Wednesday, May 7, 2014

Another Foreign Account Sentencing (5/7/14)

DOJ Tax News Release:  Wyoming Businessman Sentenced to Prison for Using Concealed Caribbean Bank Account in Tax Evasion Scheme (5/7/14), here.  The defendant, Robert C. Sathre, had previously pleaded guilty to willfully evading payment of his 1995 and 1996 taxes.  Both he and his wife were originally indicted. See New Indictment Related to Offshore Accounts (Federal Tax Crimes Blog 6/15/13), here.

He was sentenced to 36 months, with $3,111,882 in restitution.

The following is an excerpt from the press release:
According to court documents and proceedings, Sathre sold a Minnesota business and received installment payments in 1995 and 1996 of more than $3 million.  Sathre concealed his income by filing a 1995 tax return in which he reported only $64,928 in total income.  Sathre then purchased land and set up another business, a gas station and convenience store in Sheridan, Wyoming, known as the Rock Stop. 
 According to court documents and proceedings, Sathre concealed assets by opening a foreign bank account in the Caribbean island of Nevis and by using purported trusts.  In a 10 month period spanning from 2005 through 2006, Sathre sent over $500,000 to the account in Nevis to keep the funds out of reach from the IRS.  When Sathre sold the Rock Stop in 2007, he wired over $1,250,000 from the sale proceeds to the trust account of a Wyoming law firm.  He later directed the law firm to wire $900,000 from the trust account to his account at the Bank of Nevis.  Sathre also provided a false declaration and false promissory note to the Bank of Nevis to conceal the source of this transfer and obtained a debit card linked to the foreign account to access funds locally.  In addition, Sathre provided the Bank of Sheridan with an IRS form on which he falsely claimed that he was neither a citizen nor a resident of the United States.
JAT Comment:  I just picked this up and have not reflected on it.  Moreover, I don't have immediate access to my spreadsheet.  However, based on my recollection and experience, this seems to be one of the more onerous offshore account sentences.  The cryptic information in the press release excerpted above indicates that a large amount of tax was evaded and some extra culpable steps were taken; in addition, there may have been significant relevant conduct.  (See my prior blog on the indictment above).  Still, maybe more will come out so that observers can fit this sentencing into the overall context of foreign account sentencings.)  I assume but do not know that his guilty plea resulted in the dismissal of the indictment against his wife.


  1. Jack,

    that is a clever point, but one I am surprised you would entertain. I generally sense a fairly strong sense of indignation from you through your writings on this blog; in particular, they reflect a disdain for "bullshit" tax shelters, strong disapproval for tax evasion and a downright loathing for enablers such as Swiss banks. What you are suggesting would indeed force the Swiss banks to pay something but it would, at the same time, give some of the most culpable tax evaders a partial indemnity against the penalties imposed by the OVDP. Indeed, it would further show that the people who really benefit from the OVDP and the related IRS initiatives are the people who not only failed to file an FBAR but also the people who did so while intending to evade taxes. There would be an greater sense of inequity for the "minnows" caught in the FBAR nightmare, such as Americans Abroad or immigrants, who don't bank in Switzerland. It is indeed a clever idea, but at the risk of sounding childish, it is disgustingly unfair.

  2. gottaloveUStax,

    Thanks for your comment. I won't respond to all you discuss, but will say that I do view enablers as at least equally culpable with taxpayers, in the sense of punishment worthy. Thus, shoddy tax return preparers should draw stiffer punishment than the taxpayers they enable. And, when the enablers are major institutions -- whether banks, CPA firms, law firms, etc. -- they should be singled out and punished more. At least that is my thought.

    That does not in any way suggest that the taxpayers are not culpable. Just that the banks should not be let off scot-free. That is why I argued for a fair sharing, whatever that is.

