Heav'n has no Rage, like Love to Hatred turn'd

Reading the facts of the United States v. $4,656,085.10 in bank funds, a claim filed by the U.S. government on the 9^th of February of 2012 in the Southern Division of the U.S. District Court for the Central District of California (“Claim”), left me wondering why medical doctors so often get themselves in tax doo doo.   One would think that a medical professional earning a substantially high income would surround him or herself with capable legal/tax advisors, accountants and bankers.  They often don't.  Dr. Brandner, the star of the action brought by the U.S. government, is one of those medical doctors who never contemplated hiring a good family law practitioner before marrying so as to address a separation of assets in the events of a divorce or contemplated entering into a discussion with a tax lawyer on the possible legal repercussions of his actions.  It is not that he could not afford  to retain advisors – it could be that he thought he knew better ….  And it is because of this neglect to hire a tax advisor, Dr. Brandon stands the risk of losing $4,656,085.10.

It is the U.S. government's position that it has the right to seize the funds that are currently deposited with a bank in California due to Dr. Brandon's failure to file an information return under the Report of Foreign Bank and Financial Account.  I know dear Reader, California is part of the United States.  Well the U.S. government's argument in the Claim is that the funds now deposited in California were at one time deposited in Panama.  And when the funds were in Panama, the depositor of the funds, Dr. Brandon, failed to file an FBAR information return.  The U.S. is thus arguing that the FBAR rules apply as the funds currently can be traced to funds that at one time were deposited offshore.


Now how and why did Dr. Brandon get into this mess?  Well the thought that his soon to be ex-wife could be awarded some of his millions in divorce court drove Dr. Brandon to actually drive from all the way from Alaska to Panama in May of 2008.  Looking at the map, Dr. Brandon drove from Alaska, through Canada, through the United States, through Mexico, through Guatamala, through Honduras, through Nicaragua, through Costa Rica and finally arriving in Panama.  Yes you read that correctly – I can only imagine the fury in him to drive all that distance.  His pockets or suitcase were filled with cashier checks totalling $3,250,000.  This could be an advertisement on the safety of the Pan-American Highway.  Yes dear reader plastic surgery must pay well in Alaska and Dr. Brandner was determined that his spouse, soon to be ex-spouse, would not have access to the funds.  Once back in Alaska the doctor transferred $1,264,700 held in his IRA from Alaska to an account in California held by him and from there to his Panamanian account thus carefully trying to cover a trace to Panama from Alaska.  An FBAR return was never filed by the doctor.  After all if he filed an FBAR, his spouse would have been able to track the funds to Panama.

Panama in the past did not have a tax treaty or a tax information agreement with the United States and as such was deemed by the un-sophisticated as a good place to stash ones assets away from the prying eyes of the tax authorities in the United States.  In April 2011, Panama however entered into a Tax Information Agreement with the United States. However Dr. Brandner's activities came to the U.S. government's attention long before the Information Exchange Agreement came into force.  As Dr. Brandner's luck would have it or maybe it was karma dealing him a lesson, it turns out that his Panamanian banker at some point after 2008 became a co-operating witness for the U.S. government.  The banker was in trouble with the U.S. government for stock fraud.  In an attempt to save his neck, the Panamanian banker probably offered up all his U.S. depositors head on a plate.  

Asked in a taped conversation in May, 2011 with the Panamanian banker about his intent with regards to the funds held in Panama, the good doctor’ response was predictable.  The doctor responded that “my intention is not to hand it over to the courts”.  Informed of the tax information agreement between the United States and Panama, the good doctor and the good banker, decide to have the doctor set up a Non-U.S. corporation with a bank account in California.  The doctor’s name would not show up on the bank account.  All funds held in Panama were transferred to California and this is how the funds ended up in California.  


The U.S. Government is alleging that these funds are traceable to funds that were not disclosed under the FBAR requirement and have filed the claim in California for seizure of the entire funds. It is not clear whether legislation under the FBAR rules will allow the Government to seize the funds on the grounds that an FBAR report was not filed.  However the Government in the Claim is citing criminal as well as civil penalties and it may well be that the criminal penalties allow for seizure of the funds.  Do note that seizure of funds is available to the Government where the funds are proceeds from a crimes such a money laundering.  

This case matters to us here in Canada as many Canadians hold a green card or were born in the United States or hold U.S. citizenship and as such have U.S. tax/information filing obligations.  The case is a reminder to keep compliant with the U.S. rules if you have filing obligations in the U.S.  It is also a reminder to always seek advice before attempting a self- implemented asset protection plan regardless of level of education and income.