Justice News

Principal Deputy Assistant Attorney General Caroline D. Ciraolo Delivers Remarks at the Cambridge International Symposium on Economic Crime
United Kingdom
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Monday, September 5, 2016

Remarks as prepared for delivery

Thank you for this opportunity to participate in the 34th Annual Cambridge International Symposium on Economic Crime.  It is an honor to join so many prominent officials and thought leaders.  I look forward to discussing our collective efforts to prevent and control economically motivated crime and abuse, and in particular, individual accountability for organizational offenses.  I’d like to start the conversation with a review of the efforts of the U.S. Department of Justice to combat tax evasion through the use of foreign accounts, entities and activities.

The Justice Department has primary responsibility for enforcement of the federal laws of the United States.  For nearly two years, I have had the honor of leading the department’s Tax Division, consisting of more than 340 attorneys, who are dedicated to the enforcement of our nation’s tax laws through both civil and criminal litigation to ensure voluntary compliance, maintain public confidence in the integrity of our tax system and promote the sound development of law.

Similar to other countries, one method of measuring compliance in the United States is through analyzing the “Tax Gap” – the amount of tax due annually that is not voluntarily and timely paid.  The annual gross tax gap is estimated to be $458 billion.  After collection efforts, $406 billion remains outstanding.  This is revenue that should be in the U.S. Treasury, funding national operations and services.  Instead, this gap in compliance undermines the U.S. tax system and impairs our ability to meet the needs of our citizens.  When individuals and entities fail to meet their tax obligations, we stand ready with our partners in the Internal Revenue Service (IRS) to hold them accountable and one of our highest priorities is the detection, investigation and pursuit of those engaged in offshore tax evasion.

Since 2008, the department has prosecuted more than 160 U.S. taxpayers who used foreign financial accounts, foreign structures, or foreign tax havens to evade their U.S. tax and reporting obligations.  These individuals did not act in a vacuum.  Instead, they relied on the assistance of third parties, including foreign financial institutions, bankers, accountants and lawyers, just to name a few.  Many of these third parties are unwitting participants, while others play an active role, as evidenced by the fact that we have charged nearly 50 individuals and reached resolutions with 90 foreign financial institutions that facilitated the concealment of U.S. related accounts and aided in the evasion of U.S. tax.

Through our criminal investigations and the historic Swiss Bank Program, we have gained substantial insight into the methods by which entities and individuals facilitate offshore tax evasion.  These methods include the use of non-U.S. shell corporations, nominees and alter egos, as well as numbered and coded accounts to disguise the true owners of funds on deposit, “hold mail” services to prevent evidence of undeclared accounts from entering the United States, structured cash deposits and withdrawals to avoid currency reporting requirements and alternative passports to conceal indicia of U.S. residency or citizenship.  These methods were designed, supervised, or executed by individuals at all levels of the institutions, from client advisors to the executive suite.

One year ago this week, the Deputy Attorney General of the Justice Department, Sally Q. Yates, spoke of the importance of individual accountability in corporate investigations.  Corporate crimes damage not only the company, but its employees and shareholders, and in many cases, the national and international economy.  The individual actors within corporations must be held accountable and nothing discourages corporate criminal activity like individual civil liabilities and effective criminal prosecutions.

Deputy Attorney General Yates noted the challenges that exist when investigating a corporate entity, including complex corporate structures, voluminous electronic documents stored in various jurisdictions and a variety of legal and practical hurdles, including bank secrecy laws, data privacy laws and the limited ability to compel testimony.  Despite these challenges, the department is committed to maintaining public confidence in a criminal justice system that operates fairly and applies equally – regardless of who commits the crime or where it is committed.

To that end, the department announced new requirements that ensure individual accountability and these requirements play a critical role in the Tax Division’s domestic and international tax investigations.  First and foremost, to receive any credit for cooperation, an entity must identify all individuals involved in the wrongdoing and provide all relevant facts about their misconduct.  To comply with this requirement, an entity must conduct a fulsome internal investigation and provide all non-privileged evidence to the United States. 

This is not a sliding scale and is not subject to negotiation.  Failure to come forward and identify individual actors engaged in the criminal conduct will render an entity ineligible for cooperation credit from the United States.  In practical terms, such failure could lead to a more severe resolution - a guilty plea rather than a deferred prosecution agreement, greater monetary penalties and more restrictive terms for future monitoring.  A word of caution to entities seeking to minimize the impact of this requirement – a company will not be viewed as having cooperated if the department is forced to bring the existence or magnitude of an individual’s misconduct to the attention of the company, when the company’s internal investigation should clearly reveal this information.

In reaching resolutions with the Tax Division, foreign financial institutions are required to provide concrete information about cross-border business for U.S. related accounts, including the names and functions of individuals who structured, operated, or supervised U.S. related accounts.

The department also requires that, after companies resolve criminal proceedings, they continue to provide relevant information about individuals implicated in the wrongdoing.  For example, under the terms of the Swiss Bank Program, participating institutions are required to cooperate in civil and criminal tax investigations involving U.S. related accounts for the life of those proceedings.

To date, the department has received significant information from a variety of sources – foreign financial institutions participating in the Swiss Bank Program, individuals and entities cooperating in pending investigations and pursuant to the terms of other resolutions, whistleblowers coming forward to reveal individual and corporate misconduct and responses to treaty requests.  Department attorneys and agents within the IRS are reviewing this information to pursue ongoing and new criminal tax investigations and to support civil enforcement efforts.  This coordination reflects the wide range of enforcement remedies in tax matters – from civil penalties to prosecution and incarceration.

Under this approach, the department seeks to resolve cases with individuals before or at the same time that we resolve a matter with the related entity.  For example, earlier this year, Bank Julius Baer entered into a deferred prosecution agreement wherein it admitted to conspiring with and knowingly assisting U.S. accountholders to hide offshore accounts and evade U.S. taxes.  Julius Baer agreed to pay $547 million, including restitution for tax loss arising from the undeclared U.S. related accounts, disgorgement of gross fees paid with respect to these accounts and a fine for its illegal conduct.  In addition, two Julius Baer bankers, both of whom had been fugitives since 2011, pleaded guilty to conspiracy to defraud the IRS, to evade federal income taxes and to file false federal income tax returns.  Julius Baer’s early and extensive cooperation resulted in a substantial reduction in the monetary penalties imposed.

If simultaneous resolutions are not feasible based on the particular facts and circumstances, the department looks for a clear plan that addresses individual accountability prior to the entity resolution.  While we recognize that holding individuals accountable may not be feasible or appropriate in every case, these efforts will force entities to view serious misconduct as a substantial risk to the viability of the company and the liberty of those individuals involved, rather than simply a cost of doing business.

As we review the information we have gathered and follow leads to jurisdictions around the world, our investigations focus on an ever-widening circle of U.S. taxpayers and the financial institutions and individuals who assist them in evading their tax obligations.  Those who attempt to use secret foreign financial accounts are running out of places to hide and running out of time to come into voluntary compliance.  Individuals who seek to assist U.S. taxpayers in this criminal conduct will be investigated and prosecuted and face both monetary sanctions and incarceration.

The international financial landscape has changed dramatically and financial transactions are more complex, involving numerous parties and multiple jurisdictions.  Recognizing this, governments around the world are working together to combat tax evasion and other financial crimes.  The department truly appreciates and values its strong working relationships with its foreign counterparts and looks forward to continued cooperation in the international arena.

Updated September 6, 2016