS may "sell out" all of these
American account holders due to the fact that the U.S. authorities may
subpoena these USB sticks and obtain all tax information that was sought
from the bank itself.

Account holders who received the USB sticks, were they to destroy
them, would be culpable of an additional Federal felony (i.e., obstruct tax
collection), which carries with it a fine and up to 3 years in prison.

Under the 6 year statute of limitations, the Internal Revenue

Service could initiate a civil tax audit of a Taxpayer's returns ± (for six [6]
prior years) and, attendant to said audit, request all information concerning
bank accounts wherever located.

Given the fact that the government knows these individuals

maintained undisclosed bank accounts with UBS, the Taxpayer has
essentially been checkmated by UBS.

Faced with this dilemma, and prior to indictment by the Government

for tax evasion and/or related offenses, U.S. Taxpayers can take steps to
mitigate the impact of this conduct. Retaining counsel to amend the returns
and pay the appropriate taxes and/or penalties and assessments, could be
a firewall protecting them from criminal prosecution.
The reader of this information should keep in mind that any
individuals who participated in any of the enterprises described herein,
could and most probably would be susceptible to criminal indictments.
Those persons would include, but not be limited to family, friends,
business associates, accountants, financial advisors, attorneys and bank
officials who created, choreographed and orchestrated the tax

It is anticipated that the United States authorities will proceed

against other foreign banks in a similar fashion, and that a greater
number of account holders will be subject to scrutiny by the relevant

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1. Burden of Proof: (Civil Fraud/Criminal Fraud)

Criminal fraud requires a higher standard of proof than civil

fraud. The government must prove ³beyond a reasonable doubt´ that
the defendant is guilty of criminal fraud, whereas in civil fraud, the
burden of proof required is preponderance of the evidence (also
termed a ³by a preponderance of the evidence´).

A criminal decision of a court or jury will bind a civil decision,

but a civil decision does not bind a criminal decision.

2. Statute of Limitations: (Civil and Criminal Proceedings)

For civil tax fraud, there is no statute of limitations (the tax can
be assessed at any time).

For criminal tax evasion, the criminal statute of limitations is

only on the prosecution of the crime i.e. tax evasion (not the
assessment of tax owed).

3. Collateral Estoppel:

When criminal proceedings are followed by civil proceedings,

the legal doctrine of collateral estoppel may apply. This doctrine
provides that an issue necessarily decided in a previous proceeding
(the 1st proceeding) will determine the issue in a subsequent
proceeding (the 2nd proceeding), but only as to matters in the 2nd
proceeding that were actually presented and determined in the 1st

Conviction for criminal tax evasion collaterally estops the

Taxpayer from contesting the existence of fraud for purposes of the
civil fraud penalty because a finding of criminal fraud (beyond a
reasonable doubt) establishes proof of civil fraud (by a
preponderance of the evidence).

Acquittal of criminal tax evasion does not collaterally estop the

government from proving civil fraud (by a preponderance of the
evidence). The criminal acquittal may establish that proof of fraud did
not exist beyond reasonable doubt, but that does not mean that proof
of fraud by a preponderance of the evidence does not exist.

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U.S. Taxpayers with unreported foreign bank accounts (and income)

are subject to IRS civil tax audits with civil penalties (monetary penalty,
only) and criminal tax prosecution (monetary penalty and jail).

The U.S. Taxpayer¶s tax records may include evidence which

supports culpability for a crime (e.g., tax evasion) and civil penalties (e.g.,
75% fraud penalty).

The U.S. Taxpayer¶s exposure to civil penalty/criminal prosecution for

unreported foreign bank accounts (and income) is a ³double-edged´ sword
with dual civil/criminal:

1. Evidentiary Standards of Proof

2. Statute of Limitations

3. Collateral Estoppel Issues

If the IRS,  institutes a civil tax audit they may summons
evidence which may support both a civil penalty (e.g., fraud) and criminal
culpability (e.g., tax evasion). The evidence from the civil tax audit may
then be used for a subsequent criminal prosecution of the same U.S.

Civil and criminal tax deficiencies may differ:

1. Criminal violations are charged only against the tax deficiency

that results from fraud.

2. Civil tax deficiency includes all tax due on the tax returns
(³evaded income and deductions adjustments´).
3. Evidence that does not meet the burden of proof in a criminal
investigation may be adequate for civil tax issues (i.e., the IRS
standard of proof is ³a preponderance of the evidence´ for civil
penalties, and ³beyond a reasonable doubt´ for criminal

IRS Criminal Investigation Division has authority:

1. To examine criminal FBAR issues (since 1992)

2. Investigate money laundering offenses where the underlying

conduct is subject to investigation under the Internal Revenue
Code (Title 26) or under the Bank Secrecy Act.

3. Investigate unreported income felonies (e.g., tax evasion,


If the IRS, first institutes criminal prosecutions, rulings made in the

criminal case on evidentiary issues (under the higher evidentiary standard,
i.e., ³Beyond a Reasonable Doubt´) apply in the civil case (which has a
lower evidentiary standard (i.e., the ³Preponderance of the Evidence´).

Under the Doctrine of Collateral Estoppel, the Court¶s evidentiary

rulings in the criminal matter collaterally estop the U.S. Taxpayer defenses
on the same tax issues in the IRS Civil Tax Audit.

Failure to report foreign bank accounts (and income) under the

³FBAR rules´ risk both civil penalty and criminal prosecution. Under IRS
procedure, civil FBAR assessments and penalties are not assessed until
the criminal investigation is closed.

Gary S. Wolfe
9100 Wilshire Blvd., Suite 505 East
Beverly Hills, CA, 90212
(310) 274-3116
email: gsw@gswlaw.comÊ

Sanford M. Passman, Esq.

6303 Wilshire Boulevard, Suite 207
Los Angeles, CA 90048
(323) 852-1883