What is Offshore Banking?

Are you considering placing an investment in an offshore tax haven? While you can protect your wealth, there is a lot of bad press around the practice—so what do you need to know?

An offshore account is a financial product offered in regions around the world. Banks and investment institutions offer accounts in their countries of origin and also in jurisdictions around the globe that are known for their low tax rate and regulatory ease. It is a legal and respectable practice if set up appropriately.

The term “offshore tax haven” refers to a location, jurisdiction, territory, or country where minimal taxes are charged on the investment. In the past, tax havens usually did not share a lot of information with governmental agencies with the aim of reducing tax liabilities in the home country of the investor.

As offshore banking has matured, some tax jurisdictions dropped their tax rates even lower, kept few records, and did no reporting. These secrecy jurisdictions have been outed as prime locations for tax evasion. As more wealth flows around the globe and drains into secrecy jurisdictions, tax fraud has become rampant, leaving countries with minimal tax coffers struggling to stabilize and serve their populations.

Another method used by Big Business has been relocating headquarters and opening foreign bank accounts in offshore tax havens to reduce or eliminate their tax burden. Good examples include Amazon’s European headquarters in Luxembourg and Apple’s headquarters in Ireland. Amazon did huge business in the EU in 2020 and paid zero corporate taxes.

Interest in offshore tax havens remains high for good reasons. Tax shelters work well in strategic plans aiming to place wealth in a protective entity in a location with a low tax rate. You may be able to avoid capital gains tax by placing wealth in a tax haven.

Your offshore options depend upon your investment aims. Offshore tax havens are not a one-size-fits-all solution—but require consideration attuned to your financial profile and current tax laws.

Reasons to Consider Offshore Banking Opportunities

Secret offshore tax havens get a lot of bad press. The Panama Papers and the Paradise Papers are investigative journalism projects based on high-level leaks of sensitive information about where the world’s elite stash their cash when they want to avoid taxes and unwanted publicity. Negative publicity about wealth held in secrecy jurisdictions to avoid taxes has ruined careers, triggered criminal tax charges, and generally exposed high-wealth individuals and companies who skirt regulations to earn or hide unreported income.

Despite the unfavorable media attention, it is important to know there are some very good reasons to place your wealth in legitimate offshore tax jurisdictions and foreign bank accounts. A destabilized economy in any country is a good reason to diversify your wealth in one or several safe harbors. Here are some reasons to consider an offshore account:

1. Asset protection: An offshore company or trust may be structured to legitimately protect the wealth of an owner from exposure to legal or tax actions.
2. Growth of wealth: Placing value in accounts that earn substantial interest is a good way to profit from your existing wealth.
3. Protection from instability: Fluctuating currencies, governmental action, and civil volatility are rife in the world today. An offshore account, depending on its location, can offer the stability that is not easily found in a home country.
4. Diversity: Wealth in various places, tools, and properties can improve tax opportunities and hedge against volatility in any one investment sphere.
5. Privacy: Structured trusts and companies offer privacy to well-known individuals who would prefer their financial dealings to remain private.

A foreign bank account or offshore company could be a smart addition to your wealth management portfolio, as long as you maintain compliance with U.S. tax regulations such as FBAR, FATCA, and other tax reports.

The Potential Pitfalls of a Foreign Bank Account

Whether you live abroad or stateside, there are advantages and disadvantages to using foreign bank accounts. Offshore accounts have advantages, including privacy, stability if your home economy is prone to destabilization, and access to funds while living abroad. While it sounds good, it is important to consider some of the complicating factors of foreign accounts.

Let’s walk through a few:

• Compliance: The IRS is interested in your money, wherever it is. You are responsible for taxes on income earned anywhere in the world. In order to track your assets and income, the U.S. enforces stringent compliance requirements on foreign bank accounts and the institutions that hold them. Enhanced compliance can make both you and your foreign bank nervous. In recent years, the long arm of the IRS has frequently reached abroad to levy penalties against institutions that do not comply with its reporting requirements.
• Reporting: Offshore financial compliance takes the form of detailed reports. Some of the reports you may need to file include the Report of Foreign Bank and Financial Accounts (FBAR) (Form FinCen 114), the Annual Return to Report Transactions with Foreign Trusts and Receipt of Certain Foreign Gifts (Form 3520), and the Annual Information Return of Foreign Trust with a U.S. Owner (Form 3520-A).
• Penalties for non-compliance: The compliance requirements around foreign accounts are intended to deter tax fraud and tax evasion. Given the length of time reporting requirements have been in place, the IRS is not likely to consider lack of knowledge as a reason for failure to file the due reports annually. The distinction between a willful and non-willful mistake is critical. Penalties for non-willful errors are less severe and less likely to lead to an IRS criminal tax investigation.

For non-willful penalties involving missing FBAR reports, as of 2024, the maximum penalty is $15,611 per violation. For willful violation of compliance rules around FBAR reporting, the penalty is 50 percent of the amount in the delinquent account or $156,107—whichever is greater. Despite the compliance hoops, a foreign bank account could help you with the service and wealth protection you are looking for.

The Pros and Cons of Offshore Tax Havens

Offshore financial centers offer options to people and governments interested in protecting and growing their wealth. Some promote tax fraud, while others do not.

Tax havens can be found all over the world. Some are offshore, like the Cayman Islands, the British Virgin Islands, or Hong Kong. Countries like Switzerland, the Netherlands, and Luxembourg are also tax havens. A couple of very popular tax havens are stateside—in Delaware and Wyoming.

A tax haven, whether an island, country, or state, can be developed in order to promote domestic and foreign investment and nurture long-term commercial growth. These tax havens may offer a lower tax rate to local and multinational corporations in order to attract their business. The tax rate offered may be regionally lower—but still competitive. The aim is to boost financial stability and improve economic security in the long term. This type of tax haven attracts and then generates economic activity.

Other tax havens, or secrecy jurisdictions, offer a very low tax rate or dispense with tax altogether. This type of non-competitive tax haven pulls clients and businesses from surrounding countries that have higher tax rates and greater compliance requirements.

Celebrities, large companies, and the wealthy are attracted to secrecy jurisdictions. In these settings, financiers set up shell companies that do no business other than to quietly and anonymously hold the assets and wealth of those wishing to hide their wealth. Investors pay little to no tax. Money moved between shell companies washes around the globe to lose association with its original source—which could be drug trafficking, criminal enterprise, or money stolen from governmental coffers.

Having a shell company is not illegal—unless the assets that it holds are. Shell companies are frequently named owners of expensive real estate, homes, yachts, or airplanes.

Problems arise when companies, countries, or individuals use shell companies to launder money or avoid taxes otherwise due in surrounding or distant countries. American big business is notorious for incorporating into low-cost European tax havens like Ireland and Luxembourg. While companies can claim they pay taxes, they are not paying taxes where they are legitimately owed.

