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Jan 16

DOJ Increasing Activity over Foreign Bank Accounts: Lessons from the Beanie Babies Founder’s Prosecution

H. Ty Warner, the billionaire creator of the popular Beanie Babies, was sentenced on Tuesday to two years of probation for tax evasion. The one-time top toy tycoon pleaded guilty to a single count of felony tax evasion in October 2013, acknowledging that he failed to report millions of dollars of interest income from a secret Swiss bank account from 1999 to 2007.

Warner was on a list of 285 names that Swiss banking giant UBS gave to the Justice Department in 2009 in an attempt to mitigate its own criminal liability in a massive Department of Justice crackdown on offshore tax evasion. The DOJ has been cracking down on offshore tax crimes since 2009.  Warner is among more than 100 people including bankers, lawyers and advisers who have been targeted for prosecution.

Warner, a well-known philanthropist, has donated millions to charities and provided the court with dozens of letters in support that described his charitable works.  He accepted full responsibility, including paying prior to sentencing a civil penalty of $53 million and back taxes and interest of $14 million.  He has further filed amended tax returns for the years 1999 to 2008.

The government, however, pushed for a sentence of incarceration, asking the court to “give serious consideration” to a guidelines sentence of 46 to 57 months.

While Warner’s non-incarceration sentence in light of the advisory guidelines range is, in itself, significant, a key lesson arising out of this prosecution is the Department of Justice’s aggressive targeting of off-shore tax violators.  Warner was among the group of taxpayers exposed as a result of a 2009 deferred prosecution agreement between UBS and the Department of Justice and the government has been actively pursuing those taxpayers.

According to my partner, Gary Edelson, in addition to banks such as UBS which have previously fervently guarded their client lists, countries which had a nearly-glamorous reputation for banking privacy, like Switzerland and the Cayman Islands, have entered into agreements with the US under the Foreign Account Tax Compliance Act (FATCA), which provides for the sharing of banking information with other nations. Nearly 50 counties are now partnering with the US government, including Spain, Ireland, France and Israel.

Hence, prosecutions of this nature are on the rise. The best course of action for those who think they might have inherited a bank account that no one else knows about, is to think again – carefully. Fines and amended tax bills can be very steep, and jail time is a real possibility.

In an effort to encourage compliance, the US implemented a Voluntary Disclosure Program in 2012, which applies to those eligible bank customers with accounts in countries who have subsequently signed on to FATCA. If the guy who invented the 20th century’s cutest fuzzy friends can’t avoid prosecution, most “regular people” won’t either. The best course of action for those who think they may be affected based upon their foreign holdings is to contact their tax professional for guidance.

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Financial Crimes

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