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Offshore account enforcement update: Holder warns big banks

The phrase "too big to fail" became widely known in the midst of the 2008 financial crisis. It referred to the federal government's decision to pump billions of dollars of liquidity into large financial institutions to shore up the faltering financial system.

Critics questioned why the infusion was targeted toward big banks and financial services firms - often the very firms whose reckless investments had arguably created the financial crisis in the first place.

In this post, we will discuss how, in the field of offshore tax enforcement, the U.S. Justice Department has warned large financial institutions that the department does not consider them too big to jail.

As we discussed most recently in our April 1 post, Congress has become very concerned about offshore tax evasion by U.S. taxpayers that is facilitated by various financial institutions. These institutions include many big banks with overseas operations.

There have already been some high-profile deferred prosecution agreements involving major foreign banks. The Swiss banking giant UBS, for example, agreed to a $780 million fine in such an agreement in 2009.

But the agreement did not involve charges of criminal culpability that extended to individual bankers.

Such charges may be more likely in the future, however, as the Justice Department changes its offshore account enforcement strategy. Attorney General Eric Holder said last week that his department is working closely with other agencies to pursue criminal charges against banks that may have helped taxpayers avoid taxes on their overseas assets and accounts.

Only a little over a year ago, in March 2013, Holder had admitted that the sheer size of some financial firms makes them difficult to prosecute. He is now striking a decidedly different note.

This policy change could put bank executives at increased risk of facing criminal charges for tax evasion.

Source: Bloomberg Businessweek, "Holder Signals Criminal Charges Coming Against Some Banks," Tom Schoenberg, May 5, 2014

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