WEBVTT NOTE Offshore Voluntary Disclosure Programme Reopened 1 00:00:00.000 --> 00:00:11.000 Okay, my talk will not necessarily follow my slides because I want to bring you where we really are in the legal field as it relates around the world. 2 00:00:11.000 --> 00:00:19.000 Now, this name came from the Offshore Investment Magazine, which comes out of Ireland, a very expensive magazine. 3 00:00:19.000 --> 00:00:25.000 I write for it so I don't have to pay for it. It costs about $40 or $50 an issue. 4 00:00:25.000 --> 00:00:54.000 The OVDP is the Offshore Voluntary Disclosure Program, but I want to talk to you a little bit away from just this subject because what I'm talking to you about is, in effect, the equivalent of Obamacare in the United States, except this law affects everybody in the world, 5 00:00:54.000 --> 00:01:08.500 It is spawned by the Offshore Voluntary Disclosure Program, which I will get into and may not 6 00:01:08.500 --> 00:01:09.500 get through all of my slides. 7 00:01:09.500 --> 00:01:14.240 I am not here to teach an international tax course, I am here to talk about how this affects 8 00:01:14.240 --> 00:01:19.180 each and every one of you, whether you are a practitioner, you are a theoretician, you 9 00:01:19.180 --> 00:01:49.180 I'm talking about the Foreign Account Tax Compliance Act. FATCA. FATCA. What are the implications of FATCA? It affects the United States financial system, and it affects the entire world, unless China or the Middle East says no. It looks like China may say no. It relates to U.S. persons transferring money outside the United States. It relates to transferring money to the United States. 10 00:01:49.180 --> 00:02:06.180 It directly affects every bank, financial institution, registered investment advisor. It affects accountants, lawyers, writers in economics, whether you're here in the United States or outside the United States. 11 00:02:06.180 --> 00:02:12.180 It affects hedge funds, for example, anything, insurance carriers. 12 00:02:12.180 --> 00:02:16.180 It affects anything to do with financial institutions. 13 00:02:16.180 --> 00:02:19.180 It affects foreign entities established by Americans, for example. 14 00:02:19.180 --> 00:02:23.180 You have to classify those entities. 15 00:02:23.180 --> 00:02:28.180 If you don't register, if you're a foreign financial institution and you don't register, 16 00:02:28.180 --> 00:02:32.180 you have to classify yourself first to determine how to register. 17 00:02:32.180 --> 00:02:37.180 If you don't register, you will not have what's called your papers. 18 00:02:37.180 --> 00:02:45.320 And eventually, in 2014, and the law takes effect 2014, 15 and 16 in stages, other financial 19 00:02:45.320 --> 00:02:49.820 institutions will have nothing to do with you, understand? 20 00:02:49.820 --> 00:02:51.020 That's where it's headed. 21 00:02:51.020 --> 00:02:57.600 There's a 30% withholding requirement, but if you don't have your papers, but most institutions 22 00:02:57.600 --> 00:03:01.240 are not going to put up with that, they simply will not deal with you if you don't have these 23 00:03:01.240 --> 00:03:07.240 Registrations with the United States are an exemption. 24 00:03:07.240 --> 00:03:12.600 These entities, the foreign financial institutions are classified as foreign financial institutions 25 00:03:12.600 --> 00:03:21.400 or we call them FFIs, and they are either deemed compliant or they're participating 26 00:03:21.400 --> 00:03:22.760 foreign financial institutions. 27 00:03:22.760 --> 00:03:25.680 That means they have registered with the United States of America. 28 00:03:25.680 --> 00:03:28.500 Doesn't matter where you're located. 29 00:03:28.500 --> 00:03:33.420 You don't register, eventually other banks and institutions will have nothing to do with 30 00:03:34.420 --> 00:03:35.420 Countries are complying. 