Hiding money from your spouse can be a federal crime, if in a foreign account

Jack Townsend writes on the recent conviction of Aristotle, “Rick” R. Matsa on 22 counts of fraud and obstruction of justice related offenses, including witness tampering and making a false statement.” Jack highlights the part about FBAR charges in the government summary:

The evidence at trial also showed that Rick Matsa violated FBAR, the foreign bank account reporting requirements, by failing to disclose his ownership and control over a foreign bank account held in The Netherlands. The evidence at trial was that Rick Matsa maintained more than $300,000 in funds in that undisclosed foreign bank during 2003.

A certain “Charmek” chimed in the comments (Please note the warm feelings that Charmek has for the United States as a result of FBAR):

Anonymous [a.k.a. “Charmek”] Apr 22, 2012 01:50 AM

I’m the dutch so-called beneficiary, I helped Rick in 2003 to open a bank account. After a few months Rick told me the bank didn’t want the money and the money went back. I don’t understand what was so wrong about it. Ask me . I still have many questions. If i had known this would make him a criminal i wouldn’t have helped him to open a bank account in his name in the Netherlands.

Anonymous [another person — you see this is why we don’t allow “anonymous” at Isaac Brock] Apr 23, 2012 09:52 AM

So are you saying that he did not open these accounts to intentionally hide it from the Govt?  Did he sign any documents that instructed the accounts should not be revealed to Govt agencies.

charmek Apr 24, 2012 01:54 AM

He told me he needed to store the money elsewhere so it would be safe from his wife who wanted a divorce, later he told me he was threatened by the friends of his wife who wanted money of him. In 2007 I had to tell the IRS and the DOJ about it. At that time they didn’t tell me that it was about tax-evasion. Although I was the human shield, my friendship was abused I wouldn’t want him to go to jail for this. I think those federal laws are much too harsh. If he goes to prison for a long time I despise the USA and all the sheeple who make this possible. Happy to live in Holland, tax-evaders have to pay but don’t go to prison for a long time.

I wonder how this affects the question of mens rea.  If the intent was to hide the money from the wife, not the IRS, then how can this be a “wilful” and criminal violation of FBAR?

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26 thoughts on “Hiding money from your spouse can be a federal crime, if in a foreign account

  1. On the mens rea issue you need look no further than the doctrine of “transferred intent”.
    Example:

    If A fires his gun with the intents to unlawfully shoot and kill X but instead hits and kills Y. He is guilty of murdering Y even though his intent was to murder X.

    Applying transferred intent to a FBAR offence is a bit tricky.

    If R enlists the assistance of accomplice C at a foreign bank to defraud his wife by hiding assets from his wife that he has a lawful civil procedural obligation to disclose to her. (Which may have also been a crime; e.g. perjury, under the law of the state where the divorce proceedings were held.)

    In so doing he – wittingly or unwittingly – also fails to disclose the assets to his Uncle Snoopy.

    Query for all you 3d year law students: in the absence of evidence that R actually knew of his FBAR disclosure obligation to the Federales, will it suffice for a criminal FBAR convíction to produce only evidence of his criminal intent to hide assets from and thereby defraud his wife?

    PS

    Don’t you just love the great moral indignation of the Dutch accomplice?

    Holland: where tax evasion is a sign of mental health and sound financial management.

  2. In Holland we do our best not to pay to much tax thats not the same as taxevasion, i’m all for paying taxes by the way thank you very much says charmek

  3. Hi Charmek: Thanks for your comments here and at Jack’s blog. Very interesting situation to say the least. Everywhere in the world people avoid taxes by every legal means. For example, I relinquished my US citizenship so that I can enjoy a tax free savings account in Canada. Cheers.

  4. @Petros

    I don’t think it is.
    @Todundsteur

    ” in the absence of evidence that R actually knew of his FBAR disclosure obligation to the Federales, will it suffice for a criminal FBAR convíction to produce only evidence of his criminal intent to hide assets from and thereby defraud his wife?”

    No, don’t see how it could.

    _______________________________

    As I understand willfulness in the context of FBAR – it is “the intentional disregard of a known legal duty”. In this case the “FBAR duty” is to file the FBAR and to keep the records.

