IRS Prosecutes Tax Evaders Using Information Obtained from Swiss Bank UBS AG

The U.S. government has ratched up its tax collection efforts. On the one hand, the government has been prosecuting tax evaders, and pressuring Swiss banks to disclose information that would assist with such prosecutions. On the other hand, the government has introduced Voluntary Disclosure Program, a safe harbor allowing delinquent taxpayers to make voluntary disclosure and payment by September 23, 2009, in order to avoid criminal prosecution and imprisonment.

In February 2009, Swiss banking giant UBS AG settled a U.S. prosecution action against it, by agreeing to pay $780 Million and disclosing information about 250 U.S. depositors. UBS is considered the second largest wealth manager globally. The U.S. Governmet has so far brought four criminal prosecution actions based on in the information disclosed on the UBS depositors.

The latest case has been one against John McCarthy, a resident of Malibu, California. In U.S. vs. McCarthy, United States District Court, Central District of California, Case no. CR 09-00784, the prosecutors charged that in 2003 McCarthy opened a Swiss bank account in the name of COGS Enterprises Ltd., a Hong Kong entity. According to the information released, McCarthy has agreed to plead guilty to failure to report foreign bank accounts from 2003 to 2008, a felony charge. McCarthy has admitted transferring more than $1 Million from his U.S.-based businesses to the Swiss bank account. He has agreed to pay panalties equal to one-half of the highest balances held in this account during the years 2003 though 2008. Under the plea agreement, he faces up to five years inprisonment, three years' supervised release, and fines of up to $250,000. McCarthy is scheduled to appear before the Los Angeles federal court on September 14, 2009.

An earlier case was against Jeffrey Cherkin, a New York businessman. The plea agreement states, Cherkin had used Hong Kong based corporations to hide commissions paid him by toymakers in Hong Kong and in China. When Cherkin needed money, he would request Swiss banks to make out checks payable to Cherkin's U.S. companies and he would personally carry the checks back to the U.S. Charkin has pleaded guilty to filing a false 2007 U.S. tax return and faces 3 years of imprisonment.

Some of the materials for this blog were obtained from the Reuters, The Miami Herald, and USA Today.

Robin Mashal is a partner at the law firm of Hong & Mashal, LLP, and can be reached at (310) 286-2000. His practice focuses on business law, real estate law and civil litigation. Hong & Mashal LLP is a California business law firm.