• Expatriating: No Protection Against Criminal Tax Prosecution

    By Virginia La Torre Jeker J.D.


    The Department of Justice (DOJ) press release of February 3 proudly announced that Albert Cambata, a former US citizen, pled guilty to filing a false tax return in a case involving foreign entity structures and offshore accounts.

    What Did Mr. Cambata Do?

    Mr. Cambata had been living in Switzerland since 2007. He formally renounced his US citizenship in 2012 at the US Embassy in Bratislava, Slovakia after taking on the citizenship of St. Kitts and Nevis.

    According to the triumphant DOJ press release, with the assistance of a Swiss banker and a Swiss attorney, Mr. Cambata had opened a bank account at an unnamed Swiss bank in 2006 in the name of a Hong Kong company. Although he was not listed on the opening documents as a director or an authorized signatory, Mr. Cambata was identified on another bank document as the beneficial owner of the company account. In the same year, Mr. Cambata received $12 million from a company based in Belize, the funds from which had originated from yet another company in Panama.

    On his 2007 and 2008 US income tax returns, Mr. Cambata did not declare the interest income earned on his Swiss bank account in a total amount under USD300,000. Unreported income in this amount does not represent a very large tax loss to the US Treasury. In a tangled web of transactions commencing April 2008, Mr. Cambata instructed his Swiss attorney to wire 5 million Euros from his Swiss account to a different account at the Monaco branch of yet another Swiss bank. This Monaco branch account was controlled by Mr. Cambata. Two months later, Mr. Cambata closed his original Swiss bank account and transferred the funds to the Singapore branch of yet a third Swiss bank, into an account he controlled.

    As part of his plea deal, Mr. Cambata agreed to pay $84,849 in restitution to the US Treasury. His sentencing is scheduled for mid-April.

    Key Points - Remember, Not Everyone is a Criminal!

    While the facts in the press release are somewhat scant, one can still deduce certain key points from this case -

    First, Mr. Cambata was certainly not lying low. His case evidenced many indicia that would trigger IRS and DOJ scrutiny of the highest order. In all likelihood, the information that DOJ used to pursue Mr. Cambata likely came from various sources involving entities in "hot spot" jurisdictions. For example, it is probable that information came from one or more banks participating in the Swiss Non-Prosecution Program which commenced in 2013 or so-called "Category 1" Swiss banks which have reached agreement with the US government for their transgressions. (A Category 1 bank under the Swiss program was a bank that was already under DOJ criminal investigation with respect to US depositors and as such, could not join the non-prosecution program). It is clear from the press release that all of Mr. Cambata's offshore accounts were held at branches of Swiss banks. In addition, the funds in these accounts had originated from companies based in Belize and Panama - these countries are very hot spots right now in the DOJ's ongoing criminal investigations. In September 2015, a federal court authorized issuance of "John Doe" summonses seeking information regarding accounts held at Belize Bank International Limited, Belize Bank Limited, and a related company that assisted in the creation of Belizean "shelf" companies. In December 2014, a John Doe summons was issued to gather numerous records from US couriers (e.g., FedEx, UPS, DHL) to investigate US taxpayers' use of Sovereign Management and Legal Ltd. in setting up structures to evade US tax. Sovereign is a multi-jurisdictional offshore services provider that offers clients, among other things, the formation and administration of anonymous corporations and foundations in Panama.

    Second, Mr. Cambata took on the citizenship of St. Kitts and Nevis before renouncing his US citizenship. Let's not be too conspicuous, shall we? To my mind, obtaining such an "economic" citizenship would also be a trigger for the IRS to look a bit further. All other citizenships and the dates they were granted must clearly be listed on Form 8854, a critical tax form to be filed after expatriation. (See Question 7 on the Form 8854). Clearly, this is not a case of an individual who was for example, born with dual nationality, or who attained another nationality through marriage or through ancestry, and determined after years of living abroad that he wished to retain only the citizenship to which he had significant grounds for attachment. No, St. Kitts citizenship does not fit this type of profile. Instead it more closely fits the profile of a citizenship of convenience - perhaps for ease in travel or, in Mr. Cambata's case, a simple fix so he could renounce his US citizenship. Apparently, obtaining St. Kitts citizenship basically requires only an investment in the country, a background check and not much more. See here and here.