    That does require a specific mens rea – i.e. one must:

    1. Know of the requirement to file the FBAR (and keep records); and

    2. Knowing of that requirement fail to do one or the other of those two things.

    (Keeping “recklessness” or “willful blindness” out of the discussion).

    For transferred intent to apply, the existing state of mind must meet the mens rea for both crimes. Second, the mens rea for the first crime must support the actus reus of the second crime. Obviously the test is met in the context of the example you give.

    What about transferred intent in the context of FBAR?

    Let’s see. Imagine that you want to hide money from your spouse and you open an offshore account with the intention of hiding money from your spouse. You then fail to file the FBAR.

    There is no “intent” that is capable of being transferred – the intent for the FBAR violation, is the intent to NOT file the FBAR and/or keep records. It is not the intent to hide money from a spouse (although that could be a separate legal problem). The most that could be said is that the desire to hide money from the spouse is evidence (but not proof) of willfulness on the FBAR issue. The desire to hide money from the spouse could provide an incentive to NOT file an FBAR.

    It’s interesting that we are seeing more and more people getting into FBAR problems in the context of personal and business relationships. The disclosure requirements of “Form Nation” are clearly making marriages more problematic.

    Perhaps the solution is:

    “Don’t Marry – Avoid FBAR!”

    But hey, spouses can be a lot of fun to have, and they do keep life interesting.

    So, I would opt for a different solution. It’s simple.

    Renounce U.S. citizenship (or U.S. personess of any kind) – Have a life!

    It’s simply to time consuming and requires to much silly record keeping to be a U.S. citizen. FBAR is a “make work” project. The information provided on FBARs is useless and irrelevant. That’s why people could NOT even imagine that the requirement even existed. The only value it is to the U.S. government is that it can be used to impose fines.

  5. @Everyone

    The thing I would like to know is if anyone has actually analyzed the Bank Secrecy Act in the context of the Morrison decision by the US Supreme Court on extraterritoriality. My sense it does comply because the US still has legal jurisdiction over US citizens outside the US but on the other hand no one outside the US it appears has ever been prosecuted under it.

  6. @Renounce: I agree, I think. Mens rea for FBAR would be related to a federal crime; hiding money from a spouse is a civil, state crime, but not federal. So if you were using the account for money laundering, human trafficking, terrorism or tax evasion purposes, mens rea would apply–you are hiding the money from the Feds and you have truly committed a crime that requires that you hide it.

    In the case of FBAR, even knowing about the requirement and failing to do it should not constitute mens rea, because the account itself is not a criminal act, only the failure to report it. The result is that it is a violation of “positive law”, yet mens rea I think requires a violation of an actual crime. I argued in the post that mens rea belongs to the government, because the Feds are using state terror to force people to cede their private property rights as protected by the Fourth Amendment.

    So a person’s violation of FBAR may not be due to ignorance; it may be rather out of a motivation to protect his wealth from invasive Uncle Snoopy, and therefore, one is merely asserting one’s constitutional rights. There is no mens rea. That’s the way I see it; whether the courts would see it that way is quite another question.

  7. @Tim FBAR is a report required of people under the jurisdiction of the United States. How can this apply to dual citizens whose dominant nationality is foreign? Or, how does this relate to the State-Non-responsibility? It can’t. In other words, a citizen of another country living in that country is under the jurisdiction of that country, not under the jurisdiction of the United States and this is according to the two international doctrines of dual citizenship: (1) State non-responsibility and (2) dominant nationality. The United States in its arrogance violates both doctrines. See: http://isaacbrocksociety.com/2012/01/09/dominant-nationality-protects-individuals-from-state-overreach/
    and
    http://isaacbrocksociety.com/2012/01/26/dual-citizenship-and-forced-marriages-by-alison-symington/

  8. @Tim

    Two issues here:

    1. From a U.S. perspective does the law have extraterritorial application. If yes, it means they could punish fbar violations in U.S. courts.

