A recent indictment by the United States Attorney’s office in California illustrates the inter-relationship between curency transfer restrictions, (such as those involving Iran), foreign financial account reporting (the FBAR requirement) and the failure to report taxable income (filing of a false tax return ).
In United States of America vs. Ali Amin the government alleged that Amin engaged in commercial transactions involving the purchase and sale of Pistachios with related parties who transferred funds between each other using an informal network (often known as a Hawala). .
The following section of the Indictment illustrates how the system works.
“8. For example, defendant AMIN approved the transfer of approximately $600,000 from Iran to the United States as follows:
a. On or about October 27, 2 008, defendant AMIN received an email from Fatemeh Amin, a relative of defendant Amin, in which Fatemeh Amin requested the transfer of $600,000 from Amin Padidar to Fatemeh Amin’s brother in the United States, and explained how Fatemeh Amin would arrange to deposit rials equal to $600,000 with Amin Padidar for the transfer. Defendant AMIN sent an email in response to Fatemeh Amin and explained that “[w]e can transfer the $600K tomorrow Europe time. You should have the funds in your account by tomorrow Thursday Los Angeles time”
The Hawala system was used extensively to transmit over $17 million dollars over four years. The use of a Hawala may violate the provisions of the Bank Secrecy Act which requires registration of Money Transmitting Businesses.
The Indictment further alleges that because Amin had an unreported interest in foreign financial accounts he was required to file a Report of Foreign Financial Account (FBAR) on an annual basis. The government alleges:
“13.AMIN had a financial interest in, and signature and other authority over, account number xxxxxxx.254, in the name of Imavel Corporation, at Hyposwiss Private Bank in Zurich, Switzerland, which account had an aggregate value exceeding $10,000 during the calendar year 2009, that is, approximately $2.9 million in September 2009, and defendant ALI AMIN did so (a) while violating other laws of the United States, namely, operation of an unlicensed money transmittal business, in violation of 18 U.S.C. § 1960; and (b) as part of a pattern of illegal activity involving more than $100,000 in a 12-month period.”
Finally, the government alleges that Amin knowingly failed to report taxable income on the unreported foreign financial accounts and then knowingly signed a false income tax return under penalties of perjury. The Indictment alleges:
AMIN, a resident of Los Angeles, California, willfully made and subscribed, by a written declaration verifying that he was doing so under penalty of perjury, and filed with the Internal Revenue Service, a U.S. Individual Income Tax Return, Form 1040, for the calendar year 2009, which defendant ALI AMIN did not believe to be true and correct as to every material matter, in that the tax return reported total income of -$1,127,331 on line 22, whereas, as defendant ALI AMIN then knew and believed, his total income for the year 2009 was in excess of -$1,127,331, specifically, defendant ALI AMIN concealed unreported income of approximately $1,926,742.47.
What this case illustrates is the need for competent experienced legal advice in order to avoid serious criminal and civil penalties. The penalty for willful failure to file an FBAR is the greater of $100,000 or 50% of the highest account balance per year, plus multiple years in custody.
FBAR’s for 2014 are due June 30, 2015 with no extensions possible. For previously unfiled years they may be multiple options to come forward, including the use of the Streamline Procedures or the Offshore Voluntary disclosure Program. In a case like Amin it is important to come forward rather than wait for the government to find you. We at Millarlaw are experienced with complex reporting and disclosure cases including those with fact patterns like Amin’s. With enhanced bank reporting under the Foreign Account Tax Compliance Act, it is not a matter of whether U.S. taxpayers with offshore accounts will be discovered, but when!