Offshore Voluntary Disclosure Programme Reopened

0:00Okay, my talk will not necessarily follow my slides because I want to bring you where we really are in the legal field as it relates around the world. Now, this name came from the Offshore Investment Magazine, which comes out of Ireland, a very expensive magazine. I write for it so I don't have to pay for it. It costs about $40 or $50 an issue. The OVDP is the Offshore Voluntary Disclosure Program, but I want to talk to you a little bit away from just this subject because what I'm talking to you about is, in effect, the equivalent of Obamacare in the United States, except this law affects everybody in the world, It is spawned by the Offshore Voluntary Disclosure Program, which I will get into and may not get through all of my slides.

1:09I am not here to teach an international tax course, I am here to talk about how this affects each and every one of you, whether you are a practitioner, you are a theoretician, you I'm talking about the Foreign Account Tax Compliance Act. FATCA. FATCA. What are the implications of FATCA? It affects the United States financial system, and it affects the entire world, unless China or the Middle East says no. It looks like China may say no. It relates to U.S. persons transferring money outside the United States. It relates to transferring money to the United States. It directly affects every bank, financial institution, registered investment advisor. It affects accountants, lawyers, writers in economics, whether you're here in the United States or outside the United States.

2:06It affects hedge funds, for example, anything, insurance carriers. It affects anything to do with financial institutions. It affects foreign entities established by Americans, for example. You have to classify those entities. If you don't register, if you're a foreign financial institution and you don't register, you have to classify yourself first to determine how to register. If you don't register, you will not have what's called your papers. And eventually, in 2014, and the law takes effect 2014, 15 and 16 in stages, other financial institutions will have nothing to do with you, understand? That's where it's headed. There's a 30% withholding requirement, but if you don't have your papers, but most institutions are not going to put up with that, they simply will not deal with you if you don't have these Registrations with the United States are an exemption.

3:07These entities, the foreign financial institutions are classified as foreign financial institutions or we call them FFIs, and they are either deemed compliant or they're participating foreign financial institutions. That means they have registered with the United States of America. Doesn't matter where you're located. You don't register, eventually other banks and institutions will have nothing to do with Countries are complying. They're entering into treaties with the United States now, Caymans, Denmark, UK and other places. I've been involved in writing a book on fact. I had mixed emotions about this because this is a terrible law and I am an Austrian since a long time ago, a very long time ago.

3:56was following Austrian theory of economics. But this is reality, the law is reality. I helped write a book, one of numerous authors, primarily an editor, who really wrote one chapter and edited several, that LexisNexis will be publishing in May, middle of May. The person who is in charge of this book, who is head of the program where I teach in San Diego, Thomas Jefferson School of Law, has a close friend who is in charge of the and the DEA in Mexico and he says the people in Mexico who have made investments in the United States are scared to death because their names will be turned over to the Mexican government and they fear the drug cartel will get those names and they will die.

4:41The same thing in other countries. This is reality. This is the law. A former IRS agent who was in the Chief Counsel's Office of the Internal Revenue Service who who I have known personally and dealt with him many times since January of 1997, not 2007, 1997, recently retired, was one of the writers at FATCA, I did not know that, until he sent me an email message, he's now retired last week, I got his email address from another former IRS agent that knew him well, he helped write this legislation, he said two things about it, it shouldn't be legislation, it should be legislations Because it is so complex, it is unbelievable. Secondly, he said, and he wrote this, he didn't write the whole word, I'm going to tell you how he wrote it.

5:30He said it should be preceded legally with the word S.H. and you know what the four-letter word is. That's what he thinks about it. Now, he was doing his job in the government, now he's outside the government and he's telling what he really thinks. Who does this affect? Again, it affects every one of us. It will, and even he says this, it will result in when people really find out what's going on, and they know what's going on around the world much, much greater than they do in the United States. I've been dealing with the offshore arena as a lawyer since 1991. I have never seen anything like this in my career. I do have to give credit to whoever wrote this. They are genius and stupid, because this will run investments away from America a lot, beyond imagination. I don't even know how to think about it. Maybe the Keynesians can figure it out.

6:33This does affect economists, writers, theoreticians, professors, everybody. This is an impact, and other countries, like I'm saying, are entering into treaties, the Cayman Islands recently, and there are two types of treaties. I won't get into that. What I want you to know is this law is real, and it's very serious. Let me give you a little background. The IRS through the Department of Justice has filed numerous John Doe summaries where they show in federal court that there are unreported accounts. They have some kind of proof. It resulted, for example, in the shutting down of several banks. They've also used mutual legal Legal Assistance Treaties, which is anti-secrecy law, treaties with other countries, resulting in shutting down two Bohemian banks. They found a trust company. Trust companies, I forgot to mention them, they're also affected. A trust company in Bermuda being shut down because they found out they were helping hide unreported accounts set up by an American through a form foreign trust, and it resulted, if you've heard about it, in the UBS case.