    2. From an international perspective can the U.S. apply its laws in another country? In this case, the answer I believe is no, unless it is permitted under some convention of international law. Even then, the foreign court might have no interest in enforcing that law (for example collection of FBAR penalties). The question is: under what circumstances would international law permit the U.S. to apply its law on an extra-territorial basis.

    As you know in Morrison the U.S. supreme court held that the law in question did not have extraterritorial application because there was no congressional intent for extra-territorial application. This was apparently “fixed by congress” with an amendment to the legislation.

    http://opiniojuris.org/2010/06/30/morrison-the-fastest-reversal-ever-of-a-us-supreme-court-decision/

    For this reason, it strikes me that the Morisson case is of limited value. In other words, they are saying that Congress can provide for extra-terrotorial application, but did not do so.

    Now, what does this mean in terms of the BSA?

    The starting point is, I believe, a recognition that to require an FBAR from somebody living outside the U.S. is an extraterritorial application of the law. These people do NOT live in the U.S. and in many cases have not set foot in the U.S. during the year.

    1. Congressional intent for FBAR to apply to U.S. persons outside the country? I am sure that most people would automatically say yes, but I am not sure. To assume that it applies to a U.S. citizen everywhere is not to say that that was the congressional intent.

    2. Extraterritorial application of FBAR rules under international law:

    I don’t know. FBAR reporting creates lots of problems for countries. It is the result of citizenship-based taxation, which is done only by the U.S.

    I have felt for a long time that rather than assuming that the extra-terroritorial application of FBAR is legitimate, that this issue should be carefully researched.

    It would be a great summer job for a bright law student.

  9. @Petros

    The US has opened a bit of can of worms with their increased reliance on dominant nationality in other areas of law when it suits them that I don’t think they can put back. My personal opinion is the US insistence on FBAR filing from citizens abroad is one of stupidest aspects of this whole thing and might be the tipping towards the complete elimination of citizenship based taxation. Most tax lawyers have little understanding of its jurisprudence and because its not technically a tax law any litigation doesn’t occur in tax court. I guess my original thought was whether any court has ruled that the FBAR filing requirement applies just to US Citizens living in the US or all US citizens worldwide.

  10. As I have always been a Canadian citizen (I did not lose that citizenship just because I got a Green Card for the 12 years I lived in the USA) I am going to go with what seems logical — that the US gov’t cannot demand that I FUBAR my individual accounts over which my husband has no signing authority. (I am not hiding these accounts from my husband. He knows I have them and he is okay with not being able to access them.) I have never FUBARed these accounts and I never will. (My American husband has always FUBARed his individual and our joint accounts.) I believe for now that the Canadian gov’t will stand behind me on this — at least not act as a FUBAR penalty collector for the US gov’t and since I will never cross the border into the USA (haven’t done so in the past 15 years) then I do not see what the US gov’t can do to me except bluster and threaten. We are financial “minnows” and it wouldn’t be good PR for them to pursue me. However, here’s the question. Can they punish my tax and FUBAR compliant husband for the “sins” of his wife?

  11. @Em, @Petros, and @Tim, I continue to question:

    For all the insistence by the US that their requirements trump all ‘local’ laws outside the US, I still don’t see how there could be any legal basis for that claim. Consider this very common scenario:

    A Canadian (or other NON-US citizen) holds joint accounts with a US’citizen’/’person’ spouse (or child);

    – How can the US lawfully 1. force the bank to facilitate the invasion of the financial privacy of the NON-US joint account holder, and 2. lawfully coerce, and seize assets which are co-owned by a non-US’person’ joint account holder. How can they lawfully force the disclosure of the joint account details through threats of prosecution/penalties imposed on the US ‘person’ spouse, AND withhold and remit 30% to the IRS (ex. under FATCA). The account is held JOINTLY. The US law does not apply to one of the joint account holders. The assets belong in part (how large a ‘part’ is not established – it could be ALL from employment earnings paid into the account – by the NON-US account holder) to the NON-US citizen. Where is any legal discussion of how the US can reach into Canada, demand that a NON-UScitizen account holder prove that they are NOT a US citizen, and then after establishing that one of the account holders IS NOT SUBJECT to a reporting and witholding regime – by virtue of their just established NON-US citizenship, still lawfully force disclosure of the account information and balance, and/or withhold and remit a portion of the assets in question – which belong to a NON-US Canadian (in part or in whole)?

