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The Erosion of the Fifth Amendment Privilege

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“You’d have to be living in a hole not to know that the U.S. government is really focused on offshore tax evasion,” IRS Commissioner Shulman told Bloomberg News earlier this year. The Bank Secrecy Act of 1970 (“BSA”) permits civil and criminal penalties for U.S. taxpayers who fail to report interests in foreign financial accounts. In the past, however, civil and criminal enforcement was rare; between 1996 and 2002 only twelve indictments were reported. In 2001, heightened financial reporting requirements were enacted under the Patriot Act, which is expressly designed to help prosecute international crimes. The government’s formal declaration of war on foreign tax evasion was commemorated in 2008 when a district court authorized the IRS’s John Doe Summons on Swiss bank UBS, demanding documents identifying U.S. taxpayers with unreported accounts. This order followed the indictments and guilty pleas of a high-profile UBS customer and his private UBS banker. In 2009, the DOJ charged UBS with aiding U.S. taxpayers in tax evasion. The bank avoided prosecution by paying $780 million and disclosing account data. Shulman promised severe penalties as the government pursued “criminal avenues” for these targeted individuals. Criminal charges have since been filed against numerous taxpayers, bankers, financial advisers, and lawyers linked to the data. Still, earlier this year, the IRS threatened offshore bank account holders with the increasing risks of criminal prosecution.

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