The IRS wanted to know if a former UBS AG customer – and the target of a federal grand jury investigation in San Diego – had used a secret Swiss bank account to evade paying U.S. taxes. The investigation was part of a larger IRS investigation of alleged offshore tax evasion. A federal appeals court panel ruled August 19 that the customer could not assert his constitutional rights against self-incrimination to avoid turning over the documents.
The customer, identified only as M.H., refused to produce some records related to his accounts and the trail court refused to grant limited immunity to compel production of the documents. So M.H. appealed. He argues that if he turns over the information, sought by the IRS under the Bank Secrecy Act, he runs the risk of incriminating himself and that the information just might conflict with what M.H. previously reported to the IRS, according to the 9th U.S. Circuit Court of Appeals opinion.
The decision is a boon to the IRS efforts to track down and force disclosure of funds stashed in offshore bank accounts.
M.H.’s sticky situation is the outgrowth of a larger 2009 landmark agreement between the Justice Department and Swiss bank UBS AG in which UBS agreed for the first time to identify account records for roughly 250 U.S. taxpayers whom the bank may have aided in committing tax evasion. UBS was faced with U.S. prosecution and instead worked out a deferred prosecution agreement in exchange for turning over the customer names and accounts.
M.H. transferred securities in 2002 from UBS to a different Swiss bank after the IRS began checking up on him, according to Judge Richard Tallman’s opinion.
Tallman said the information sought in the grand jury subpoena “mirrors the banking information [the statute] requires taxpayers using offshore bank accounts to keep and maintain for government inspection.” He said that while grand jury’s may not engage in arbitrary fishing expeditions “there is no evidence of excess here.”
There is nothing inherently illegal about having a foreign bank account, Tallman noted, therefore, M.H. is not inherently criminal and being required to provide the information does not establish a significant link in a chain of evidence tending to prove guilt, he wrote.
M.H. is required to produce the documents and the Fifth Amendment privilege does not apply, Tallman said.
Case: In re Grand Jury Investigation M.H., No. 11-55712 (9th Circuit)