    How is that possibly legal under any countries’ laws?
    The Canadian joint account holder did not agree to waive Canadian law, or their financial privacy. They did not agree to be a subject of the US, or to report to the IRS. They did not tacitly give up any of their rights when they married someone with IRS reporting obligations. And if they are forced to agree, in order to prevent the seizure of a portion of the account, or to prevent the USperson spouse from being penalized, or worse, – how is that coercion legal? Just because someone complies, and cedes their rights under threat of force, does not make the coercion legal, or the rights cease to exist. So, I still can’t see how the US can lawfully seize any portion of the assets held in a joint account with a single-citizenshipCanadian account co-owner.

    In all the search results about FATCA, even when there is a glancing mention of a privacy or data-protection issue, there is never ever a mention of the legal status of any NON-US joint asset owners. And the IRS asserts that joint accounts belonging to a non-US person must be disclosed on FBARs, but there is nothing establishing that that is legal to do – even if the US person with signatory powers complies.

    In the IRS FBAR FAQ example of a US’person’ son with POA. on his Canadian parent accounts; what could possibly allow Canadian law to elevate the IRS obligations of the US son over the actual ownership rights of the Canadian parents? A Canadian Power of Attorney does not grant the IRS any powers over the Canadian account owners. How can Canada allow the US IRS to take precedence through a proxy, over a Canadian asset held in Canada, by Canadian citizens?

    That seems to me to be a very very weak spot for FATCA’s legality and implementation. What can be lawful in any situation where a co-owner, (or the legal owner) is not legally subject to FATCA (or FBARs)? I really wonder what the outcome would be if this situation was actually challenged. Even if the banks or the IRS said to the NON-US person – well, if you don’t like it, then take your name off the account, and divide the assets, that is telling the NON-US person what to do with their financial affairs outside of US jurisdiction.

  12. In MY search for discussions of issues and permutations in reporting joint accounts – with other non’US owners. See: “Who Pays Tax on
    Joint Bank Accounts?
    By Robert W. Wood and Jamie K. Ogden
    TAX NOTES, April 2, 2012
    PDF available from the link (Who Pays Tax On Joint Bank Accounts?) at the bottom of:
    “http://www.forbes.com/sites/robertwood/2012/04/23/who-pays-tax-on-joint-bank-accounts/”

  13. This site seems to touch on the issue of non-US spouses, and some of the general points raised re Joint accounts. It is also a group which lobbies on behalf of US citizens ‘abroad’ (but strangely, there is no branch for Canada). http://www.fawco.org/index.php?option=com_content&view=article&id=1786:fatca-and-overseas-americans-and-overseas-american-spouses&catid=182:us-taxation&Itemid=604

    “The Federation of American Women’s Clubs Overseas, Inc. is an international network of independent organizations whose mission is:

    To serve as a resource and channel of information among its members;
    To provide a voice for American women abroad and to support the rights of all Americans worldwide;
    To contribute actively to the global community with a specific focus on education, the natural and human environment, multicultural understanding and international goodwill.

  14. also from the site above – I highly recommend their channel on Youtube – for the personal stories, but also the discussions of US tax/reporting, legislation changes, and impact on those married to Non-US citizens:

    “Message from US Issues & Committees
    U.S. Liaison Webpage
    Though the current focus in Washington is on the November elections, FAWCO is trying to work with various partners on the Hill and off to try to find short-term solutions to the FATCA and FBAR reporting requirements that are posing such serious problems to many of our members.
    If you have a story to share (which can be totally anonymous) on how these reporting requirements are affecting you and your marriage and/or business abroad, or if you are encountering problems opening or maintaining a bank account in the United States or abroad, please contact:
    usliaison@fawco.org. ……………….
    Lucy Laederich, AAWE Paris
    US Liaison FAWCO

  15. I can’t keep track now – am I ‘overseas’, ‘abroad’ , or just ‘foreign’?

    http://www.fawco.org/index.php?option=com_content&view=section&id=19&Itemid=200429
    On the map, there is a branch in the US, (and in Bogota) so I thought Canada would be included.