8:03The big UBS case resulted in turning over 5,000 names, more than 5,000 thus far. And they won this case because the move forward, you see what they paid, admissions, it resulted in moving forward and looking at other banks. Now where were they getting this information? You see Wegeland Bank, and it is pronounced Wegeland, not Vagelin. It's a small bank, but it's the first private bank in Switzerland, in the history of Switzerland private bank. The total amount paid, the first payment and the last payment, is $74 million. It bankrupted. Where they got the information primarily, and the other sources are the two first voluntary disclosure initiatives, OBDI 2009-2011. Now we have the 2012 which is open-ended, we don't know when it will end. Now why do they have this? They have it to, as they say, get taxpayers, I hate using that word, I say U.S. persons, to come clean and to pay taxes, but the real reason is to gather information because if you're involved in this process,

9:17program, you cannot imagine the questions that are asked that you have to answer. They're detailed beyond imagination. It takes so much time for the lawyer, for the accountant, and for the client. When the compliant complains about the lawyer and accountant's time, when they have to start answering the questions, they get it. What they're looking for are names of banks and financial institutions and practitioners around the world who help to help them so-called hide their money. They're finding these names and they're finding them consistently. When you represent one of these OBDP clients, the IRS may ask to come speak with your clients, saying everything's fine with your client, your submissions are good, they're okay, but we're coming to talk to you about the banker banks where the unreported accounts were located because we want to know exactly what they did and find out additional information.

10:12They are particularly looking for banks that accepted money after UBS was caught. They consider them really dirty, waggling. In the OVDP program, it is an eight-year look back, meaning filing returns basically for for Eight Years, a 27.5% penalty which can change and, like I said, extremely time-consuming for the lawyer, accountant and so forth. The primary purposes of entering the program, and I'll get into FATCA again later, is to avoid prosecution.

11:00That is the primary reason. And it's also to have a known set penalty, although high. If you get caught, it will be higher, assuming they don't prosecute you criminally. They like to prosecute criminally people whose names they can get in a newspaper to scare other people. Or it could be someone with a practitioner or the client that the practitioner is representing. Oh, I'd get rid of them, but they're making the IRS mad. They don't have, can't go after everybody, but the penalties, if you're caught, will be very severe. There are potential ways of avoiding the program if it's, you have, I think it's on my next slide, but you have very good reasons to be on my next slide, or next to, very good reasons for not going through the OVDI program, but you better have very good reasons or you better state them on a cover letter and they better be very true.

11:56That means that the lawyer and accountant, especially the lawyer, must know a lot about this client in order to write such a letter. That's a scary letter to write for a lawyer. It's considered malpractice to do, and this is a later slide too, I'm getting ahead of myself. It is considered malpractice to go through quiet disclosures, or silent filing as I call them. That's not correct, it's quiet disclosures. What is a quiet disclosure? A client comes in, he has an offshore trust and he has not reported the income nor filed the tax returns and reports. So you just file those with the Internal Revenue Service and pay the interest and penalties and so forth, hoping everything is fine. The IRS makes it sure that they have trained their agents to refer this case to the Criminal Investigation Division for potential criminal investigation.

12:50That's why it's malpractice to a lawyer to do this. So you better have very good reasons to do a quiet filing, a very good reason. We used to do this before 2009. We would send this into the Internal Revenue Service for three years and then they said no we want six years, openly in conferences that they spoke at and we would file them and we'd never hear from the IRS except if they disagreed with the interest. If they disagreed with the interest, we paid it. That was it. The IRS is focused on undisclosed accounts. I am amazed that when I talk to some accountants and lawyers and I tell them they have a client or something who has an unreported offshore account and has failed to file some tax returns and they're a little bit worried about it, but if you tell them that they have a client that has failed to file a domestic tax return, they're real worried about it. They have a client that has failed to file a domestic tax return and they're real worried about it.

13:47We have this totally and completely backwards. The IRS is focused on this, and they're focused by entering into tax treaties, including FATCA treaties around the world, and they have additional targeted banks that they're going after. They've already mentioned various countries, Israel, and China, especially Hong Kong. There's a quiet disclosure. The reality of being caught. You probably recently saw where the proposal is to let all spy agencies look into the financial accounts of every single American. Well, you're toast if that happens. Whistleblowers. They're rampant now.

14:38They're rampant now. And FATCA. The other ones, divorces. Husband told wife, I have an unreported account. Now they're going through divorce. Wife tells lawyer, my husband has an unreported account. Lawyer for wife calls Richard Doo. What can I do? Oh my God. You cannot use criminal in a civil matter to threaten somebody. Don't call me.

15:08Now, this really gets interesting. The IRS, you go through three stages. The first stage is to get into the program. These people were in the program and accepted by the IRS. The IRS and these two banks, the first one being the biggest bank in Israel, said, oh, well, We're going to revoke our acceptances, apparently because the banks are now turning over your names anyway. So we don't need to go through all this unbelievable process we at the IRS have to go through. So they revoke the amnesties with respect to these two banks. FATCA.

15:55FATCA affects everyone. You have to know who you're dealing with under FATCA. That includes any kind of financial institution, hedge fund, you name it, registered investment advisor, custodial bank, insurance carrier, inside and outside the United States. If you have a foreign entity, you must determine whether it is a non-financial, non-foreign financial entity or whether it's a flow-through entity or some other type of entity. You must determine the classification. And if you don't enter into an agreement, such as a foreign bank, foreign financial institution, a U.S. institution will know this, and there will be withholding on various types of income. It's not important that you know the income, it is banks must know this. It also affects U.S. persons going offshore next year. You You must file the FATCA form, the 8838, and this applies to U.S. citizens and legal residents that they call taxpayers, with an aggregate value of $50,000, and it's effective after this year.

17:12And I will leave you with this thought. My practice has been primarily involved in representing clients to diversify investments I have never in my career seen anything like this law. Again, whoever dreamed this law up is brilliant, but destructive. This law affects all of us, and it affects everything. And again, hopefully the Keynesians can come up with some kind of figure to tell me how this is going to affect everybody, which I will of course throw away. Thank you. Thank you very much.