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FBAR Failure Leads Connecticut Executive to Plead Guilty to $8.4 Million Tax Evasion

Prosecutors announced Jan. 20 that a Connecticut business executive has pleaded guilty to willfully failing to report offshore bank accounts to the IRS.

Tax Evasion, Offshore Account filing taxes with the IRSAs part of his plea, which was entered Jan. 16 2015 before Magistrate Judge Debra Freeman of the U.S. District Court for the Southern District of New York, George Landegger of Ridgefield, Conn., agreed to pay a civil penalty of more than $4.2 million and more than $71,000 in back taxes.

According to the charges in a criminal information, Landegger maintained undeclared accounts at an unidentified Swiss bank based in Zurich from at least the early 2000s until 2010. His undeclared assets reached a high value of over $8.4 million in that period.

If you have a financial interest in or signature authority over a foreign financial account, including a bank account, brokerage account, mutual fund, trust, or other type of foreign financial account, exceeding certain thresholds, the Bank Secrecy Act may require you to report the account yearly to the Department of Treasury by electronically filing a Financial Crimes Enforcement Network (FinCEN) 114, Report of Foreign Bank and Financial Accounts (FBAR).

According to prosecutors, a representative of the Swiss bank referred Landegger to a Zurich-based attorney, Edgar Paltzer, to form a sham entity to hold his undeclared accounts. In April 2009, Landegger met with the bank representative and another individual to discuss the future of his undeclared accounts in light of the news about a U.S. investigation into hidden accounts at another Swiss bank, UBS AG, according to the charges.

At the meeting, prosecutors said, Landegger affirmatively rejected the possibility of disclosing his undeclared accounts to the IRS through its Offshore Voluntary Disclosure Program or otherwise. Instead, he shifted the assets out of Switzerland into a new, declared account in Canada and an account kept by another person in Hong Kong.

“The benefits of citizenship or residency in the United States come with certain obligations, including, as George Landegger well knew, the legal requirement to report foreign bank accounts,” U.S. Attorney Preet Bharara said. “He will now pay for his illegal conduct.”

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United States vs Simon in Failure to file FBARs

Failure to file FBARs as a Signatory Authority

The Foreign Bank Account Report (FBAR) can be submitted with the advice of a tax law attorney.Failure to file FBARs as a Signatory Authority to a foreign bank account is an offense punishable by law according the to the Bank Secrecy Act. 

The U.S. Court of Appeals for the Seventh Circuit affirmed the conviction of an Indiana CPA/Accounting professor by a U.S. District Court in United States vs Simon, 7th Cir, No. 11-01837. The conviction was based upon the taxpayer’s filing false income tax returns, failure to file FBARs (Foreign Bank Account Reports), mail fraud and financial aid fraud. One of the four FBAR counts related to Simon failure to file FBARs (reports on foreign bank accounts) for which he was a signatory for the years 2002 through 2007. During this time period he was the managing director of three foreign companies and had signatory authority over foreign bank accounts of these companies.  The companies included: The Simon Family Trust based in the Cook Islands, Elekta Ltd, a Gibralter company and JS Elekta, a Cyprus corporation.

Charges on Failure to File FBARs

Simon was charged with four counts of failure to file FBARs  related to foreign bank accounts according to 31 U.S.C. §§ 5314, 5322. For the years 2005 through 2007, Simon  conceded he was required to file a form TDF 90-22.1 now FinCEN Form 114 by June 30th for the foreign bank accounts aggregating more than $10,000 in the previous years. He also admitted that he failed to do so. However, Simon argued that he did not violate the law.

Simon’s defense

According to Simon, the IRS issued guidance in 2009 and 2010 that granted retroactive extensions for filing FBARs for the year 2008 and preceding years. This guidance was issued through IRS notices.  Taking the notices into consideration, Simon asserted that he filed the required FBARS prior to his indictment. He insisted that he did the filing within the deadlines set forth in the notices 2009‐62 and 2010‐23 and could therefore not face prosecution on failing to meet the original deadlines.

Government’s standing

The Government maintained that Simon’s crimes were complete before the IRS issued the notices. According to the government, Simon could not use the notices to exonerate himself from crimes he had already committed before the notices came into play. According to the Government,

“amendment of a regulation does not relieve the taxpayer of criminal liability for conduct that occurred before the amendment even when the amendment purports to have retroactive application.”

In addition, nothing in the notices promised relief from criminal liability for taxpayers who willfully failed to file FBARs. The only relief in the notices was that the IRS would not impose civil penalties for taxpayers whose failure to comply was non-willful.

Evaluation Points

  1. Setting up and using foreign corporations, trusts and other devices for purposes of hiding foreign funds never works and can be viewed as strong evidence of “willfulness” in an FBAR prosecution.
  2. Masking transfers from foreign corporate  and other third party accounts as “loans” can be used by the Government as strong evidence on intent in a criminal tax prosecution.
  3. The facts in the Simon Case involved a wilful failure to file FBARs.

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