31 00:03:35.420 --> 00:03:41.020 They're entering into treaties with the United States now, Caymans, Denmark, UK and other 32 00:03:41.020 --> 00:03:45.420 places. 33 00:03:45.420 --> 00:03:47.420 I've been involved in writing a book on fact. 34 00:03:47.420 --> 00:03:53.820 I had mixed emotions about this because this is a terrible law and I am an Austrian since 35 00:03:53.820 --> 00:03:56.500 a long time ago, a very long time ago. 36 00:03:56.500 --> 00:03:59.540 was following Austrian theory of economics. 37 00:03:59.540 --> 00:04:02.900 But this is reality, the law is reality. 38 00:04:02.900 --> 00:04:07.900 I helped write a book, one of numerous authors, primarily an editor, who really wrote one 39 00:04:07.900 --> 00:04:17.900 chapter and edited several, that LexisNexis will be publishing in May, middle of May. 40 00:04:17.900 --> 00:04:21.760 The person who is in charge of this book, who is head of the program where I teach in 41 00:04:21.760 --> 00:04:26.420 San Diego, Thomas Jefferson School of Law, has a close friend who is in charge of the 42 00:04:26.420 --> 00:04:32.100 and the DEA in Mexico and he says the people in Mexico who have made investments in the 43 00:04:32.100 --> 00:04:35.940 United States are scared to death because their names will be turned over to the Mexican 44 00:04:35.940 --> 00:04:41.500 government and they fear the drug cartel will get those names and they will die. 45 00:04:41.500 --> 00:04:43.740 The same thing in other countries. 46 00:04:43.740 --> 00:04:44.740 This is reality. 47 00:04:44.740 --> 00:04:47.380 This is the law. 48 00:04:47.380 --> 00:04:51.420 A former IRS agent who was in the Chief Counsel's Office of the Internal Revenue Service who 49 00:04:51.420 --> 00:05:21.420 who I have known personally and dealt with him many times since January of 1997, not 2007, 1997, recently retired, was one of the writers at FATCA, I did not know that, until he sent me an email message, he's now retired last week, I got his email address from another former IRS agent that knew him well, he helped write this legislation, he said two things about it, it shouldn't be legislation, it should be legislations 50 00:05:21.420 --> 00:05:24.920 Because it is so complex, it is unbelievable. 51 00:05:24.920 --> 00:05:30.620 Secondly, he said, and he wrote this, he didn't write the whole word, I'm going to tell you how he wrote it. 52 00:05:30.620 --> 00:05:36.420 He said it should be preceded legally with the word S.H. and you know what the four-letter word is. 53 00:05:36.420 --> 00:05:37.920 That's what he thinks about it. 54 00:05:37.920 --> 00:05:46.920 Now, he was doing his job in the government, now he's outside the government and he's telling what he really thinks. 55 00:05:46.920 --> 00:05:50.920 Who does this affect? Again, it affects every one of us. 56 00:05:53.920 --> 00:06:01.920 It will, and even he says this, it will result in when people really find out what's going on, 57 00:06:01.920 --> 00:06:07.920 and they know what's going on around the world much, much greater than they do in the United States. 58 00:06:07.920 --> 00:06:12.920 I've been dealing with the offshore arena as a lawyer since 1991. 59 00:06:12.920 --> 00:06:33.920 I have never seen anything like this in my career. I do have to give credit to whoever wrote this. They are genius and stupid, because this will run investments away from America a lot, beyond imagination. I don't even know how to think about it. Maybe the Keynesians can figure it out. 60 00:06:33.920 --> 00:07:02.920 This does affect economists, writers, theoreticians, professors, everybody. This is an impact, and other countries, like I'm saying, are entering into treaties, the Cayman Islands recently, and there are two types of treaties. I won't get into that. What I want you to know is this law is real, and it's very serious. 