Switzerland is well-known for its “secret” foreign bank accounts. For years, wealthy Americans avoided paying taxes on their wealth through numbered Swiss accounts. A strong push by the U.S. Treasury partly changed this longtime practice by requiring foreign banking institutions to annually file a Foreign Account Tax Compliance Act (FATCA) report on all accounts owned or held by American taxpayers. Similarly, American taxpayers with qualifying holdings in foreign banks must file a report of a Foreign Bank and Financial Account (FBAR).

The IRS compares these reports and levies significant fines and penalties on foreign institutions and U.S. taxpayers that fail to report their assets accordingly.

With greater compliance efforts, investigative journalism, and more buy-in from global tax agencies, the scope of illegal tax havens and their practices is becoming better known. Depending on your goals, there is a tax haven out there for you—be sure to speak with an experienced tax attorney to make sure you understand the big picture. 

Offshore Tax Havens: Too Old School?

Foreign bank accounts, offshore accounts, and shell companies have long been part of legitimate asset protection and tax planning strategies. In recent years, however, evolving global transparency initiatives have reshaped what those arrangements look like—and how they’re regulated.

A recent article in “World Finance” states that as more jurisdictions join international tax compliance frameworks, high-asset investors are rethinking how to manage and protect their holdings. The piece suggests that rather than discovering entirely new ways to stay private, investors are adapting and modernizing existing structures to align with today’s regulatory realities.

The Changing Face of Offshore Finance

The days of anonymous Swiss accounts and secret island trusts are largely gone. U.S. and international reporting requirements—like the FBAR and FATCA—have greatly reduced the opacity once associated with offshore accounts.

The IRS requires taxpayers with qualifying foreign accounts to file annual FBAR reports, while FATCA obligates foreign financial institutions to disclose information about U.S. account holders. Together, these rules have made international financial activity far more transparent—and introduced steep penalties for those who fail to comply.

What’s Next for Global Investors?

As the U.S. and European Union continue to tighten oversight and coordinate on global tax initiatives, investors are exploring alternative methods of maintaining flexibility, privacy, and tax efficiency. Some emerging approaches include:

• Citizenship by Investment (CBI)/Residence by Investment (RBI): CBI and RBI programs vary between nations that offer passports to citizenship through payment. According to the International Monetary Fund (IMF), the number of CBI and RBI programs fluctuates but has increased in recent years. The U.S. and the opposition party of the U.K. recently floated a “Gold Card” and a “Britannia Card,” respectively. Some of these programs offer preferential tax and residency benefits in exchange for general or specific investments in a country. Given that the U.S. collects income tax from taxpayers wherever in the world they earn it, this may be a less enticing solution than others.
• Alternative financial systems: Blockchain technologies allow investors to bypass traditional (e.g., more regulated) financial institutions. Dipping a toe (or a million or two) into cryptocurrency offers loosened capabilities for borrowing, investing, and moving money quickly around the world. Given that crypto is a current focus of the U.S. government, cryptocurrency may prove profitable in the next few years.
• The combo platter: Some high-asset investors and their business interests utilize a collection of individual and corporate investment, finance, and residential strategies to provide anonymity, robust tax avoidance, nimble access, and maximum return on investment.

For high-wealth individuals and businesses with international assets, ongoing regulatory change has made offshore planning increasingly complex. Regulatory changes can alter the viability—or legality—of certain strategies almost overnight. Regulatory developments can significantly affect both the effectiveness and legality of wealth protection strategies over time.

Use of Offshore Tax Havens Influenced by Home Countries

A study published in “Public Library of Science (PLOS) One,” examined what drives high-asset individuals to invest in offshore accounts. The research was conducted by a team from Dartmouth College and analyzes factors that spur financial flight to offshore financial havens of varying opacity. The researchers relied on the Offshore leaks dataset, a publicly available resource related to the Panama Papers and the Paradise Papers, from 2016 and 2017, respectively. These document troves were the product of anonymous individuals who leaked data to the ICIJ.

Tax Evasion … or Tax Avoidance?

In scrutinizing the dataset, the study authors found that all the individuals associated with the document leaks had two things in common. As the study noted, “They are extremely wealthy, and they have something to hide,” including most of the world’s approximately 3,000 billionaires. The aim was to discern some of the strategies and influences that may drive wealthy individuals in 65 countries to hold assets in foreign bank accounts and opaque secrecy jurisdictions around the world.

Findings of the study include:

• A main finding of the research is that civil justice in the home country of a wealthy individual is one primary indicator of whether and what kind of concealment strategies and blacklisted jurisdictions may be used to hide or grow wealth. The study authors define lack of civil justice as a lack of general accessibility to legal remedies. The authors note, “This inaccessibility may be due to problems of cost, political bias, discrimination, unreasonable delays or other factors. In such conditions, elites seem most concerned with disguising their connections to their own wealth, perhaps due to fears of confiscation.”
• The paper also suggests that an increase in corruption in the home countries of the wealthy triggers a diversification of money and assets into legitimate offshore tax havens as well as secrecy jurisdictions. The study explained that the core reason for diversification is fear of being identified with significant wealth, so “They spread their wealth over numerous offshore centers so that an incursion on one asset does not affect the others. This confetti-like scattering is a common secrecy strategy for terrorist cells and financial fraudsters.”
• Not surprisingly, the research suggests that when legal stability is regained in home countries, the ultra-rich may turn to blacklisted secrecy jurisdictions or pursue greater diversification. Plainly stated, the authors wrote, “As a society becomes better at ensuring the security of persons and property, the more its wealthiest members turn to the offshore financial system. This is consistent with economic research showing that elites from Scandinavia and elsewhere in northern Europe make surprisingly common use of offshore accounts to escape high tax rates and ruthlessly efficient regulatory enforcement.”

For individuals exploring offshore diversification, opacity and financial security, balancing strategic objectives with regulatory compliance remains a central consideration.

Key Methods Billionaires Use with Offshore Tax Havens

It is no secret that the ultra-wealthy generally make use of tax-avoidance strategies. Paying less tax means more wealth accumulated. Recent information leaked from offshore tax havens reveals some of the ways the wealthy keep their money in the family and away from the U.S. Treasury.

Despite recent interest rate hikes and lost stock value, the ultra-wealthy remain in good condition in the U.S. A report from Inequality.org, an initiative of the Institute for Policy Study, suggests billionaires in the U.S. have seen a 50 percent increase in asset value since March 2020, the outset of the pandemic. While some of the very wealthy are investigated for tax fraud, many are using perfectly legal methods to protect their wealth.

