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DENNIS PEREZ Quoted in Tax Notes Article: IRS Using FATCA Criminal Indictments to Pursue Tax Evaders

Ten years after starting to aggressively pursue Swiss banks that helped U.S. persons evade taxes, the IRS is continuing to mine the trove of information gathered to criminally pursue the account holders and their facilitators.

A pair of practitioners with extensive experience at the IRS said U.S. taxpayers with undisclosed foreign accounts who do not move quickly to rectify their situations could face severe consequences. Speaking November 1 during a panel discussion on U.S. criminal indictments of overseas advisers at the University of San Diego School of Law — Procopio International Tax Institute annual conference, Dennis Perez said the Justice Department recently secured its first conviction under the Foreign Account Tax Compliance Act</lr/resolve/prior-coverage/28f3s>.

Perez, a partner with Hochman, Salkin, Rettig, Toscher & Perez P.C. and a former senior trial attorney with the IRS, said the former CEO of a bank based in St. Vincent and the Grenadines pleaded guilty in September of conspiring to defraud the United States. Adrian Baron of Loyal Bank Ltd. and three other bankers were indicted for allegedly setting up accounts to hide the proceeds of a “pump-and-dump” securities fraud scheme while avoiding FATCA reporting requirements. Pump-and-dump schemes typically involve an attempt by individuals with a position in a company’s stock to make false and misleading claims to drive up the price of the shares shortly before selling their holdings. The schemes are illegal under U.S. law.

Perez said the IRS announced October 30 that its Large Business and International Division will be conducting a new compliance campaign targeting offshore service</lr/resolve/prior-coverage/28kg3> providers and beneficial ownership.  Facilitators under criminal investigation by U.S. authorities will likely seek ways to mitigate their potential punishment by giving up information about other U.S. persons and foreign financial institutions with which they worked, Perez said.

Victor Song, a former chief of the IRS Criminal Investigation division and founding partner of Victor Song Consulting, said many U.S. persons identified by overseas advisers under criminal investigation are likely to be investigated themselves. “The sooner somebody in this chain starts cooperating, the probability of getting a better deal is [higher],” Song said. “When I was an agent and we talked to taxpayers, we gave them the train analogy: ‘The train is leaving, whether you want to get on it or not. The sooner you get on, the better it is. You don’t want to be on the caboose. Once it leaves, it leaves.’”

Perez said U.S. authorities are most interested in deterrence. He emphasized the point by picking up a copy of the Tax Notes article about Baron’s plea agreement. “They are going to put it out in the media, the trade journals, press conferences,” he said. “They are going to get the word out there.”

Perez said the government’s FATCA compliance efforts aren’t going to end soon. “This whole foreign account area of enforcement . . . has lasted longer than any other enforcement activity that I’ve seen,” he said. “A lot of times the IRS . . . may have these task force investigations into other activities where they will be involved in an area for three, four, or five years . . . then they go on to something else.”

In 2008 the IRS issued a summons to Switzerland’s UBS AG as the first salvo in its assault on offshore tax evasion facilitated by Swiss banks, Perez said. “Here we are 10 years later, and the IRS is reminding us that they are continuing to enforce the law, to follow up on new laws that were passed — FATCA — [that] they are serious about this,” he said. “Anyone who is a U.S. person who is out there with foreign accounts that they’re not disclosing [should] beware.”

In 2009 UBS was fined $780 million as part of a deferred prosecution agreement</lr/resolve/prior-coverage/1901t> following allegations that it had helped approximately 17,000 U.S. clients conceal an estimated $17 billion in undisclosed accounts.

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