61 00:07:02.920 --> 00:07:32.920 Let me give you a little background. The IRS through the Department of Justice has filed numerous John Doe summaries where they show in federal court that there are unreported accounts. They have some kind of proof. It resulted, for example, in the shutting down of several banks. They've also used mutual legal 62 00:07:32.920 --> 00:07:38.200 Legal Assistance Treaties, which is anti-secrecy law, treaties with other countries, resulting 63 00:07:38.200 --> 00:07:43.160 in shutting down two Bohemian banks. They found a trust company. Trust companies, I 64 00:07:43.160 --> 00:07:49.680 forgot to mention them, they're also affected. A trust company in Bermuda being shut down 65 00:07:49.680 --> 00:07:54.920 because they found out they were helping hide unreported accounts set up by an American 66 00:07:54.920 --> 00:08:03.560 through a form foreign trust, and it resulted, if you've heard about it, in the UBS case. 67 00:08:03.560 --> 00:08:10.440 The big UBS case resulted in turning over 5,000 names, more than 5,000 thus far. 68 00:08:10.440 --> 00:08:21.080 And they won this case because the move forward, you see what they paid, admissions, it resulted 69 00:08:21.080 --> 00:08:24.120 in moving forward and looking at other banks. 70 00:08:24.120 --> 00:08:28.920 Now where were they getting this information? You see Wegeland Bank, and it is pronounced 71 00:08:28.920 --> 00:08:34.840 Wegeland, not Vagelin. It's a small bank, but it's the first private bank in Switzerland, 72 00:08:34.840 --> 00:08:39.440 in the history of Switzerland private bank. The total amount paid, the first payment and 73 00:08:39.440 --> 00:08:47.440 the last payment, is $74 million. It bankrupted. Where they got the information primarily, 74 00:08:47.440 --> 00:09:17.440 and the other sources are the two first voluntary disclosure initiatives, OBDI 2009-2011. Now we have the 2012 which is open-ended, we don't know when it will end. Now why do they have this? They have it to, as they say, get taxpayers, I hate using that word, I say U.S. persons, to come clean and to pay taxes, but the real reason is to gather information because if you're involved in this process, 75 00:09:17.440 --> 00:09:22.480 program, you cannot imagine the questions that are asked that you have to answer. They're 76 00:09:22.480 --> 00:09:27.560 detailed beyond imagination. It takes so much time for the lawyer, for the accountant, and 77 00:09:27.560 --> 00:09:32.560 for the client. When the compliant complains about the lawyer and accountant's time, when 78 00:09:32.560 --> 00:09:37.840 they have to start answering the questions, they get it. What they're looking for are 79 00:09:37.840 --> 00:09:43.220 names of banks and financial institutions and practitioners around the world who help 80 00:09:43.220 --> 00:09:46.580 to help them so-called hide their money. 81 00:09:46.580 --> 00:09:50.060 They're finding these names and they're finding them consistently. 82 00:09:50.060 --> 00:09:56.100 When you represent one of these OBDP clients, the IRS may ask to come speak with your clients, 83 00:09:56.100 --> 00:10:01.180 saying everything's fine with your client, your submissions are good, they're okay, but 84 00:10:01.180 --> 00:10:07.480 we're coming to talk to you about the banker banks where the unreported accounts were located 85 00:10:07.480 --> 00:10:12.020 because we want to know exactly what they did and find out additional information. 86 00:10:12.020 --> 00:10:20.480 They are particularly looking for banks that accepted money after UBS was caught. 87 00:10:20.480 --> 00:10:30.020 They consider them really dirty, waggling. 88 00:10:30.020 --> 00:10:35.680 In the OVDP program, it is an eight-year look back, meaning filing returns basically for 89 00:10:35.680 --> 00:10:45.480 for Eight Years, a 27.5% penalty which can change and, like I said, extremely time-consuming 90 00:10:45.480 --> 00:10:49.360 for the lawyer, accountant and so forth. 91 00:10:49.360 --> 00:10:57.360 The primary purposes of entering the program, and I'll get into FATCA again later, is to 92 00:10:57.360 --> 00:11:00.280 avoid prosecution. 