A California businessman has pleaded guilty to conspiring to conceal bank accounts in Israel, the latest in a series of defendants who have been charged with conspiring with Israeli bankers.
Aaron Cohen of Encino, Calif., pleaded guilty Thursday in the U.S. District Court for the Central District of California to conspiracy to defraud the United States.
Cohen, a U.S. citizen, maintained undeclared bank accounts at two international banks headquartered in Tel Aviv, Israel, identified in court documents as Bank A and Bank B, according to the Justice Department and the Internal Revenue Service’s Criminal Investigation unit. One of Cohen’s undeclared accounts was maintained at a branch of Bank A located in the Cayman Islands. The accounts were held in the names of nominees in order to keep them secret from the U.S. government.
In or about 2000, Cohen began using the funds in his undeclared account in the Cayman Islands as collateral for back-to-back loans obtained from another branch of Bank A located in Los Angeles. Cohen’s ownership of the funds in the Cayman Islands accounts was not identified in the loan records maintained at the Los Angeles branch, thus concealing the fact that he was borrowing his own money, paying tax-deductible interest on the loans and not reporting the interest income he was earning in the Cayman Islands on his U.S. tax returns.
According to the plea agreement, in or about 2009, Cohen transferred approximately $2 million from his Cayman Islands account at Bank A to a new offshore account at Bank B in Israel. Cohen then used the funds in the new account as collateral to obtain a back-to-back loan from the Los Angeles branch of Bank B. But Cohen failed to report any income from the accounts on his individual income tax returns that were filed with the IRS. For tax years 2006 through 2009, Cohen failed to report interest income of approximately $238,000. The highest balance in the undeclared accounts was approximately $3,450,000.
“Today’s guilty plea is but the latest example that attempting to hide income and assets from the United States in offshore accounts is a bad gamble,” said Assistant Attorney General for the Justice Department’s Tax Division Kathryn Keneally in a statement. “The Internal Revenue Service will find the hiding places and the Department of Justice will criminally prosecute these tax cheats, who face potential jail time, still owe the taxes due and may lose those hidden assets and more to severe civil penalties.”
Until recently, Switzerland appeared to be the main target of the Justice Department and the IRS’s efforts to crack down on undeclared foreign bank accounts. But on Thursday, the Department of Justice announced that it was setting up a program with the Swiss government that will allow Swiss banks to come forward and cooperate with the DOJ’s efforts to combat tax evasion. Increasingly, the IRS and the Justice Department have been looking beyond Switzerland and the Cayman Islands to other countries where U.S. taxpayers may have undeclared bank accounts, including Israel, Liechtenstein and India.
“Mr. Cohen is yet another taxpayer caught using anonymous offshore accounts to avoid paying his fair share of taxes,” said IRS Criminal Investigation Chief Richard Weber. “Through IRS-CI’s efforts, we are gaining access to more and more information on institutions and individuals involved in offshore tax fraud, and you can expect us to use all of our enforcement tools to fight offshore tax evasion.”
Cohen is the latest in a series of defendants charged in the California with failing to report income from undeclared accounts in Israel. Last month, Moshe Handelsman of Saratoga pleaded guilty to filing a false tax return.
On March 29, 2013, Zvi Sperling of Beverly Hills, Calif., pleaded guilty to conspiring to defraud the United States in connection with back-to-back loans obtained in Los Angeles at branches of Bank A and Bank B that were secured by funds in undeclared bank accounts in Israel. For tax years 2005 through 2008, Sperling failed to report income of approximately $381,563. The highest balance in Sperling’s undeclared accounts was approximately $4 million.
On May 21, 2013, Guity Kashfi of Los Angeles, pleaded guilty to conspiring to defraud the United States in connection with back-to-back loans obtained from branches of Bank A and Bank B in Los Angeles that were secured by funds in undeclared bank accounts in Israel and Luxembourg. For tax years 2005 through 2011, Kashfi failed to report interest income of approximately $221,306. The highest balance in Kashfi’s undeclared accounts was approximately $2.5 million.
U.S. citizens and residents who have an interest in, or signature or other authority over, a financial account in a foreign country with assets in excess of $10,000 are required to disclose the existence of such account on Schedule B, Part III, of their individual income tax returns, the Justice Department noted. In addition, U.S. citizens and residents must file a Report of Foreign Bank and Financial Reports, or FBAR, with the U.S. Treasury disclosing any financial account in a foreign country with assets in excess of $10,000 in which they have a financial interest, or over which they have signature or other authority.
Cohen faces up to five years and a maximum fine of $250,000.He has agreed to pay a civil penalty to the IRS in the amount of 50 percent of the high balance of his undeclared accounts for failing to file FBARs.