No 'Right to Silence' To Avoid Disclosing Information About Offshore Accounts

by Mark Nestmann
The Nestmann Group, Ltd.

Recently by Mark Nestmann: Governments Agree: You Will Have No Electronic Privacy

The Fifth Amendment to the U.S. constitution provides, in part:

“No person shall … be compelled in any criminal case to be a witness against himself.”

The origins of the Fifth Amendment come from the courts of England. In common law, a confession signed under torture or threat of torture could be used as evidence against a criminal defendant. But eventually, torture fell into disfavor. English case law came to prohibit the courts from considering evidence obtained through torture. U.S. law inherits this prohibition in the form of the Fifth Amendment.

The Fifth Amendment, though, has some glaring holes. For instance, the use of what could only be considered torture continued in some states until the 1930s. It ended only after the Supreme Court overruled convictions based on coerced confessions.

Until relatively recently, the Fifth Amendment also protected your private financial records. An 1886 Supreme Court decision held that the Fourth and Fifth Amendments create a “zone of privacy” which protects an individual and his personal records from compelled production. But in 1984, in U.S. vs. Doe, the Supreme Court effectively overturned this decision. The court concluded that, “The Fifth Amendment provides absolutely no protection for the contents of private papers of any kind.” If the government subpoenas records you compile voluntarily or under compulsion of law (e.g., tax records), you must release them, or face a contempt citation. Those records may then be used against you in a civil or criminal proceeding. So much for the Fifth Amendment!

It was because of the Doe decision that I didn’t have high hopes that an unnamed U.S. taxpayer with the initials “M.H.” would prevail when he sued in federal court to quash a subpoena for records relating to his offshore bank account. Sadly, I was correct. M.H. lost in the U.S. District Court for the Southern District of California. He appealed, and the Ninth Circuit Court of Appeals affirmed the lower court’s decision. The bottom line: the Doe decision, along with other case law, completely overrules any right not to incriminate yourself with respect to your records of offshore banking activity.

M.H. had the misfortune to be one of approximately 250 taxpayers whose account records the Swiss bank UBS recently provided to U.S. investigators. UBS gave up the records as part of a 2009 plea deal to avoid criminal indictment for aiding and abetting tax evasion, among other possible charges. The records showed that M.H. had a past account relationship with UBS. Based on these records, a federal court issued a subpoena to M.H. to produce records relating to this account or any other foreign financial account. The obvious implication is that M.H. failed to report and/or pay taxes on earnings from one or more foreign financial accounts. Such failure is subject to criminal penalties, so producing the records the subpoena demands is patently self-incriminating.

What could M.H. have done differently? Complying with the law would have been the most obvious solution. But M.H. could also have approached the IRS through a tax attorney to voluntarily disclose his offshore accounts once he learned that UBS had been targeted. In almost all cases, this avoids the possibility for criminal penalties.

The latest IRS offshore voluntary disclosure initiative (OVDI) ends Aug. 31, 2011. You must have the disclosure process underway by that date, and completed by Nov. 30, 2011. To qualify for the OVDI, you need to file amended tax returns; file delinquent disclosures of foreign bank accounts on Treasury Form TD F 90-22.1 (the “FBAR”); and pay whatever taxes, interest, and penalties apply. The 2011 OVDI Web site FAQs provide several examples of how specific taxpayers with unreported accounts would be dealt with – and yes, the penalties mount up quickly. To view the FAQs, click here.

Should you participate in the OVDI? The answer is maybe, but only after you consult with a qualified tax attorney (not an accountant). This arrangement provides attorney-client privilege for your discussions. The tax attorney can then retain an accountant to prepare the necessary returns, and decide whether you should participate in the program.

However, neither the Fifth Amendment, nor time, is on your side. You only have one week to begin the process.

Reprinted with permission from The Nestmann Group, Ltd.

August 31, 2011

Mark Nestmann [send him mail] is a journalist with more than 20 years of investigative experience and is a charter member of The Sovereign Society’s Council of Experts. He has authored over a dozen books and many additional reports on wealth preservation, privacy and offshore investing. Mark serves as president of his own international consulting firm, The Nestmann Group, Ltd. The Nestmann Group provides international wealth preservation services for high-net worth individuals. Mark is an Associate Member of the American Bar Association (member of subcommittee on Foreign Activities of U.S. Taxpayers, Committee on Taxation) and member of the Society of Professional Journalists. In 2005, he was awarded a Masters of Laws (LL.M) degree in international tax law at the Vienna (Austria) University of Economics and Business Administration.

Copyright © 2011 Mark Nestmann

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