    Jack Townsend

  3. I can understand that, and from a policy perspective, it makes sense, given that enablers can have a far greater effect on tax evasion than any single taxpayer. But from an economic perspective, it is unlikely that the amount one of these banks might have to contribute would have any material impact on their situation. Even if a bank had a 100 accounts, each at a million, and was forced to pay half the OVDP penalty, a $13m payout is hardly going to make a huge dent. However, the benefit to the individual taxpayer (looking the marginal utility of the dollars saved) is quite large. So I guess I am not sure you can ever get a true "fair sharing". And then, there is the point of inequity as it relates to people who are "less culpable" than the US residents shifting funds to Swiss accounts.

  4. I like your thoughtful analysis.

    I think if we approached it from a different direction. Lesser penalties for the U.S. taxpayer could achieve the intended effect because the marginal utility at the individual taxpayer level would achieve the desired effect. However, even greater penalties at the enabler level would be required if the enabler were so large that paying anything less than a really large penalty would be negligible. Large enablers would simply treat this as a cost of criminal misconduct, just as any other cost of business.

    So, under this analysis, perhaps U.S. taxpayers should up the ante and ask for, say, 75% of the penalty savings.

    My analysis is not as refined as yours, but still it seems to me to work in that direction.


    Jack Townsend

  5. Jack wrote: "the Swiss Banks pay for their misconduct"

    This is a racist generalization which condemns the innocent simply because one is filled with lots of racist hatred, given that not all banks are guilty. "Misconduct" is something that may apply to any bank in any nation, including the US.

    U.S. person is a person who lives in US jurisdiction. Victims of crime are individuals who are threatened and harmed by the US government simply because they don't live in America.

  6. Indeed. What Jack is saying is that one should be racist against Swiss banks in defense of tax cheats who live in America.

  7. Nothing defines who is or is not an "enabler". Rather, what is defined is that the US seeks to grab money regardless of innocent or not.

  8. Most banks will treat the cost as the price one has to pay to please America's great lust for money, given that they did nothing wrong to justify America's grab for money..

  9. If a US citizen just shows up at a bank in Switzerland (or anywhere else for that matter) and opens an account according to local laws, then that bank cannot have done anything wrong.

    If the US citizen had traveled from the US for the purpose of opening said account in order to hide income that tax was due upon, then that person knew well enough that he or she was doing something wrong. The bank should not share in any penalties.

    If the US citizen was living in the country where the bank was located then there should be no penalties for anybody. The FBAR idiocy notwithstanding, there was no crime. Period.

    Only in cases where the bank had been actively "selling" their services to residents of the US in order to "save taxes" does the bank have any share in the culpability.

  10. You are absolutely correct Sally but unfortunately you are flogging a dead horse on this blog if you think that most US tax lawyers get this "small" but important difference including K.K (Kathryn Keneally).

  11. The last paragraph is a common global activity. Individuals, businesses, governments and municipalities commonly "sell their services" to "save taxes". Individuals scan tax laws and hire tax preparers to find loopholes, businesses relocate to reduce the tax burden, governments reduce the tax burden to lure companies, cities bribe companies to relocate by offering huge tax savings, etc. At what point such becomes criminal conduct and how just the tax system is, is debatable. The act of violating the laws of a foreign jurisdiction is usually a crime in the foreign jurisdiction but not in the local jurisdiction. It is criminal for an American to cheat on American taxes, but not criminal in America for an American to cheat on non-US taxes. America doesn't care about US residents who cheat on foreign taxes. America always places its own laws above the laws of other nations and is not known for punishing those in its jurisdiction for violating laws in other jurisdictions. Jacks blog is basically a well-intended expression of American bigotry and hypocricy made possible thanks to financial greed, of which America is a frequent player.

  12. Perhaps I was not entirely clear. By putting quotes around "save taxes" I wanted to indicate that I was using this as a euphemism for "intentionally breaking the law by evading taxes". I think that knowingly trying to induce someone else to break a law applicable to that person carries some culpability. Its at least morally reprehensible, even in cases where it isn't illegal.

