On October 26, 2017, Hyung Kwon Kim (Kim), a Greenwich, Connecticut man pleaded guilty to failing to report funds he maintained in foreign bank accounts to the Department of Treasury. The DOJ Press Release was announced Acting Deputy Assistant Attorney General Stuart M. Goldberg of the Justice Department’s Tax Division, U.S. Attorney Dana J. Boente for the Eastern District of Virginia, and Chief Don Fort, IRS Criminal Investigation.
U.S. citizens, resident aliens, and permanent legal residents with a foreign financial interest in or signatory authority over a foreign financial account worth more than $10,000 are required to file a Report of Foreign Bank and Financial Accounts, commonly known as an FBAR, disclosing the account. Kim did not obey the law.
Acting Deputy Assistant Attorney General Goldberg discussed the plea:
For more than a decade … Kim concealed his wealth in secret offshore accounts, evading reporting requirements and the payment of income taxes due,” With his guilty plea, he is now held to account for his criminal conduct. Offshore tax evasion is a top priority for the Tax Division, and we will continue to work with our partners at IRS to follow the money and actively pursue those who persist in thinking that they can safely hide their income and assets offshore.
Court documents and information provided in court, reveal the actions that got Kim into trouble and resulted in his guilty plea:
- Kim is a citizen of South Korea and, since 1998, a legal permanent resident (Green Card Holder) of the United States.
- Kim resided in Massachusetts and later in Connecticut.
- Around 1998, Kim traveled to Switzerland to identify financial institutions at which to open accounts for the purpose of receiving transfers of funds from another individual in Hong Kong.
- Over the next few years, Kim opened accounts at several banks, including Credit Suisse, UBS, Bank Leu, Clariden Leu, and Bank Hofmann. In 2004, the value of the funds in Kim’s accounts exceeded $28 million.
- Kim conspired with several bankers, including Dr. Edgar H. Paltzer, to conceal the funds from U.S. authorities.
- Paltzer, who was convicted in 2013 in the Southern District of New York for conspiring to defraud the United States, and the other bankers assisted Kim in opening accounts in the names of sham entities organized in Liechtenstein, Panama and the British Virgin Islands.
- Paltzer and the other bankers facilitated financial transactions for Kim, so that Kim could use the funds in the United States. For example, between 2003 and 2004, Kim directed Paltzer and another banker to issue nearly $3 million in checks payable to third parties in the United States for the purchase of a residence in Greenwich, Connecticut. In 2005,
- Kim created a nominee entity to hold title for the purchase of another home on Stage Harbor in Chatham, Massachusetts, for nearly $5 million. Kim and Paltzer communicated about the purchase in a manner that created the appearance that Kim was renting the property from a fictitious owner.
- Between 2000 and 2008, Kim took multiple trips to Zurich, Switzerland and withdrew more than $600,000 in cash during these visits.
- Kim also brought his offshore assets back to the United States by purchasing millions of dollars’ worth of jewelry and loose gems. For example, in 2008, Kim purchased an 8.6 carat ruby ring from a jeweler in Greenwich, Connecticut, which he financed by causing Bank Leu to issue three checks totaling $2.2 million to the jeweler.
- In 2008, during a trip to Zurich, Kim’s banker at Clariden Leu informed Kim that due to ongoing investigations in the United States, Kim could either disclose the accounts to the U.S. government, spend the funds, or move the funds to another institution.
- Kim moved the funds into nominee accounts at another bank. In 2011, Kim liquidated the accounts by, among other things, withdrawing tens of thousands of dollars in cash and purchasing three loose diamonds for about $1.7 million from the Greenwich jeweler.
- Kim also admitted that from 2000 through 2011, he filed false income tax returns for 1999 through 2010, on which he failed to report income from the assets held in the foreign financial accounts that he owned and controlled in Switzerland.
As part of his plea agreement, Kim will pay a civil penalty of over $14 million dollars to the United States Treasury for failing to file, and filing false, FBARs, which is separate from any restitution the Court may order.
Don Fort, Chief of IRS Criminal Investigation commented on the plea:
Mr. Kim’s plea is another example of what happens to those who dodge their tax obligations by utilizing offshore tax havens. We owe it to the vast majority of honest U.S. taxpayers to tirelessly search for and prosecute those who avoid paying their fair share, regardless of how they may try to disguise their income.
Kim’s sentencing is scheduled for Jan. 26, 2018 before U.S. District Court Judge T.S. Ellis III. Kim faces a statutory maximum sentence of five years in prison. He also faces a period of supervised release, restitution, and monetary penalties, in addition to the FBAR penalty.
- Kim’s case provides examples of the sort of overt acts that will provide evidence of criminal intent.
- Kim’s downfall is a classic example of a taxpayer who could have averted criminal sanctions by entering the Offshore Voluntary Disclosure Program (OVDP).
- The OVDP is still open but IRS and the DOJ have indicated it may soon be coming to an end.
Those of a mind to avoid the fate of Hyung Kwon Kim should consult with an experienced offshore tax attorney to consider alternatives for comming into compliance with the minimum of risk and cost.
© 2017 Robert S. Steinberg, Esquire
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