The media famously reported that two of the wealthiest people in the world occasionally pay no federal income taxes in the U.S. Jeff Bezos paid no federal income tax in 2007 and 2011. Elon Musk paid no federal income taxes in 2018. Key methods by which the wealthy maintain their wealth include:

• Income differences: The income tax returns of the wealthy are considerably different from those of middle-class America. Capital gains, interest, and investment income can be creatively manipulated to reduce tax liability. Whereas most Americans pay taxes on their wages, money earned from investments can be routed in a way to mitigate or eliminate taxes on that money.
• Holding assets: The wealth of many individuals is tied to stock or real property. Instead of selling assets for income, high-asset individuals may take out low-interest loans using their investment portfolio as collateral. As loans do not trigger a tax liability, the wealthy can continue to accrue wealth without paying significant taxes.
• Estate planning: Portfolio management and estate planning are critical to reducing or eliminating taxes, often through trusts and gifting strategies. These trusts allow the wealthy to maintain and build multi-generational wealth to avoid estate taxes.

A bill known as the “Billionaire Minimum Income Tax Act” was introduced in Congress in the summer of 2022. The bill would require households with over $100 million in worth to pay a minimum 20 percent tax on their full income. Upon introduction, Congressman Steve Cohen remarked, “It is time that billionaires chip in like everyone else to pay at least a base level of taxes. There is tremendous public support for this proposal, which will close loopholes in our tax code and ensure billionaires pay a fairer share. It's time to make the tax system fair."

While unlikely to be signed into law, the bill does highlight growing restlessness in the U.S. as the rich get richer—and the less rich pay tax.

Opening a Foreign Bank Account—How Does That Happen?

For a number of reasons, you may be interested in opening a foreign financial account. Stateside, it is pretty easy to open a bank account but offshore, it pays to know a little bit about the system.

We talked earlier about some of the potential issues involved with opening a foreign account. Overall, much of the difficulty around offshore accounts has to do with compliance—reports that must be filed with the IRS and fines that will be paid if they are not.

As you think about opening an account, remember those same issues pop up on the service side. Many foreign financial institutions no longer spend big marketing dollars trying to attract U.S. business because of the compliance system needed to service the account. With that in mind, consider these points about opening a foreign financial account:

• You do not have to have high wealth to open an offshore account. If you travel frequently, spend part of the year in another country, or find it worthwhile to protect and grow your assets in an offshore tax jurisdiction, it is perfectly legal to open an account abroad. When planning to open an offshore account, take the time to understand how you will open the account. You may need to visit or contact a special bank branch or unit for U.S. persons. You may need to make an appointment with a particular representative who is familiar with the process.
• As with any bank account, you will need to have your personal documents available. These include your passport, driver's license, and documents that prove your residency. While you may be able to use notarized copies of your documents, certification with an apostille stamp may be required as well. To discourage tax fraud, other papers may be needed.

• Because of stringent compliance issues, you may be asked about the nature of the business you intend to transact with your account and the source of the monies you intend to deposit. Before you protest, remember that those compliance measures are directly aimed at deterring money laundering. Investigate exactly what is needed by the banking entity with which you would like to do business.
• When researching a bank to hold your funds, learn about fees and requirements for U.S. citizens. American citizens may have to pay a fee to open the account, higher service fees, and higher deposit requirements. With a larger institution, you may qualify to open the account stateside while having access to your account with an online app. If you are already residing abroad, you may be able to open an account using your current residence and foreign identity card. You may also be able to open an Expat account online, which gives you flexibility and access to your money while living abroad.

Banking abroad is a great option for some people. If you are living abroad or planning on it, remember that you will need to report all of your income earned—regardless of your location—to the IRS each year.

Thinking of Transferring Assets Offshore? Consider These Points

A well-structured offshore trust can protect assets, grow wealth, and avoid unnecessary taxes. If you are considering an offshore tax haven, it is important to understand the issues involved with moving assets offshore. There are several reasons to consider setting up an offshore trust. Offshore trusts are an important financial tool for those looking to optimize—and protect—their wealth. Offshore trusts are not just for the ultra-wealthy, but for those looking for smart options for their assets and for wealth they hope to build.

Why Consider an Offshore Trust?

Basic thoughts to consider:

• Market volatility: Foreign bank accounts are helpful for harboring wealth while also protecting against instability. A well-constructed offshore trust can protect against currency fluctuations, economic swings, and bearish markets.

• Privacy and growth opportunities: Offshore accounts can provide ownership anonymity, good growth through interest, and correspondingly low tax rates. Given a foreign jurisdiction and a well-constructed trust, the arrangement can also provide shielding for estate planning purposes and protection from creditors and legal actions.

• Diverse portfolio: Assets strategically placed in differing financial tools and locations, like an offshore trust, can buffer against economic strife in different regions of the world. An offshore account can also be valuable if you travel frequently or live elsewhere in the world for part of the year.

Potential Downsides of Offshore Accounts

Offshore tax accounts are a helpful financial tool when used as intended—but they have a bad reputation due to off-label uses for money laundering and tax evasion.

Even when assets are held in trust in a foreign jurisdiction, reporting obligations still apply in the United States through an FBAR if they reach $10,000 at any point during the year. The same applies if you are an expat. If your aggregate accounts hold assets valued at $50,000, they must be reported to comply with FATCA.

Given regulatory requirements, offshore and foreign bank accounts can be more complex and expensive to establish and maintain than domestic accounts. As well, for high-wealth individuals, exposure through rolling document leaks can be geopolitically embarrassing and costly in other ways.

When offshore trusts are established, jurisdictional selection, trustee arrangements and documentation requirements become central considerations. These structural elements play a significant role in supporting lawful tax avoidance objectives while avoiding conduct that could be characterized as offshore tax evasion.

Be Aware of the IRS International Tax and Financial Crimes Group

IRS: CI has a unit that responds to specialized areas of tax crime. The International Tax and Financial Crime (ITFC) group focuses on fraudulent activity involving offshore tax holdings, financial institutions, and foreign bank accounts.

The IRS formed the ITFC in 2017. As part of the field office in Washington, DC, the unit is composed of special agents from across the country with expertise in international tax intrigue and tax evasion. Among others, the types of projects in which these agents engage include:

• Reducing tax evasion through the pursuit of foreign financial institutions (FFIs): In 2010, Congress enacted the Foreign Account Tax Compliance Act (FATCA), a measure that requires foreign financial institutions to report holdings of U.S. taxpayers to the IRS. The Swiss Bank Program was initiated in 2013 through the work of the IRS and the Department of Justice (DOJ). At the time, and still today, Swiss banking interests sometimes offer services to U.S. taxpayers that help them avoid their tax liability. Typically, the IRS enters into non-prosecution agreements in exchange for compliance with U.S. regulations. The agreement requires each institution to completely disclose cross-border transactions and provide detailed information on accounts owned by or associated with U.S. taxpayers. The strident efforts of the IRS in this regard have tightened services provided abroad to U.S. taxpayers, due to the heightened requirements on banks to ensure all information is disclosed to the U.S. Treasury.

