The most public example of this phenomena of noose tightening on non-compliant offshore accounts is UBS. Yesterday, UBS announced a long awaited agreement with the U.S. Justice Department where they agreed to pay an extraordinary $780 Million and turn over the names of holders of undeclared accounts.  However UBS is just the crest of a tsunami of disclosure as every financial institution in the world is feeling the pressure LINK. Former gaps in the Qualified Intermediary Regime are also rapidly being closed and investigative powers are being beefed LINK  LINK up by Carl Levin and his colleagues in the U.S. Congress.

Carl Levin

Non-American account holders should also be nervous, as they may be the “dolphins in the tuna nets” whose accounts are first discovered by the U.S., Germany or the U.K. who then turn the information over to the relevant home jurisdiction. This international sharing of information is exactly what happened in the LGT case, where Germany was the first recipient of the stolen information.

As the authorities close in, wise account holders are taking advantage of the fact that their portfolios are currently depressed to engage in voluntary disclosures with tax authorities LINK. In many cases, given that only the last 5 or 6 years of income and capital gain need be brought up to date, the tax bill (with interest) is relatively palatable. Certainly more palatable then having the window of voluntary disclosure closed when the authorities get their names and will take nothing less than full tax, interest and civil and criminal penalties. In addition, once the account holder “comes clean”  they can then plan to properly and legally reduce or eliminate their future tax liability through expatriation or relocation.

However for those holders of non-compliant accounts who continue to hope that their accounts will somehow avoid pending discovery because of the traditional helpfulness of their personal account managers, I wish to point out the fact that Mr. Kieber was not an account manager. Rather he was someone in the IT department who had access to computer files. In today’s modern financial institution, one’s “secret account information” is available to a large number of employees. As Mr. Kieber discovered, stealing information and selling it to tax authorities is highly profitable (in the millions) for disgruntled former bank employees. Given layoffs in that industry, one doesn’t have to be a conspiracy theorist to believe that at least one or two of those boxes leaving in the arms of discharged employees contains more than family photos.   

David S. Lesperance, Barrister and Solicitor 

Two weeks ago, I had an opportunity to share a drink in London with well-know international lawyer Robert Amsterdam LINK. During our conversation, we discussed one of Robert’s best know clients Mikhail Khodorkovsky. Mr. Khodorkovsky, was the founder of Russia’s largest oil company, Yukos Oil and was arrested and later imprisoned after Russian leader Vladimir Putin seized his company and charged him with tax fraud in 2003 LINK. Robert and I discussed how differently things would have been if Mr. Khodorkovsky had more than just a Russian passport in his Passport Portfolio, when his arguments with Mr. Putin began. With additional citizenships and residences in place, he may have avoided arrest entirely or been freed by diplomatic pressure brought by the foreign countries where he also had citizenship or residence. Being located outside of Russia and having an unrestricted ability to travel globally and operate in countries where international law prevails, Mr. Khodorkovsky would have been able to put forward a proper and successful defense to the fraud charges. He probably would have been able to successfully stop the ultimate seizure and sale of Yukos Oil and avoided eight years of imprisonment.

While Russia is one country where the wealthy are coming increasing to the “attention of the Authorities,” it is by no means the only place. Other countries which do not have a history of “the Rule of Law” are also sweeping their wealthy off the streets, denying them legal counsel and seizing their assets. In November, Billionaire Chinese businessman Huang Guangyu was snatched by authorities who not only didn’t formally arrest him, they even refused to confirm that he was in custody . This was not the first time that China had done this  and with the deepening of the financial downturn, it isn’t difficult to speculate that it won’t be the last. In this poor global economy, an increasing number of countries (especially those dependent on now- depressed oil and commodity prices like Iran, the Gulf States, South Africa, Nigeria and Venezuela) will become tempted to look at “seizing” or “nationalizing” private assets for their own benefit.

While some would argue that Mr. Khodorkovsky and Mr. Guangyu must have been criminals and therefore deserved to be arrested and convicted, lawyers like Robert and I would remind them of that fine human rights tradition regarding the “presumption of innocence” LINK. As in many things in life, those who rely on others (including the state) to guarantee those rights may be gravely disappointed. The survivors will be those who took the personal responsibility to protect themselves, their family and their wealth.

David S. Lesperance, Barrister and Solicitor