FBAR Criminal Prosecution – Case Study
Offshore tax evasion, specifically failure to file FBARs, can result in two types of civil penalties – willful failure and non-willful failure. Additionally failure to file FBARs can result in criminal prosecution.
A few weeks ago I wrote an article about an FBAR civil penalty case that involved civil penalties for a willful violation. Here is a offshore tax evasion case that involves criminal prosecution.
The full report from the Department of Justice can be found here.
Dan Farhad Kalili, together with his brother, David Ramin Kalili, and David Shahrokh Azarian, admitted that they willfully failed to file Reports of Foreign Bank and Financial Accounts (FBARs) with the Internal Revenue Service (IRS) regarding secret bank accounts in Switzerland and in Israel.
Dan and David Kalili opened and maintained several undeclared offshore bank accounts at Credit Suisse Group (Credit Suisse) in Switzerland. He also opened and maintained several undeclared offshore bank accounts at UBS AG (UBS) in Switzerland. Dan and David Kalili also maintained joint undeclared Swiss bank accounts at both UBS and Credit Suisse. Meanwhile, Azarian opened and maintained several of his own undeclared accounts at Credit Suisse in Switzerland, and at UBS in Switzerland.
Dan Kalili, with the assistance of Beda Singenberger (Singenberger), a Swiss citizen who owned and operated a financial advisory firm called Sinco Truehand AG, opened an undeclared account at UBS in the name of the Colsa Foundation, an entity established under the laws of Liechtenstein.
Each of the defendants took affirmative steps to prevent their assets in UBS and Credit Suisse from being discovered. Dan Kalili opened an undeclared account at Swiss Bank A in the name of the Colsa Foundation and transferred his assets from the UBS Colsa Foundation account to Swiss Bank A. Dan Kalili opened undeclared accounts at Israeli Bank A and at Bank Leumi, both in Israel. He closed the joint undeclared account at Credit Suisse he held with David Kalili, as well as his own undeclared account, and transferred the funds. Shortly before its closure, the undeclared joint account of Dan and David Kalili at Credit Suisse held approximately $2,561,508 in assets. As of December 2009, Dan Kalili’s undeclared account at Israeli Bank A held assets valued at approximately $1,569,973, and his undeclared account at Bank Leumi held assets valued at approximately $2,497,931.
Similarly, in August 2008, David Kalili opened an undeclared account at Israeli Bank A in Israel, into which he transferred funds from his UBS accounts. David Kalili’s undeclared account at Israeli Bank A held assets valued at approximately $1,369,489.
In August 2008, Azarian, also opened an undeclared account at Israeli Bank A in Israel, and in May 2009, he closed his undeclared account held at Credit Suisse and transferred the funds to Israeli Bank A. At the time of its closure, Azarian’s undeclared account at Credit Suisse held assets valued at approximately $1,903,214.
Each of the three individuals were charged with and pled to one count of failure to file FBARs (felony) under 31 U.S.C. §§ 5314 and 5322(a), 31 C.F.R. §§ 1010.350, 1010.306(c, d) and 1010.840(b)
The statutory maximum sentence for this violation is 5 years imprisonment; a 3-year period of supervised release; a fine of $250,000, or twice the gross gain or loss resulting from the offense, whichever is greater; and a mandatory special assessment of $100.
Elements of Criminal Prosecutions in Offshore Tax Evasion Cases
In order for the Government to pursue willful civil or criminal charges for failure to file FBARs, the willfulness standard under the Bank Secrecy Act requires the government to prove the defendant acted with knowledge that his conduct was unlawful. It requires a voluntary and intentional violation of a known legal duty. In reference to 31 U.S.C. § 5322(a), which makes the failure to file a felony, courts have defined willfulness as a “purpose to disobey the law”, a “voluntary, intentional, and bad purpose to disobey the law, and a “knowledge of the reporting requirement and a specific intent to commit the crime.”
Willfulness Factors in Offshore Tax Evasion Cases
Here are some of the facts I believe led to the charges in this case:
- Accounts were located in known tax havens and at “bad banks” on the foreign financial institutions or facilitators list
- Defendants took affirmative steps to prevent their assets in UBS and Credit Suisse from being discovered by opening accounts in the name of holding companies. Some accounts were unnamed, numbered accounts to minimize the number of documents associated with the defendants. Swiss accounts were closed and transferred to accounts at Israeli banks to avoid being discovered.
- Defendants partially declared accounts on their tax returns, while selectively omitting others
- One of the defendants acknowledged to IRS CI special agents that he was aware of the legal requirement to report his interests in foreign bank accounts and to file FBARs. The defendant also falsely stated to the special agents that he declared his accounts at UBS when in fact he did not.
- The failure to file FBARs spanned well over a decade and the accounts held assets that reached into the millions
In his role for offshore tax evasion, Dan Farhad Kalili, 55, was sentenced to serve 12 months and one day in prison; his brother, David Ramin Kalili, 52, was sentenced to serve eight months in prison; and his brother-in-law, David Shahrokh Azarian, 67,was sentenced to serve eight months in prison.
In addition to the term of prison imposed, Dan Kalili was ordered to serve one year of supervised release and to pay $337,443 in restitution. He also agreed to pay a civil penalty of $2,674,329. David Kalili was ordered to serve one year of supervised release and to pay $243,019 in restitution. He also agreed to pay a civil penalty of $1,325.121. Azarian was ordered to serve one year of supervised release and to pay $197,840 in restitution. He also agreed to pay a civil penalty of $951,607.