• Offshore tax investigations: According to the IRS, the ITFC also “works to identify and investigate enablers, financial institutions, third-party asset managers, promoters, referral agents, and expatriated U.S. citizens, who utilized international jurisdictions to effect tax fraud.” The ITFC engages in partnerships with the Department of Justice and the United States Attorney’s offices to investigate offshore tax fraud, tax evasion, and money laundering.

The ITFC also works with the Joint Chiefs of Global Tax Enforcement (G5), a joint effort between the U.S., Australia, the U.K., and the Netherlands. The group was formed to create a larger information and enforcement network to battle money laundering. Following a series of document leaks several years ago that revealed the real scope of illicit money being funneled around the world, the G5, along with the ITFC and other partnering agencies, agreed to collaborate to battle global tax crime.

Staying Compliant With Offshore Tax Investments

It begins with compliance. Compliance is important for realizing the full benefits of offshore investments. Let’s take a look at some relatively easy ways to stay on the right side of the law when considering or maintaining foreign bank accounts or holdings.

Cross-border and international investment strategies can help you save and grow your wealth. There are a number of reasons to consider offshore accounts, including preferential tax rates, privacy concerns, the desire to shelter assets in a relatively stable environment, or interest in international investments operating with a different form of currency.

It is not difficult to go astray when holding assets in a foreign country. The potential for tax crime, evasion, and tax fraud that occurs in many offshore secrecy jurisdictions is well known. New investors may not take a hard look at compliance before setting up accounts—or seasoned investors may just wish to look the other way.

Either way, the regulatory net around foreign investing is tighter than it used to be, and it is a good idea to keep compliance in mind. Here are some quick tips:

• Report of Foreign Bank and Financial Accounts (FBAR): Annual FBAR reporting is critical to maintaining compliance with the IRS. Filing FinCen Form 114 is required for U.S. persons with a financial or signatory interest in foreign funds that exceed (in the aggregate) $10,000 at any time during the reporting year. An FBAR report is due annually on April 15, Tax Day. That said, an automatic extension is applied to allow submission of the report by October 15 without application or penalty.
• The Foreign Account Tax Compliance Act (FATCA): It is important for offshore investors to understand that their FBAR report is not the singular reporting tool reviewed by the IRS. FATCA requires foreign financial institutions to report holdings of U.S. taxpayers annually. In order to avoid a civil audit or other criminal tax investigation, U.S. taxpayers with a higher aggregate investment sum must report assets on Form 8938, for “Specified Foreign Financial Assets.”
• Additional reporting requirements: Depending upon your investment portfolio, the IRS may require the submission of additional forms. Ownership in a foreign interest (Form 5471) and receipt of a gift from a foreign trust (Form 3520) are just two special instances for further scrutiny when setting up your compliance protocol. 

Your Annual FBAR Report

Filing your Foreign Bank and Financial Accounts (FBAR) is an annual requirement. Since 1970, the Bank Secrecy Act requires that certain U.S. persons must file an FBAR report. Your FBAR report is due in April, but is not bundled with your federal income tax return. While your tax return will report income earned from your foreign bank accounts, the FBAR provides identifying information on assets in which you have an interest that reside outside the country.

If you are new to foreign holdings, you may not have filed an FBAR in the past. An FBAR is required in the following circumstances:

• A U.S. person who has signature authority, financial interest, or ownership over one or more foreign accounts may need to file an FBAR.
• An FBAR is required if the value of any one or all of your offshore tax or other accounts exceeds $10,000 at any time of the year. It is a common mistake to assume the value threshold is only considered at the conclusion of the calendar year. As well, this means if the aggregate value of three smaller accounts exceeds $10,000, an FBAR is required.
• Jointly owned foreign assets that meet the threshold requirement must be reported by each party with signature authority or ownership of financial interest.  
• In most cases, spouses are not required to file a separate FBAR.

On your FBAR, you will need to calculate and report the greatest value of monies or other assets held by foreign entities during the year in U.S. dollars. 

Filing an FBAR is an easy way to stay in compliance and help yourself steer clear of an IRS civil tax audit. Although filed at approximately the same time as an annual tax return, the FBAR is filed through the Financial Crimes Enforcement Network’s (FinCen) website.

Plus, it is a good idea to maintain compliance with FBAR reporting. Forgiveness programs once offered by the Internal Revenue Service have lapsed. Penalties for non-filing can be severe and blur the difference between willful and non-willful filing. As of 2024, the current maximum penalty for non-willful (accidental) non-filing of an FBAR is $15,611 per event. For a purposeful avoidance of filing or willful non-filing, that penalty jumps to $156,107 or 50 percent of the account value, whichever is greater. Given that the requirement for FBAR reporting is well-established, proving a non-willful filing can be a difficult feat to accomplish.

Living Abroad? Do Not Forget Your FBAR

While living abroad may be an adventure for U.S. expatriates, it does not relieve the annual filing of a tax return or the filing of a FBAR. Stateside, U.S. persons, trusts, and other entities who hold an interest in a foreign bank account, offshore tax haven, or other financial account must file an FBAR. Although some expats are hard-pressed to believe it, they are required to file the document as well. Unlike most of the rest of the world, the U.S. Treasury expects taxpayers to check in and pay their due—wherever in the world they may happen to live.  

What You Need to Know About an FBAR

FBAR filings are due from individuals who have signature authority over an account (or accounts) in a foreign country. An FBAR is required from those whose account (or accounts) exceed $10,000 at any time during the calendar year. While your FBAR is due at the same time each year as your tax return on April 15, the FBAR is not submitted with your tax return. Instead, it is electronically filed through the website of the Financial Crimes Enforcement Network (FinCEN). While filing on time is always the aim, the IRS grants an automatic extension for filing by October 15—no extension application is required. Given the lenient filing window, the IRS expects those with the wherewithal to maintain foreign accounts to file their report on time. Trouble begins if you fail to file an FBAR in any given year and do not otherwise report and pay taxes due on your account.

Remember Filing Details and Deadlines

Careful attention to filing details and deadlines is essential to avoid FBAR penalties, which can be severe. Failure to file, or filing a fraudulent FBAR, can lead to monetary penalties and civil and even criminal charges. According to the IRS, civil monetary FBAR penalties have varying upper limits and are subject to annual inflation adjustment each year.

There are also exceptions to who is required to file FBARs. For example, some foreign accounts maintained through U.S. military banking facilities or held within certain retirement plans may not require reporting. However, these exceptions are nuanced and should be carefully reviewed in the context of an individual’s specific financial situation.

Understand the Procedure for Filing a Late FBAR

If you failed to file in the last year, the Internal Revenue Service has a process for submitting a delinquent FBAR.

Your FBAR is due at the same time as your annual tax return—on April 15. The FBAR is not filed with your income tax return but through the FinCen website. If you have not filed yet this year, technically, your FBAR is not delinquent. The IRS grants an automatic extension to October 15 to file your report. You do not need to request an extension. Speak with your tax professional to ensure your report is submitted by October 15 and you are set.