    That said, Americans often think they rule the world. They certainly think they ought to rule the world. From the Homelander perspective, sometimes they forget that other nations are sovereign nations as well.

    In his defense, Jack is a lawyer. In my experience, lawyers sometimes get so caught up in their own national legal outlook, that they fail to realize that other nations even have different laws than the ones they are familiar with. And when they do notice the difference, they tend to think that the laws they know are the only ones that are "right". Its not just American lawyers that do that, I've seen German and English lawyers do that too.

  13. I know from personal experience (as reported on this blog some time ago) that occasionally the IRS does see reason, perhaps only in very obvious cases like my own.

    I suspect that rather than "revenue max." what is really happening at the IRS is they got started on the nonsense without realizing its impact on expats and now no one dares to say that they should stop. The IRS is supposed to follow the law, and now that Congress upped the ante with FATCA, its difficult to back down. Who cares about a few expats, if you're worried about that promotion?

    The real culprit is Congress.

  14. Yes I agree it is a vicious circle and as I reported on this blog before not a surprise that DOJ,IRS and Congress can`t see the forest for the trees.

  15. Jack, thank you for your thoughtful analysis of this topic.

    I have seen the list of banks known to be in Category 2, and am aware that many are banks focused on local business, much like a US credit union or Savings & Loan. In other words, the type of bank that would have opened an account for a foreigner who happened to walk in, but who were not soliciting foreign business, did not have brochures or account opening forms in English or languages other than German/French/Italian (official Swiss languages,) or staff dedicated to servicing foreign customers or selected for their foreign language ability. They did not ask or concern themselves about their foreign customer's tax obligations, any more than a motel clerk will ask for a marriage certificate when two people share a room.

    I think many of the Category 2 banks simply decided that they had so few US customers that to pay 20, 30, or 50% of the account balance was cheaper and quicker than legal fees (just as relatively good actors in the US did not opt out.)

    On the other hand, there probably were banks that actively "enabled" violation of US laws.

    I think besides the legal question there is a moral question here as to whether one should seek payment from a bank for providing proof. I'm not sure I have the answer to this. There are banks which cooperated in providing eight years worth of statements at no charge, and who treated their clients fairly while the account was open. Shouldn't a client just send in a photocopy of the intake letter, or be reimbursed just for the time charged by his lawyer or accountant to draft a letter to the bank? That's the golden rule approach.

    But then, these banks are in a roundabout way, violating Swiss banking secrecy law in order to promote their own self interest. How?

    First, by sending out registered letters that clearly have the bank's name and address on the postcard receipt that is attached to the back of the letter. If you're the mailman, or a neighbor who gets the letter by mistake, and see a letter to John Doe from a Swiss bank, a logical assumption is that the recipient has, or had, an account there. If the bank wanted to protect the customer's privacy, the letter could have been sent by a Swiss law firm retained by the bank, or with a PO box not identified with the bank.

    Second, the bank is agreeing to send the IRS statistical information about US person accounts, from which a treaty request will be granted. The Swiss government is in on this, of course, allowing banks to send info based on a treaty request for let's say, "accounts with balance over $1 million, plus accounts held by an entity with balance over $250K, plus information as to where the money was sent if the account has been closed."

    So, these roundabout ways of violating secrecy laws make me far less sympathetic to the banks.

    I might also add that any such agreement should best be done with a lawyer (in the US?) holding the Swiss bank's contribution in escrow, unless any bank is offering to pay first and have the customer contribute later. I might also add that even if the money is labeled "reimbursement of legal fees" or "reimbursement of fines" it would be taxable to the US recipient, whereas the OVDI fine is not tax deductible, so the IRS would get its cut of any payment by the Swiss bank.

