Grand Jury Probing Foreign Bank Accounts, U.S. Judge Says

A U.S. judge ordered five unidentified taxpayers to turn over information about their foreign bank accounts to a federal grand jury, rejecting arguments they are shielded by the U.S. Bank Secrecy Act or a constitutional right against self-incrimination.

U.S. District Judge William Pauley in Manhattan said yesterday that a federal grand jury in 2010 began investigating “whether each of the five subjects had a financial interest in foreign bank accounts that they failed to disclose to the Internal Revenue Service.”

In a victory for the government, Pauley said individuals can’t assert a constitutional right against self-incrimination and refuse to disclose bank records to a U.S grand jury.

“The subjects contend that these records are not customarily kept by foreign bank account holders who wish their accounts to remain secret,” Pauley said in his ruling. “But they cite no authority for this proposition.”

“It is equally unacceptable for an American taxpayer to profit from American markets, refuse to report that profit as taxable income, and then claim that he cannot be held accountable because he engineered his offshore account to be secret,” Pauley said. “This court declines to credit such sophistry.”

‘All Records’

A preliminary investigation revealed that each of the five had a financial interest in, or signature over, a foreign bank account, Pauley said. The subpoenas seek “any and all records” of bank or foreign accounts “in any foreign country” which exceeded $10,000, he said.

The records sought include the name in which each account is maintained, number of others tied to the account, the address of the bank, and the maximum value of each such account, Pauley said.

The judge yesterday directed that all responses filed by the government and defense lawyers in the case, which began in November, be filed under seal.

U.S. courts in three other jurisdictions have ruled that a Report of Foreign Bank and Financial Accounts, or FBAR, is governed by the U.S. “Required Records Doctrine” and a taxpayer can’t assert a Fifth Amendment right against self-incrimination.

Bank Secrecy

The Bank Secrecy Act, passed by Congress in 1970 to combat money-laundering in the U.S., requires businesses to keep records and file reports that are deemed to have a “high degree of usefulness in criminal, tax and regulatory matters.”

Since 2009, at least 83 people have been charged with evading taxes by the U.S., including two dozen offshore bankers, lawyers and advisers. More than 38,000 Americans avoided prosecution by entering an IRS amnesty program in which they paid back taxes and penalties while disclosing the banks and bankers who helped them hide offshore accounts.

The case is In Re Various Grand Jury Subpoenas, 12-MISC-381, U.S. District Court, Southern District of New York (Manhattan).

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