If you did not file your FBAR for a prior year, it is important to move quickly to submit a delinquent report to avoid further action by the IRS and potential penalties. The IRS offers instructions for individuals to file their return. It is important to note that this process cannot be used by those under the following circumstances:

• Taxpayers who would be eligible to use the IRS Criminal Investigation Voluntary Disclosure Practice
• Those who are already the subject of a civil examination or an IRS criminal tax investigation
• U.S. persons who have already been contacted by the IRS for a delinquent FBAR filing

If you failed to file a prior FBAR, but accurately identified, reported, and paid tax owing on your foreign holdings for the delinquent year, the IRS will not levy a penalty. The overdue FBAR should be accompanied by a statement describing why the FBAR was late, and you will need to select a reason on the filing cover sheet prior to submitting the FBAR electronically through FinCen.

The filing of a delinquent FBAR does not automatically place you in line for an audit. However, your return could still be selected for audit through the usual IRS selection process.

FBARs: The Importance of Understanding Nonwillful Conduct

The IRS has a longstanding interest in the pursuit and prosecution of those who commit tax fraud through offshore tax dodges. The National Taxpayer Advocate recently reviewed how the IRS and the courts consider penalties for failure to file appropriate FBARs.

Since 1970, FBAR filings have been required of U.S. persons who have offshore financial interests or foreign bank accounts that meet a threshold for reporting to the IRS. Initially, few investors understood the Bank Secrecy Act and its attendant FBAR requirement. Today, the IRS assumes those who have offshore holdings are legally sophisticated and able to understand their own regulatory reporting requirements.

Yet—it is not always the case that a taxpayer with foreign holdings understands the requirement—or the penalties involved in failing to file an FBAR. The specifics about who does—and who does not—need to file an FBAR can get detailed. Basically, a U.S. person with authority, ownership, or an interest in a financial account outside of the U.S., and whose holdings exceeded $10,000 at any time of the year, is required to file an FBAR.

A review from the National Taxpayer Advocate (NTA) discusses the reporting requirement as well as the potential for the IRS to step over its boundaries in assessing penalties to those who do not file a required FBAR. The distinction made by the NTA is drawn between taxpayers who are willfully abusing the system and evading taxes, and those who have unwittingly and unwillingly made a mistake.

In a recent case considered by the U.S. Supreme Court (SCOTUS), the IRS pursued penalties against a taxpayer, Alexandru Bittner, who had not known about the FBAR reporting requirement until he returned to the U.S. from Romania. At that time, Mr. Bittner filed five FBAR reports for 2007 through 2011. Overall, Mr. Bittner had 272 different accounts, which he reported on in different years. While the IRS did not claim that Mr. Bittner’s belated accounting for his foreign accounts was willful—the IRS still sought to attach a $10,000 penalty to each account—not to each of the five reports. By doing so, the IRS expected a $2.72 million payday. Instead, SCOTUS decided the penalty could be assessed per report—not per account.

In this case, the IRS sought full penalties, as defined by the IRS, to punish Mr. Bittner, who all agreed did not willfully avoid his duty to report. SCOTUS held differently and pushed back against the IRS.

What is the FATCA Report?

While both FATCA and FBAR arise due to the transfer or holding of assets abroad by U.S. taxpayers, the similarity ends there. The FATCA report is not the responsibility of the U.S. taxpayer, but of the foreign institution that holds the financial account. The IRS program requires financial entities in foreign countries to provide information to the IRS on accounts owned by persons with ties to the U.S. Among other factors, an association with the U.S. is triggered when funds are transferred to an American account, a U.S. resident owns, has signature authority, or power of attorney on a foreign account, or if the owner has U.S. contact information or was born in the U.S.

Both FATCA and the FBAR try to plug the leaks when money from the U.S. flows to foreign financial institutions and back without taxation. By comparing reports, the IRS can identify when there is a failure to file on either the part of the taxpayer or the foreign financial institution—potentially triggering an IRS audit and, if warranted, monetary penalties. In recent years, the IRS has maintained robust enforcement against U.S. persons who do not file FBARs and institutions that fail to file FATCA reports. In either case, the penalties and settlements are high.

Not Offshore Tax Compliant? Consider IRS Streamlined Procedures

Non-compliance happens. Whether as an accidental American or a U.S. taxpayer with surprise foreign holdings, the IRS offers streamlined procedures to allow taxpayers to become current on filings involving foreign bank accounts—and take advantage of terms for resolving penalties and taxes owed as a result of non-compliance. Essentially, the procedures are a channel toward compliance that can help avoid IRS prosecution for failure to file your FBAR.

While streamlined compliance procedures can move a taxpayer toward compliance, eligibility for the program is limited. Here are some of the main criteria:

1. Attest to non-willful tax avoidance: 

The IRS streamlined process applies to non-U.S. residents (accidental Americans) and U.S. residents. A prime eligibility requirement is that the applicant certifies that the behavior that allowed the lapse in compliance was not willful. Before you pass that one off, carefully consider the factors that led to your failure to file your FBAR.

Perhaps you live abroad and only became aware of the requirements for U.S. tax reports on foreign holdings. It makes sense that you would look for a channel to become compliant. If, however, you certify that your delinquency was non-willful, and the IRS takes a closer look into your accounts that say otherwise, you could be prosecuted by the IRS. Think about the question before you attest to your answer.

The IRS considers non-willful conduct to include “negligence, inadvertence, or mistake or conduct that is the result of a good faith misunderstanding of the requirements of the law.”

The IRS also offers a Criminal Investigation Voluntary Disclosure Practice for taxpayers who are concerned, or already know, that their non-compliance in filing an FBAR was due to willful conduct. If considering this option, speak with an experienced criminal tax defense attorney about your situation before moving forward.

2. Under investigation?

If you are already the subject of an IRS criminal tax investigation or a civil tax audit for failure to disclose foreign assets, you are not eligible to use the streamlined reporting procedures.

3. Taxpayer ID needed: 

To use the streamlined procedures, a taxpayer identification number is needed. For most individuals, this would take the form of a Social Security number. The streamlined process is not available to those without a Social Security number or individual taxpayer identification number (ITIN). That said, a taxpayer may be eligible for the streamlined processes if their submission is accompanied by a completed application for an ITIN.

The penalties for failure to file an FBAR are serious. If you know you are non-compliant, talk to your tax lawyer about whether one of the IRS streamlined compliance processes would be helpful in your situation.

When Offshore Finance Turns Risky: Understanding AML and CFT Regulations

Offshore tax havens, foreign bank accounts, and shell companies are legitimate tools often used for wealth management, asset protection, and tax planning. For many, these strategies provide essential support in navigating complex global financial systems. However, the same structures that serve to protect assets can also be misused. When leveraged illegally, they can facilitate money laundering, fund terrorism, and hide illicit gains, casting a shadow over global financial transparency.

