Jul 18, 2008

Foreign Bank Accounts- The Lichtenstein Bank Scandal

This is going to be an interesting story to follow over the next several months, but let me give you a little bit of back ground first before I explain why this will be interesting to follow.

Heinrick Kieber, a former computer technician for the Bank of Liechtenstein has come forward with the names of US citizens who had set up secret accounts there. Yesterday he testified via video, from an undisclosed location, before the Senate's Permanent Subcommittee on Investigations, during which he likely disclosed the names of the account holders. Thus exposing them to the scrutinizing of the IRS and the banks alleged efforts to help the wealthy Americans to hide their money from the IRS.

"Liechtenstein's veil of secrecy was pierced five years ago when the disgruntled technician, Kieber, downloaded the names of foreign citizens connected to the secret
accounts. Kieber reportedly sold three CD's full of names and data to tax
authorities to 12 countries including Germany, Great Britain, France, Italy and
the United States. "
(Day of Reckoning? Super Rich Tax Cheats Outed by Bank
Clerk; By BRIAN ROSS and RHONDA SCHWARTZJuly 15, 2008 )


According to the IRS,
" If you own a foreign bank account, brokerage account, mutual fund, unit trust, or other financial account, then you may be required to report the account yearly to the
Internal Revenue Service. Under the Bank Secrecy Act, each United States person
must file a Report of Foreign Bank and Financial Accounts (FBAR), if
The person has financial interest in, signature authority or other authority over
one or more accounts in a foreign country, and The value of the account
exceeds $10,000 at any time during the calendar year.
A United States person is not prohibited from owning foreign accounts. The FBAR is required because foreign financial institutions may not be subject to the same reporting requirements as domestic financial institutions. The FBAR is a tool to help the United States government identify persons who may be using foreign financial
accounts to circumvent United States law. Investigators use FBARs to help
identify or trace funds used for illicit purposes or to identify unreported
income maintained or generated abroad.
"

Congress passed the Bank Secrecy Act in 1970 to fight money laundering in the US and to help prevent the wealthy from using foreign banks as tax havens. The IRS can impose heavy penalties for those who fail to disclose these accounts and transactions, which can be up to 50% of the account balance at the time of the violation and penalties can be assessed as high as $10,000 per each violation.

What the most interesting thing about this story is going to be who is on this list and what the IRS will do to those people. I am sure that those who know they are on the list are currently using every bit of leverage, power and political favors to minimise their exposure not only to the public but the prying eyes of the IRS auditors. It will be interesting to see the outcome of this one over the next coming months!

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