As the October 15 tax filing deadline approaches, the IRS propaganda machine is in full swing. This time it’s one tiny bank in Belize in the crosshairs. Belize Bank / Belize International Bank is being waterboarded by its correspondent banks into disclosing all accounts held by US persons over the last decade.
Expect this to escalate quickly with all offshore banks in Belize coming under attack by the US government in the coming months.
The IRS is back on the warpath. After smashing banks in Switzerland a few years back, turning offshore bankers in to unpaid IRS agents through FATCA, taking $7 billion in fines and penalties from 50,000 citizens (many of them expats), and another $4 billion in fines from offshore banks, the US government is targeting the tiny independent nation of Belize.
On Wednesday, the federal judge authorized the IRS to serve a so-called “John Doe” summons on the US correspondents of Belize Bank, Ltd. and Belize Bank International, Ltd. (the local and offshore division of the same bank).
A John Doe summons is a fishing expedition used when the US demand any and all records of US persons who had accounts at the bank over the last 5 to 10 years. The IRS doesn’t know that wrongdoing occurred, or who the wrongdoers are, but they know there’s smoke so there must be fire… and cash to be had.
And these fishing expeditions are done with a very large net. Because the bank may not know which accounts are owned by US persons, they may be forced to disclose ALL clients to cover their backsides… exposing many non-US persons to scrutiny.
How does the US force a bank in Belize to give up records from years past? You will be surprised how easily it can be done.
All offshore banks hold their money in correspondent banks and all of those banks either have branches in the US or do business with US banks. All transactions (wire transfers, etc.) are processed through the correspondent’s accounts. If those accounts are shut off, the offshore bank is out of business and all customer money is frozen in the US).
The US simply issues a summons to the correspondent bank demanding records of the transactions processed through its accounts by the offshore bank. Then the correspondent 1) requests the records from the offshore bank, and 2) freezes the bank’s capital until they comply… a form of financial waterboarding.
In this case, the US issued a summons to Citibank, New York and Bank of America, New York. These US banks will do the IRS’s work for them, forcing capitulation and shattering any appearance of privacy and security in Belize.
Belize Bank also had a corporate formation and offshore trust division called Belize Corporate Services, Inc. The judge was feeling fishy last Wednesday and issued a summons for all records of formations, trusts, and client correspondence for BCS. The IRS usually wouldn’t be able to enforce such a summons. But, because BCS is a subsidiary of the bank, and they have the correspondents to push the bank and its related companies around, expect BCS to comply.
Should you be afraid?
As an American living, working, or investing abroad, should you be afraid of the IRS attack on Belize? If you have an account in Belize, should you be worried?
If you have an unreported offshore account in Belize or elsewhere, yes, you should be very worried. If you hold a US passport and have an unreported account offshore, you should apply for the Offshore Voluntary Disclosure Program immediately. The link is to the 2014 OVDP program, still applicable today, September 21, 2015.
If you have an unreported account at Belize Bank, it’s probably too late to apply for the OVDP. You need to seek legal counsel and circle the wagons. Please contact us at firstname.lastname@example.org and request a referral to an international tax attorney. Do not include any incriminating or private information in your email… simply ask for a referral.
If you have a reported account at Belize Bank, or any bank in Belize for that matter, then you have nothing to worry about. If you have been filing your US forms and paying your taxes, relax. This is why time and time again in my blog I tell you to stay in compliance.
It’s also why I say that, if you are going to go offshore, you must have a US expert in your corner. You need a US tax professional to create your structure and keep you in good standing with the IRS.
The penalties for doing it wrong are severe and include jail time, so should you trust an offshore incorporation mill? How many unsuspecting Americans will be caught up in this mess because they were lead astray by an offshore incorporator who advised only on the local (Belizean) tax rules? Do you think Belize Corporate Services was giving US clients proper US tax advice or just telling them what they want to hear? I have no idea, but I doubt they were US experts.
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Remember, offshore asset protection is NOT about hiding your money from the IRS or your creditors. It’s about creating an impenetrable barrier to protect your wealth from civil creditors. And offshore asset protection is typically tax neutral… it should not increase or decrease your US taxes. If anyone tells you different, run the other way.
I hope you have found this post helpful. If you have questions about the 2014 OVDP, or would like to form a tax compliant offshore structure, please contact me at email@example.com.