To fully grasp the global efforts to combat money laundering, it's important to understand the key components and mechanisms involved.

• What is money laundering? Money laundering, or money washing, is the process by which illegally obtained gains or assets are moved, relabeled, and shifted to hide the crime of origin by which they were acquired. The Financial Action Task Force (FATF) defines categories of crimes considered money laundering, such as tax fraud, bribery, drug trafficking, and other tax crimes. The FATF is an organization founded in 1989 by the Group of Seven (G7) to support legitimate financial interests and act against tax fraud and crime. The abbreviation AML is often used and refers to anti-money laundering efforts.
• What constitutes Terrorism Financing (TF)? As the name suggests, TF is an activity that works to fund domestic or terrorist activity. TF is the funding of these illicit organizations, while money laundering is the process by which that funding often occurs. CFT refers to combating the financing of terrorism. Efforts taken against money laundering to finance terrorist organizations or cells are also critical to comply with sanctions and actions to prohibit the financing and proliferation of weapons of mass destruction (WMD).

The FATF has a global responsibility for developing regulatory recommendations regarding AML and CFT efforts. FATF coordinates with the United Nations, the International Monetary Fund, and the World Bank.

The legal use of foreign bank accounts and offshore tax structures can be important to nurturing, protecting, and growing wealth. Problems arise when the infrastructure of offshore finance is used illegally. In addition to TF, illegal diversion of taxable assets leads to economic malaise and instability, weakened governance and financial institutions, and an impact on global financial flows.

Indicted: A Case Study in Hidden Offshore Tax Intrigue and Tax Evasion

A Florida man was arrested in September 2021 on criminal tax charges that stretched around the world.

Born in the States, Mark Gyetvay is a CPA and the longtime CFO of Novatek—the largest, non-state-owned gas producer in Russia. His tenure with Novatek began in 2003, after he had worked as a CPA in the U.S. and Russia for a number of years. To skirt U.S. sanctions imposed on Russia in 2014, Russian President Putin gave Russian citizenship to Mr. Gyetvay.

As part of his compensation package with Novatek, Mr. Gyetvay earned stock-based benefits. According to the Department of Justice (DOJ), Mr. Gyetvay eventually opened two Swiss bank accounts to hold these assets. The DOJ states that the value of the offshore tax accounts eventually stood at around $93 million.

Between 2005 and 2016, the DOJ alleges Mr. Gyetvay took several steps to hide and dissuade authorities about his ownership of the foreign bank accounts. At one point, he named his wife at the time, a Russian citizen, as the owner of the accounts. The DOJ notes Mr. Gyetvay is himself a CPA, making it difficult to argue ignorance, rather than indifference, of regulations surrounding the reporting of many millions in assets.

During the same period, Mr. Gyetvay failed to file U.S. income tax returns, and when he did file, he filed false tax returns. Although the penalties for failure to file FBAR reports are high, Mr. Gyetvay also neglected to submit those reports while at the same time filing a false compliance report through the Streamlined Filing Compliance process with the IRS. During that process, Mr. Gyetvay attested that his failure to file tax returns and FBAR reports was non-willful. The IRS gets very testy with customers that it knows are willfully engaged in tax fraud and purposefully ignoring FBAR reports—and it imposes draconian penalties to prove it.

The Russian News Agency, TASS, reported Mr. Gyetvay, who holds both U.S. and Russian passports, was released on $80 million bail. Kremlin spokesperson Dmitry Peskov has stated Moscow is not likely to interfere in the U.S. matter as Mr. Gyetvay holds citizenship in both countries.

Gyetvay said, “…I was indicted for baseless tax charges that I already settled through a voluntary program, and pleaded not guilty. I will vigorously fight these charges and will continue to discuss gas topics as normal.” Let’s hope the charges are baseless; if unsuccessful in fighting the charges, Mr. Gyetvay could be looking at 20 years in prison.

Offshore Tax Evasion and High Asset Hijinx in Puerto Rico

Act 60 is a framework to attract investment and business to Puerto Rico by providing lucrative tax breaks. The initiative has gained a lot of attention, including scrutiny from regulators and policymakers.

The United States has taken steps to support economic development in Puerto Rico, a U.S. territory. The Puerto Rico Incentives Code initiated by Puerto Rico in 2019, offers tax breaks to investors who wish to relocate to the island. Known as “Act 60,” the program is a combination of earlier programs that provide a corporate tax rate of four percent. Act 60 also exempts tax on capital gains for individuals who have correctly established residency on the island.

Where Compliance Risks Emerged

Puerto Rico occupies a unique position within the U.S. tax system. While it is a U.S. territory, certain banking and investment activities connected to Puerto Rico are not subject to the same FATCA reporting framework that applies to foreign financial institutions. The special nature of Puerto Rico made it attractive to nomadic crypto entrepreneurs who moved to the island following the devastation of Hurricane Maria. Puerto Rico is often called the “crypto capital” for the investors who have purchased property there, as well as for ongoing crypto tourism. But how did investor perks turn into tax crime?

Investigations and Enforcement Actions

These favorable tax terms gave rise to questions about regulatory abuse by investors in Puerto Rico. In recent congressional inquiries, the Senate Finance Committee sent a letter to Dan Morehead, who founded the crypto firm Pantera Capital. The gist of the query is whether U.S. investors are taking larger tax breaks than intended by Act 60.

In a notable enforcement action, Suresh Gajwani, a business owner, pleaded guilty to making a fraudulent statement to the IRS.  Behind the plea was Gajwani’s manipulation of Act 60 to avoid paying $7 million in capital gains taxes. An IRS criminal investigation reportedly uncovered the false paperwork submitted by Gajwani. He was later sentenced to probation, given his poor health, and agreed to pay $15.3 million to the IRS in fines, penalties, and owed taxes.

Further congressional scrutiny has included additional inquiries directed at digital asset firms such as Pantera Capital. Ron Wyden, the ranking member of the Finance Committee, described a sale by Pantera Capital that created more than $1 billion in capital gains, which was handled as income from Puerto Rico and exempt from U.S. taxes. Wyden included a list of information sought from Morehead by the Finance Committee in his letter. The Senate Finance Committee announced investigations into these matters, reflecting broader concerns about the application of Puerto Rico's tax incentives.

Regulatory Scrutiny and Compliance Risk

The push to investigate crypto-related tax activity may evolve alongside shifting regulatory priorities and enforcement trends. It seems likely that the IRS's interest in pursuing crypto investors with ties to Puerto Rico may become more targeted or selective over time. That uncertainty, however, does not eliminate compliance risk. As recent enforcement actions suggest, the application of Puerto Rico’s tax incentives continues to draw scrutiny where eligibility, residency, or reporting requirements are not met.

