APRIL 2012 Compliance Matters

If American taxpayers abroad had any doubts about the seriousness of the U.S. government’s war on overseas tax evasion, recent high profile arrests provided indisputable proof. Gone are the days when hiding assets in tax havens like Panama can go undetected indefinitely. A former San Diego tax attorney, Christopher M. Rusch, was arrested in Miami Jan. 29 after the U.S. government forced his expulsion from Panama for hiding millions of dollars in assets through secret offshore accounts. Stephen M. Kerr and Michael Quiel, who ran separate venture capital firms, were also charged in an indictment in federal court in Phoenix, Ariz.

Prosecutors say the three were involved in an intricate shell game of moving assets from one account to another in an attempt to evade U.S. tax authorities. They were charged with an alleged conspiracy to defraud the Internal Revenue Service (IRS) by hiding millions of dollars in assets in Swiss bank accounts at UBS and other financial institutions, according to the IRS and the Justice Department. Kerr and Quiel were also charged with filing false individual tax returns for both 2007 and 2008 tax years and failing to file Reports of Foreign Bank and Financial Accounts (FBARS) for those years.

Conspiracy and FBAR charges each carry a maximum penalty of five years in prison and a $250,000 fine. Charges of filing a false return carry a maximum penalty of three years in prison and a $250,000 fine. None of the men disclosed to the IRS the existence of the offshore accounts or any income earned through the accounts for those years.

Rusch’s practice specialized in international tax including creating and maintaining offshore business structures, criminal and civil tax defense and international business planning. He used a Panamanian company he controlled to help Kerr buy a golf course in Colorado with money moved from Kerr’s Swiss accounts. Rusch also used his client trust account to transfer funds to Swiss accounts held by Kerr and Quiel, according to prosecutors, and to repatriate their funds back to the United States.

Kerr and Quiel separately owned a number of businesses, including CCN Worldwide Inc. and Legend Advisory Corporation, respectively. These venture capital firms provided financial capital to start-ups and other services to companies looking to become publicly traded through mergers and acquisitions. Kerr, who ran CCN Worldwide, Inc., had accounts worth more than $5.6 million in 2007 that he failed to report to the Internal Revenue Service, while Quiel had $2.6 million in accounts in 2007 that he also did not report to the IRS. Prosecutors said Rusch had signature authority on accounts held by the two men and handled their financial transactions. In addition, Rusch also had other undisclosed offshore accounts in the names of other UBS clients and clients at a Panamanian bank.

In the past, Rusch’s alleged operation of hiding assets using Swiss and Panamanian banks, would more likely have gone undetected. However, Switzerland, a nation that for years had extended its position of neutrality to the financial world, has come under increasing scrutiny. Global financial reporting and enforcement by the U.S. and other nations are making it impossible for the world’s tax havens to operate as before.

In February, U.S. prosecutors filed criminal charges against Switzerland’s oldest bank, Wegelin & Co. charging that it helped wealthy Americans hide more than $1.2 billion in foreign accounts. The indictment was the first time the U.S. government has charged a bank rather than individuals, and showed that the government will prosecute banks if they do not turn over names of U.S. account holders.

Stanley Foodman, CEO, Foodman CPAs & Advisors is a recognized forensic accounting and litigation support practitioner, specializing in international tax. A pioneer in the field, he has served as an expert witness and forensic accountant for some of the nation’s most complex, high-profile economic crime cases. Mr. Foodman is a former auxiliary special agent for the Florida Department of Law Enforcement with specialization in economic crime – money laundering, bank fraud, public corruption and discovery of hidden assets. He serves on the advisory board of the International Association for Asset Recovery (IAAR).

Foodman CPAs & Advisors is a full service accounting and litigation support firm, specializing in forensic accounting and international tax. One of the top 25 accounting firms in South Florida, Foodman represents clients locally, nationally and internationally.