    Third, interesting statute of limitations (SOL) issues are raised in the case of Mr. Cambata. He pleaded guilty to filing false tax returns for 2007 and 2008, so it is possible that for later years, he properly reported all of his foreign accounts on both income tax returns and so-called FBARs. This would make sense since in early 2009 the IRS brought UBS to its knees and opened the watershed for the first Offshore Voluntary Disclosure Program and the Swiss Non-Prosecution program to follow in 2013. The tax years involved in Mr. Cambata's conviction were 2007 and 2008. The general criminal SOL for tax crimes is six-years. However, this statute of limitations "clock" does not start to "tick" when the taxpayer is "outside the United States." Since Mr. Cambata resided in Switzerland since 2007, he had this SOL issue to contend with. Easier to plead guilty than to try and outrun a statute that may not have started in the first place. When tax crimes (such as tax evasion or fraud) under the US Internal Revenue Code are involved, merely being outside the US regardless of intent, is indeed sufficient to toll the SOL. See IRC Section 6531 which provides:

    The time during which the person committing any of the various offenses arising under the internal revenue laws is outside the United States or is a fugitive from justice within the meaning of section 3290 of Title 18 of the United States Code, shall not be taken as any part of the time limited by law for the commencement of such proceedings.

    You can read more about the tax and FBAR statutes of limitations at my tax blog post here.

    Cambata - Pulling it all Together

    Pulling all of the pieces together, the Cambata case demonstrates that US persons residing abroad who have criminal tax issues should not rest easily even with the passage of time since the criminal tax SOL will offer no protection. Moreover, even those who have expatriated and given up their US citizenship run the risk of criminal tax prosecution if the facts of their case warrant it. This may be so even if the tax loss to the US government is not highly significant, as was the case with Mr. Cambata.

    It must be emphasized that the overall facts were not at all favorable to Mr. Cambata and this is the likely reason DOJ took up the case. Mr. Cambata had set up some complicated structures with offshore accounts and entities in "hot spot" tax haven jurisdictions that were under DOJ investigation; he probably started complying with the tax laws only in 2009 (or later) after the UBS case broke. Then, in 2012, he renounced his US citizenship after taking on an "economic" citizenship to a country with which he had no meaningful connection. All of these facts were against him and the Department of Justice probably felt this was a good case to use as an "example" - especially for individuals with criminal tax issues who have expatriated or who are contemplating expatriation. Surely and justifiably, the Cambata case will cause significant anxiety for those US citizens who expatriated but who have criminal tax issues lurking in the background.

    It is clear that the IRS and DOJ believe taxpayers have now had sufficient time and opportunity to correct their tax transgressions and become tax compliant. The press release stated:

    "U.S. taxpayers have been given ample opportunity to come forward, disclose their secret foreign accounts, and come into compliance," said Acting Assistant Attorney General Ciraolo. "Those individuals and entities who rolled the dice in the hope of remaining anonymous are facing the consequences. The Tax Division remains committed to investigating and prosecuting individual taxpayers with undeclared foreign financial accounts, as well as the financial institutions, bankers, financial advisors and other professionals who facilitate the concealment of income and assets offshore. And as today's guilty plea clearly indicates, the department's reach is well beyond Switzerland."

    Expatriations Continue to Skyrocket

    In 2015, almost 4,300 individuals expatriated. With the numbers of expatriations constantly increasing, IRS and DOJ will be looking more closely at some of these cases. The number of expatriates for 2015 represents a 25% increase over the number in 2014 and a 42% increase over 2013. More detailed information about expatriation data can be found here.

    What to Do Now?

    Not everyone has criminal tax issues so the Cambata case should not cause undue panic. Every case is different and hinges on its own facts. Individuals facing what are undoubtedly confusing and frightening US tax issues should not discuss their situation with persons who are not qualified US tax professionals. A US attorney is likely best so as to preserve the attorney-client privilege and the attorney should have the experience and expertise in dealing with international cases involving offshore assets. The best advice is to first obtain the correct information from a highly knowledgeable source, and then take at least several days to reflect on matters and absorb that information. With time and proper preparation, the issues can be sorted out and successfully handled. Inaction, however, is simply not an option. You can read a summary of the various alternatives for handling unreported offshore assets at my blog post here.

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  • The information provided in this article is for general information purposes only. The information is not intended to be comprehensive or to include advice on which you may rely. You should always consult a suitably qualified professional on any specific matter.

Virginia La Torre Jeker J.D.

Virginia La Torre Jeker J.D., is based in Dubai. Virginia has been a member of the New York Bar since 1984 and is also admitted to practice before the United States Tax Court. She has over 30 years of experience specializing in the international aspects of US tax, including FATCA. She has been quoted in the New York Times and Newsweek, and is regularly quoted in many local news articles and publications."

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