The Largest Leak of Offshore Tax Crimes: The Pandora Papers

In 2021, a document trove containing approximately 11.9 million records was leaked to the International Consortium of Investigative Journalists (ICIJ). Dubbed the “Pandora Papers,” the disclosure of the documents continues to disrupt the opaque world of offshore finance. 

Following on the heels of the Panama Papers document leak in 2016 and the Paradise Papers in 2017, the Pandora Papers represented the largest leak of offshore tax and financial documents of the three. The 2.94 terabyte leak from an unknown source includes documents from 14 businesses that service wealthy individuals, entities, and governments with their offshore holdings. The documents come from law firms, financial managers, and corporate service agencies and literally contain a wealth of information about offshore economics and how the rich get richer.

Since these document leaks, investigations have been ongoing into businesses, trusts, and persons who stash their cash in low- or no-interest tax jurisdictions at the expense of the tax rolls where the owner of the asset lives, or where the asset is located.

Recently, the German state of Hesse appears to have purchased the entire set of Pandora Papers from an unknown source. The ICIJ does not sell or reveal the sources of its document sets. The Hessian Finance Minister, Michael Boddenberg, notes that early review of the document set reveals there are “cases worthy of examination.”

Although the price paid by Hesse has not been revealed, the intention of the jurisdiction seems clear. Boddenberg reflected, “If there are indications of tax crime, we will follow them up with all the means available to us. We have already informed all federal states and the federal government about the purchase of the Pandora Papers. Investigators from all over Germany and other EU countries can now contact [us] with inquiries.”

The Pandora Papers are purported to cover five decades of financial subterfuge and name more than 29,000 owners of offshore tax holdings. These owners include celebrities, athletes, royals, politicians, and the uber-wealthy. In the purchase of the data set, Hesse has positioned itself to collect a tidy sum from those who are named within and are found to have evaded taxes. Similarly, the British Revenue and Customs agency has delivered notices to those named in the Pandora Papers to settle up or else.

It seems likely that the wealthy wish to quietly remain that way. Headlines may be reserved for those who refuse to pay their tax debt and will probably be publicly exposed for their practices. We will have to wait and see.

Panama Papers Fallout: Charges Against a Mossack Fonesca Attorney

In the years following the document leak known as the Panama Papers, fortunes have been lost and earned again, careers ruined, and investigations launched. A longtime attorney with Mossack Fonseca, the law firm at the center of the scandal, now faces criminal proceedings in Germany related to alleged offshore tax misconduct.

The Panama Papers were among the first large-scale document leaks. Made public by the ICIJ, the 2.6-terabyte data leak to a German newspaper resulted in the collection of more than $1 billion in back taxes from Mossack Fonseca clients involved in questionable offshore tax havens. 

The investigation exposed financial dealings involving wealthy and well‑connected individuals, with estimates that the firm arranged hundreds of thousands of trusts, foundations, shell companies, and foreign bank accounts for clients worldwide. The disclosures also revealed instances of tax evasion, tax fraud, and efforts to circumvent international sanctions.

German Charges Related to Offshore Structures

A senior attorney formerly affiliated with Mossack Fonesca has been charged by German prosecutors with “forming criminal organizations and aiding and abetting tax evasion in two cases.” Christoph Zollinger joined Mossack Fonesca in 1997 and left several years before the 2016 document leak. Despite his departure, files contained in the leaked documents identified him as a central participant in the creation of offshore entities for clients. This included work connected to Syrian businessman Rami Makhlouf, who was under U.S. sanctions.

After leaving the firm, Zollinger moved to Switzerland to write an action novel under the pen name Christoph Martin. By 2020, German prosecutors had issued an international warrant for his arrest. The warrant was later withdrawn in 2024.

Mossack Fonesca closed in 2018 amid mounting pressure and scrutiny. In June of 2025, a court in Panama acquitted 28 individuals charged with money laundering in connection with the firm, including founders Jurgen Mossack and Ramon Fonesca. Fonesca passed away in May 2024. The court dismissed the case after finding the underlying data had not been obtained through proper legal channels.

Despite those developments, the broader fallout from the Panama Papers continues. Zollinger is scheduled to stand trial in Cologne in March, underscoring how long‑running offshore investigations can remain active years after initial disclosures.

The Concern About Offshore Compliance

Offshore tax havens can provide legitimate opportunities to manage and grow wealth while maintaining a degree of anonymity. For some Mossack Fonesca clients, however, decisions crossed the line into noncompliance.

Offshore Tax Fraud Leads to Guilty Plea for Celebrity Tax Advisor

Following a full week of trial, a Dutch tax advisor pled guilty to one count of aiding the filing of a false income tax return for celebrity clients who were U.S. taxpayers, but earned income around the world.

According to the Department of Justice (DOJ), Frank Butselaar worked with a cadre of well-known clients, including DJs Tijs Verwest, Nick van de Wall, and several models, including Patricia van der Vlie and Daria Strokous.

In working with clients with U.S. tax obligations, Mr. Butselaar constructed a network of offshore tax entities for his clients. Although the offshore tax accounts were controlled by these clients, they were held in trusts with phony beneficiaries to avoid reporting income from the offshore tax entities to the Internal Revenue Service. Essentially, it is a game we have discussed before—shell companies and foreign bank accounts used to shelter taxable income. Under the scheme devised by Mr. Butselaar, the shell companies ostensibly belonged to family members who were not U.S. taxpayers—thereby avoiding the need to report to the IRS.

For U.S. taxpayers around the world, ownership interest in a foreign bank or offshore account(s) that exceed $10,000 at any time during a calendar year triggers the need for a Report of Foreign Bank and Financial Account (FBAR). The report alerts the IRS to offshore taxable assets. Not surprisingly, people with significant offshore tax holdings sometimes fail to file those reports, which often leads to expensive compliance penalties.

In this case, the DOJ documented that Mr. Butselaar was informed by at least six different tax professionals that the holdings of his clients were taxable and reportable under U.S. tax regulations. Regardless, Mr. Butselaar apparently advised his clients otherwise for years and helped to conceal more than $100 million in taxable income from the IRS's view.

And the result?  Following seven days of trial, Mr. Butselaar pleaded guilty to the charge against him. The strategy of mounting an expensive defense at trial, which culminates in a guilty plea, is interesting. The charge to which Mr. Butselaar pled is punishable by a maximum sentence of three years in prison.

John Doe Summons in Offshore Tax Investigation of Trident Trust

A federal court judge authorized a summons from the IRS requiring businesses associated with Trident Trust Group to produce information regarding foreign bank accounts and offshore tax havens used by U.S. taxpayers.