  16. The use and placement of the words 'and,' 'or,' and even the comma are important in a contract, and I have seen different versions of the following pasted from your blog entry:

    "can be excluded from the penalty base if the Swiss Bank can establish to
    the satisfaction of the DOJ that the account either that (i) the
    account was not an undeclared account, (ii) was disclosed by the Swiss
    Bank to the IRS, or * was disclosed by the U.S. person to the IRS under
    the OVDI/P."

    I think there should be a '(iii)' where I have inserted the asterisk.

    I have seen versions of this agreement where (iii) also has words to the effect "AFTER notification by the bank" which would imply that if the customer entered OVDI on his own initiative, before being notified by the bank, there would be no penalty relief.

    Part (i) does not clarify the time when the account was not undeclared: upon opening? Sometime after? Before or after being told by the bank that the account should be disclosed? Declared through OVDI? QD? GF?

    Part (ii) raises a lot of questions. How was it disclosed? In response to a treaty request? This would give the bank a strong incentive not to oppose a very broad treaty request. What if the account is disclosed by the bank in violation of whatever Swiss law still applies? In spite of Swiss law provisions, I doubt that the Swiss government would want the bad PR of enforcing its own laws, so they might give the bank only a slap of the wrist.

    And I haven't seen anything that addresses multiple penalties when a customer moved funds from one bank to another. Would there be double counting?

  17. As far as treaty requests, I remember reading that there is a Swiss website where such requests would be posted (presumably giving the bank name and account number but no further details.) This would be used to notify account holders who had moved and could not be reached. I have not been able to find this website. Anyone have the link?

  18. Anonymous,

    The subsequent DOJ clarification says:

    The Program allows for the reduction of penalties with respect to three categories of U.S. related accounts. The first category -- accounts that are not undeclared -- is intended to address issues concerning lines of business that by their nature did not facilitate the evasion of U.S. taxes and reporting requirements. For example, a corporate account that was declared but had U.S. signatories who did not file FBARs is included in the definition of U.S. related accounts under the Program, but may be excluded for the penalty calculation. The second category -- accounts that were disclosed by the bank to the Internal Revenue Service -- refers only to accounts that were timely disclosed, not accounts that are disclosed under FATCA, as part of the Program, pursuant to treaty requests, as a result of other law enforcement efforts, or similar forms of later disclosure. The third category -- accounts as to which the bank notified its account holders of an announced offshore voluntary disclosure program and can establish that its account holder made a voluntary disclosure under that program -- includes only those accounts that were reported subsequent to notification by the bank.

    The full clarication is here:

    Also, as I understand, there could be double counting. For example -- admittedly an extreme example to develop the concept -- if U.S. taxpayer had an account at Swiss Bank ("SB") 1 of $1,000,000 on 1/1/2009. Then the taxpayer moves the $1,000,000 on 3/1/09 to SB 2, and then again 5moves the $1,000,000 to SB 3 on 6/1/09, as I understand the program, each of those banks would be subject to penalty unless they prove the required U.S. tax compliance.

    Obviously, this type of movement would not -- or is likely not to -- have occurred if the U.S. taxpayer was U.S. tax compliant. So, one would assume that most cases exemplified by the example and reasonable variations of the example would involve a U.S. taxpayer who was not compliant until after the move to SB 3. If that person becomes U.S. tax compliant after moving to SB 3, then all three of the banks could benefict by penalty reduction if the taxpayer becomes U.S. tax compliant (in this case, joins OVDP).

    Jack Townsend

  19. Anonymous,

    Thanks. Your comments are well thought out and well presented. I hope readers will spend some time with them.

    Jack Townsend

  20. I am the same Anonymous, thanks for the clarification. Now, if the third category includes only accounts in which the OVDI disclosure occurred"subsequent to notification by the bank" would it mean that if the accountholder disclosed the account prior to being notified by the bank the bank would still owe the penalty? And would this also be the case for accounts that have always been disclosed?
    If so, this doesn't seem fair to the bank, but most importantly, for such accounts the bank would not be able to reduce its penalty, and thus there would be no incentive for the bank to pay the accountholder for proof of disclosure.