93 00:11:00.280 --> 00:11:02.640 That is the primary reason. 94 00:11:02.640 --> 00:11:06.840 And it's also to have a known set penalty, although high. 95 00:11:06.840 --> 00:11:11.400 If you get caught, it will be higher, assuming they don't prosecute you criminally. 96 00:11:11.400 --> 00:11:16.280 They like to prosecute criminally people whose names they can get in a newspaper to scare 97 00:11:16.280 --> 00:11:18.280 other people. 98 00:11:18.280 --> 00:11:23.120 Or it could be someone with a practitioner or the client that the practitioner is representing. 99 00:11:23.120 --> 00:11:27.780 Oh, I'd get rid of them, but they're making the IRS mad. 100 00:11:27.780 --> 00:11:33.780 They don't have, can't go after everybody, but the penalties, if you're caught, will be very severe. 101 00:11:33.780 --> 00:11:42.480 There are potential ways of avoiding the program if it's, you have, I think it's on my next slide, 102 00:11:42.480 --> 00:11:50.580 but you have very good reasons to be on my next slide, or next to, very good reasons for not going through the OVDI program, 103 00:11:50.580 --> 00:11:56.380 but you better have very good reasons or you better state them on a cover letter and they better be very true. 104 00:11:56.380 --> 00:12:02.500 That means that the lawyer and accountant, especially the lawyer, must know a lot about this client in order to write such a letter. 105 00:12:02.500 --> 00:12:05.020 That's a scary letter to write for a lawyer. 106 00:12:05.020 --> 00:12:11.580 It's considered malpractice to do, and this is a later slide too, I'm getting ahead of myself. 107 00:12:11.580 --> 00:12:18.300 It is considered malpractice to go through quiet disclosures, or silent filing as I call them. 108 00:12:18.300 --> 00:12:22.140 That's not correct, it's quiet disclosures. What is a quiet disclosure? 109 00:12:22.140 --> 00:12:28.380 A client comes in, he has an offshore trust and he has not reported the income nor filed 110 00:12:28.380 --> 00:12:30.860 the tax returns and reports. 111 00:12:30.860 --> 00:12:36.580 So you just file those with the Internal Revenue Service and pay the interest and penalties 112 00:12:36.580 --> 00:12:39.340 and so forth, hoping everything is fine. 113 00:12:39.340 --> 00:12:44.540 The IRS makes it sure that they have trained their agents to refer this case to the Criminal 114 00:12:44.540 --> 00:12:50.420 Investigation Division for potential criminal investigation. 115 00:12:50.420 --> 00:12:53.980 That's why it's malpractice to a lawyer to do this. 116 00:12:53.980 --> 00:12:59.340 So you better have very good reasons to do a quiet filing, a very good reason. 117 00:12:59.340 --> 00:13:01.980 We used to do this before 2009. 118 00:13:01.980 --> 00:13:05.540 We would send this into the Internal Revenue Service for three years and then they said 119 00:13:05.540 --> 00:13:10.980 no we want six years, openly in conferences that they spoke at and we would file them 120 00:13:10.980 --> 00:13:14.020 and we'd never hear from the IRS except if they disagreed with the interest. 121 00:13:14.020 --> 00:13:16.700 If they disagreed with the interest, we paid it. 122 00:13:16.700 --> 00:13:17.820 That was it. 123 00:13:17.820 --> 00:13:47.820 The IRS is focused on undisclosed accounts. I am amazed that when I talk to some accountants and lawyers and I tell them they have a client or something who has an unreported offshore account and has failed to file some tax returns and they're a little bit worried about it, but if you tell them that they have a client that has failed to file a domestic tax return, they're real worried about it. They have a client that has failed to file a domestic tax return and they're real worried about it. 124 00:13:47.820 --> 00:13:54.360 We have this totally and completely backwards. The IRS is focused on this, and they're focused 125 00:13:54.360 --> 00:14:01.560 by entering into tax treaties, including FATCA treaties around the world, and they have additional 126 00:14:01.560 --> 00:14:09.760 targeted banks that they're going after. They've already mentioned various countries, Israel, 127 00:14:09.760 --> 00:14:20.760 and China, especially Hong Kong. There's a quiet disclosure. The reality of being caught. 