    In any case, readers from the EU and other ‘overseas’ locations might be interested. Some of the issues re the incompatibility of FATCA and US tax laws vs. the laws of country of residence are the same – with the additional emphasis on the impact of extraterritorial issues on marriage to a non-US spouse.

  16. @badger

    Good videos. A couple of impressions the situation with banking access in Europe appears to be far worse than in Canada. In that sense we should thank the current and past CDN govt for imposing more stringent banking laws than the rest of the world. In a different video one of the speakers indicated that banks WILL start asking all of their client where they born and the birthplace of their parents and grandparents. (I have some sceptism about this in the Canadian context but I’ll let it go for now).

    My personal opinion is a lot of European banks were up to no good helping US Citizens inside the US evade taxes for many years. This I suspect is coloring the situation in Europe. As an aside I found some of the policies Royal Bank has for non Canadian residents opening accounts in Canada. Basically it appears only people immigrating to Canada can open non resident accounts at Royal. The application must be notarized by a Canadian Embassy or Consulate and Citizenship and Immigration case number is required. Accounts are deposit only until the holder physically shows up in Canada at a branch with identification and fills out T forms etc. At this point they are issued a checkbook and Interac card. While the documents I have don’t indicate it directly from what I understand in the case of a US resident moving to Canada to account info is reported to the IRS from opening until they physical show up in Canada and convert the account to a regular resident account. (Hardly an efficient method to evade taxes).

  17. @eric, re;
    “In a different video one of the speakers indicated that banks WILL start asking all of their client where they born and the birthplace of their parents and grandparents.”

    I hope it doesnt come to that here. It may be that there were problems in Europe that we haven’t yet experienced here yet, and only time will tell, but the story of the IRS and those of us outside the US is already so unbelievable (FBARs, OVD/P/I, FATCA, passport restrictions, etc.) that I am ready to believe that we haven’t yet reached any plateau in that respect. The US knows full well that Canada has strict banking laws in place – and that we are not on the OECD list of tax havens. Just as they make distinctions between countries for immigration and foreign policy decisions, they could have concentrated only on the countries or banks of highest concern and risk.

    There must be many expats studying and working abroad – and married to non-US citizens, just as there are in Canada. Banks abroad may have been doing the same as the banks in the US with their non-reported non-resident alien accounts, but I find it hard to believe that it was rampant enough everywhere to justify a global FATCA. There will always be people looking for loopholes, but that has to be balanced against the extreme levels of intrusiveness and penalties we are now all subjected to. Distinguishing between long term or ‘permanent’ US persons abroad vs. those with established permanent homes inside the US would have gone some way towards revealing those deliberately hiding money vs. those with legitimate banking ‘abroad’. I can’t believe that there was no other way to approach this.

  18. I think there are similarities between FATCA and OVDI. In there early stages both were implemented as a get out of jail free cards for institutions and person respectively that otherwise would making license plates in a federal facility as friend of the site Stephen Mopsick put it. Thus many European institutions as the video mentions came out in SUPPORT of FATCA before the law was even passed. Much of the European banking system I suspect not just in Switzerland but all of continental Europe will turn out to have been hiding assets of US residents going back to the 1950s. Thus supporting FATCA(and having their governments support it) is their get out of jail free card. OVDI is effect the counterpart of FATCA. In the meantime FATCA was never really implemented with Canada in mind or Australia and bunch of other countries none of whom have ever been listened to throughout the whole process. The problem is the US can’t really weaken OVDI or FATCA without as JustMe puts it letting the whales off the hook. However in many ways Australia and Canada are far closer allies of the US than Italy or Spain(which have signed on) thus the US continues to face a diplomatic nightmare.

  19. Here is the other video I was referring to:

    Again I really don’t know how all of this plays into the Canadian political and legal context. Overall I find FAWCO one of weaker advocacy groups on this whole issue. Not that think ACA, RA, or DA doing all that much to begin with either.

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