  21. Jack, you said "When U.S. persons hid their money in Swiss banks, they essentially
    shared the U.S. tax "savings" -- evaded tax -- with the Swiss banks who
    usually took out their proceeds of the crime in excess fees, costs and
    low returns paid to U.S. persons..."

    I agree with you as far as UBS (and any other banks conducting similar shenanigans) that visiting customers in the US, picking up and delivering cash on US soil etc. were expensive to the bank and the money must have come from fee income.

    On the other hand, anyone walking into a Swiss bank branch could and still can pick up a booklet listing fees and interest rates on accounts (or sometimes get the information on the bank website) and the fees and interest paid are exactly the same regardless of the account holder's nationality or residence.

    Furthermore, on Swiss franc deposit accounts, the interest paid was and still is subject to withholding of 35%, which for many Americans is less than their marginal US tax rate. The withholding applies to all foreign residents (I don't know about Swiss residents) and this has been in effect for decades, way before the European Savings Tax Directive came into existence.

  22. Jack, you said that some Swiss bank representatives told you they feel it's "inappropriate" for them to reimburse part of their customer's penalty in exchange for proof that the account has been declared. Was this a general comment, or when attempting to negotiate on behalf of a specific client?

  23. Both. And others have experienced the same. As best I understand it, DOJ has not hinted to the banks that paying some or even all of the taxpayer's penalties would be inappropriate. (As I understood a comment of AAG Keneally at a tax meeting last week, the ability of U.S. depositors to negotiate for some payment / relief from the bank in return for proof of U.S. tax compliance was an unintended consequence of the design of the program.

    Even if an unintended consequence, I don't think it is a bad consequence. What it insures is that the bank will bear some consequence of its U.S. tax misbehavior with respect to the account in issue.

    To develop that thought, say all depositors of Category 2 Bank X joined OVDP at that Bank X's urging. That would mean that Bank X has no penalty for its misconduct (which is why it is Category 2 to start with). So, a mechanism whereby the depositors and the banks (in this example Bank X) share the misery seems to me to be entirely appropriate.

    There is a lot of nuance behind this analysis, but I can't present it all here.

    Thanks for your questions

    Jack Townsend

  24. GlobalCapitalismJune 14, 2014 at 7:36 AM

    The IRS Scandal, Day 401

  25. GlobalCapitalismJune 19, 2014 at 8:01 AM

    The Director of the IRS, John Koskinen, is now implicated in perjury, as he testified before the House that the emails were being redacted at a time after he learned of their supposed disappearance.

  26. GlobalCapitalismJune 21, 2014 at 6:52 AM

    IRS Commissioner John Koskinen told Congress on Friday that he doesn’t owe any apology for the agency losing Lois G. Lerner’s emails — or for waiting so long to inform investigators about the loss.

    “I don’t think an apology is owed. Not a single email has been lost since the start of this investigation,” the commissioner told the House Ways and Means Committee under stern questioning.

  27. It took Michael Rivero at What Really Happened several tries to fax this documented information to Darrel Issa’s office ( House Oversight committee) but he finally got it there.
    The IRS is lying when it says Lois Lerner (and six other IRS officials at the heart of the IRS targeting of Obama’s political opponents)’s emails are lost forever and there are no backups. The IRS has an ongoing contract with Sonasoft to back up the IRS Exchange servers that covers the time period of the missing emails.

  28. And legislative relief from Stockmans official internet page. Stockman bill allows taxpayers to use same lame excuses as IRS. In any case, IRS can see the NSA for a good, high quality copy.

  29. Stockman is not a credible source, even within his own party (other than the tea party and I think they may even be weary of him now). This is rhetoric and going nowhere. I don't recommend that readers spend time on this issue, because it will be a waste of time.

    Jack Townsend