The action taken by the IRS recalls the Pandora Papers document leak, which exposed more than two terabytes of documents from financial entities that serve wealthy individuals and businesses with their offshore tax strategies, which fell into the hands of journalists. According to the ICIJ, millions of records belonging to Trident Trust were leaked with the Pandora Papers. Documents from the Trident Trust trove were also linked to Russian oligarch Suleiman Kerimov, among many other high-placed, high-asset persons.

The Use of Shell Companies

In a statement, the U.S. Attorney General’s office for the Southern District of New York notes that employees of Trident Trust Group are named as the officers and directors of “thousands of Panamanian companies.” The use of shell companies in offshore tax jurisdictions is commonplace among firms that provide offshore tax services, primarily because they help shield the identity of asset owners.

As noted by former IRS Commissioner Danny Werfel, “U.S. taxpayers and their facilitators who hide offshore income-generating activities and assets from the U.S. government are on notice that the IRS continues to prioritize combatting offshore abusive activities. These records will assist the IRS and its partners in finding those taxpayers, ensuring their compliance with U.S. tax laws and delivering on our mission of a fair tax system.”

What is a John Doe Summons?

A John Doe summons is a particular type of summons used by the IRS when it has evidence to provide to the court to support their belief that an individual or class of individuals has breached a provision of the Internal Revenue Code (IRC).

The court order in this matter authorizes the IRS to seek information from Trident Trust affiliate Nevis Services and twelve other entities, including the Hongkong and Shanghai Banking Corporation (HSBC) Bank, the Federal Reserve, The Bank of New York Mellon Corporation (BNY Mellon), Deutsche Bank, FedEx, and others. The use of the summons does not imply that any of the organizations named are suspected of tax crimes, but is aimed at individuals who may have engaged in tax evasion whose identities are currently unknown.

John Doe summonses have become an increasingly visible enforcement tool in offshore tax investigations, particularly where ownership structures and reporting obligations are obscured by intermediaries. The Trident Trust summons reflects how the IRS seeks information from third parties when potential noncompliance involves unidentified taxpayers and complex offshore arrangements.

New Tax Evasion Fine for Troubled Credit Suisse

After being acquired by competitor the Union Bank of Switzerland (UBS), Credit Suisse has again drawn scrutiny for the same transactional behavior that contributed to its earlier reputational collapse.

Credit Suisse has an illustrious history of quietly handling the affairs of foreign clients with care and service that overlooked regulatory reporting. Offering opaque foreign bank accounts, Credit Suisse was eventually found to be catering to criminal enterprises, global money laundering, and tax evasion. What was once a virtue is now considered a vice by the legitimate investing community, and Credit Suisse was unable to rehabilitate itself, ultimately selling to UBS for $3.2 billion in 2023.

Credit Suisse makes amends … again

Headlines later announced a new offshore tax deal between the DOJ and Credit Suisse. No stranger to a plea deal, Credit Suisse pleaded guilty to concealing more than $4 billion from the IRS from 475 offshore tax accounts. Prosecutors noted that the bank assisted its “U.S. customers to evade their U.S. tax obligations in several ways, including by opening and maintaining undeclared offshore accounts for U.S. taxpayers at Credit Suisse A.G., and providing a variety of offshore private banking services that assisted U.S. taxpayers in the concealment of their assets and income from the IRS.”

The allegations center around Credit Suisse offshore bank accounts held in Singapore between 2014 and 2023. Credit Suisse maintained an excessively light compliance touch, helping U.S. clients to avoid reporting the accounts and failing to identify the accounts to the IRS. The actions breached a plea agreement that Credit Suisse had entered with the DOJ in 2014.

During its acquisition of Credit Suisse, UBS became aware that Credit Suisse had failed to declare certain accounts in Singapore, despite the earlier plea agreement. UBS froze some of the accounts and cooperated with the DOJ in investigating the accounts. Credit Suisse and UBS are both obliged, by virtue of the new plea deal, to disclose similar accounts discovered in the future and cooperate in future investigations.

In addition to its plea, Credit Suisse will pay $510,608,909 to settle the deal. Because UBS was aware of the compliance breach in 2023, funds were earmarked to pay the fines and restitutions ahead.

Taxpayers remain on the line for unpaid taxes

An important point of this and other enforcement actions involving banks that fail to provide appropriate foreign bank account reporting is that they do not resolve the tax exposure of individual account holders whose accounts are identified and investigated by the IRS. Willful failure to disclose offshore accounts, including failures to meet FBAR requirements, can still result in significant penalties independent of any institutional settlement.

Recent Legal Rulings on FBAR Matters

Two 2021 court rulings drive home the need to pay careful attention to FBAR filings—and the penalties that accrue if they are ignored.

Court rules on penalties assessed for failure to file FBAR

In the matter U.S. vs. Frank Giraldi, the court sided with a taxpayer who did not file FBAR reports on foreign bank accounts from 2006 through 2009. At 89 years of age, Mr. Frank Giraldi had four offshore accounts, three of which were tax-deferred annuity accounts for the benefit of the spouse of Mr. Giraldi, who is considerably younger than Mr. Giraldi.

In 2014, Mr. Giraldi took advantage of the IRS voluntary disclosure program for offshore tax accounts. He later withdrew from the program. The penalties applied by the program were significantly higher than the normal fine Mr. Giraldi would pay for failure to file the tax reports. Two years later, the IRS assessed him with a penalty for failing to file on each account for each year he was in arrears.

A District Court judge ruled in favor of Mr. Giraldi, noting the taxpayer should pay only one penalty ($10,000) for each year that he did not file. This reduced the amount owing by Mr. Giraldi from $160,000 to $40,000.

Court affirms lower court ruling assessing significant fines for willful failure to file FBAR

In the matter of the U.S. vs. Peter and Susan Horowitz, the Court of Appeals affirmed a lower court finding that a couple recklessly disregarded the FBAR requirement on their foreign bank accounts.

The Horowitzes are successful professionals who moved to Riyadh, Saudi Arabia in 1984 in order for Mr. Horowitz to take a job as an anesthesiologist at King Feisal Hospital. Mrs. Horowitz has a Ph.D. and found work that supported the couple, allowing them to mostly bank the earnings of Mr. Horowitz. In time, the couple opened a Swiss bank account for their savings, while continuing to report and pay U.S. taxes.

When the couple returned to the U.S. in 2001, they maintained their Swiss account, which had accrued $1.6 million. Once back in the U.S., the Horowitzes waited until 2010 to apply to the Offshore Voluntary Disclosure Program. Thereafter, they filed their FBARs along with amended tax returns for select years. Given the amended returns, the couple paid an additional $100,000 in back taxes.

The Horowitzes did not report their offshore account to the accountant who prepared and filed their taxes each year. In 2014, the IRS corresponded with the couple about penalties due. When an agreement could not be reached, the IRS filed suit against the couple.

The Appeals court affirmed a lower court finding that Mr. Horowitz owes $654,568 in enhanced penalties and Mrs. Horowitz owes $327,284 for failing to file their FBARs.