128 00:14:20.760 --> 00:14:29.760 You probably recently saw where the proposal is to let all spy agencies look into the financial accounts of every single American. 129 00:14:29.760 --> 00:14:38.760 Well, you're toast if that happens. Whistleblowers. They're rampant now. 130 00:14:38.760 --> 00:14:48.200 They're rampant now. And FATCA. The other ones, divorces. Husband told wife, I have an unreported 131 00:14:48.200 --> 00:14:54.120 account. Now they're going through divorce. Wife tells lawyer, my husband has an unreported account. 132 00:14:55.320 --> 00:15:01.320 Lawyer for wife calls Richard Doo. What can I do? Oh my God. You cannot use criminal 133 00:15:02.040 --> 00:15:04.920 in a civil matter to threaten somebody. Don't call me. 134 00:15:08.760 --> 00:15:16.840 Now, this really gets interesting. The IRS, you go through three stages. The first stage 135 00:15:16.840 --> 00:15:25.960 is to get into the program. These people were in the program and accepted by the IRS. The 136 00:15:25.960 --> 00:15:34.240 IRS and these two banks, the first one being the biggest bank in Israel, said, oh, well, 137 00:15:34.240 --> 00:15:39.800 We're going to revoke our acceptances, apparently because the banks are now turning over your 138 00:15:39.800 --> 00:15:40.800 names anyway. 139 00:15:40.800 --> 00:15:46.280 So we don't need to go through all this unbelievable process we at the IRS have to go through. 140 00:15:46.280 --> 00:15:52.640 So they revoke the amnesties with respect to these two banks. 141 00:15:52.640 --> 00:15:55.840 FATCA. 142 00:15:55.840 --> 00:15:58.800 FATCA affects everyone. 143 00:15:58.800 --> 00:16:04.520 You have to know who you're dealing with under FATCA. 144 00:16:04.520 --> 00:16:08.560 That includes any kind of financial institution, hedge fund, you name it, registered investment 145 00:16:08.560 --> 00:16:14.360 advisor, custodial bank, insurance carrier, inside and outside the United States. 146 00:16:14.360 --> 00:16:23.440 If you have a foreign entity, you must determine whether it is a non-financial, non-foreign 147 00:16:23.440 --> 00:16:28.600 financial entity or whether it's a flow-through entity or some other type of entity. 148 00:16:28.600 --> 00:16:36.720 You must determine the classification. And if you don't enter into an agreement, such 149 00:16:36.720 --> 00:16:41.840 as a foreign bank, foreign financial institution, a U.S. institution will know this, and there 150 00:16:41.840 --> 00:16:47.720 will be withholding on various types of income. It's not important that you know the income, 151 00:16:47.720 --> 00:16:55.920 it is banks must know this. It also affects U.S. persons going offshore next year. You 152 00:16:55.920 --> 00:17:02.840 You must file the FATCA form, the 8838, and this applies to U.S. citizens and legal residents 153 00:17:02.840 --> 00:17:10.060 that they call taxpayers, with an aggregate value of $50,000, and it's effective after 154 00:17:10.060 --> 00:17:12.400 this year. 155 00:17:12.400 --> 00:17:18.640 And I will leave you with this thought. 156 00:17:18.640 --> 00:17:24.760 My practice has been primarily involved in representing clients to diversify investments 157 00:17:24.760 --> 00:17:51.760 I have never in my career seen anything like this law. Again, whoever dreamed this law up is brilliant, but destructive. This law affects all of us, and it affects everything. And again, hopefully the Keynesians can come up with some kind of figure to tell me how this is going to affect everybody, which I will of course throw away. Thank you. 158 00:17:54.760 --> 00:17:56.760 Thank you very much.