Bank Director Charged with Hiding Foreign Assets

Used Offshore Account to Conceal Income from IRS

WASHINGTON - A Boston venture capitalist and director at Boston Private Bank and Trust Company was charged with failing to report his foreign bank account and income to the Department of the Treasury.   Principal Deputy Assistant Attorney General of the Department of Justice’s Tax Division John A. DiCicco, U.S. Attorney for the District of Massachusetts Carmen M. Ortiz and William P. Offord, Special Agent in Charge of the Internal Revenue Service (IRS) Criminal Investigation, Boston Division made the announcement today.

According to the criminal information and plea agreement filed today, from 2003 to 2008, Michael Schiavo, 53, of Westford, Mass., held an account in his name at HSBC Bank Bermuda (formerly the Bank of Bermuda).   In 2006, with the assistance of his business partner Peter Schober, Schiavo arranged to have income from a venture capital investment directed to Schober’s secret account at UBS AG in Switzerland.   From there, Schiavo’s share of the investment, $99,273, was wired to his HSBC Bank Bermuda account.   Schiavo knew that this payment was taxable income in the United States, but deliberately chose not to report it, or the interest income that accrued in the HSBC Bank Bermuda account, to the IRS.   In so doing, Schiavo deprived the IRS out of $40,624 in taxes. 

U.S. citizens and resident aliens have an obligation to report to the IRS on the Schedule B of a U.S. Individual Income Tax Return, Form 1040, whether that individual has a financial interest in, or signature authority over, a financial account in a foreign country in a particular year by checking “Yes” or “No” in the appropriate box and identifying the country where the account was maintained.   U.S. citizens and resident aliens have an obligation to report all income earned from foreign bank accounts on the tax return and to pay the taxes due on that income.   These same taxpayers who have a financial interest in, or signature authority over, one or more financial accounts in a foreign country with an aggregate value of more than $10,000 at any time during a particular year are required to file with the Department of the Treasury a Report of Foreign Bank and Financial Accounts, Form TD F 90-22.1 (the FBAR).   The FBAR for the applicable year is due by June 30 of the following year. 

According to the criminal information and plea agreement, on Oct. 6, 2009, following widespread media coverage of UBS’s disclosure to the IRS of account records for undeclared accounts held by U.S. taxpayers and the IRS’s Voluntary Disclosure Program, Schiavo made a “silent disclosure” by preparing and filing FBARs and amended Forms 1040 for tax years 2003 to 2008, in which he reported the existence of his previously undeclared account at HSBC Bank Bermuda.   He made such filings notwithstanding the availability of the IRS’s Offshore Voluntary Disclosure Program.   The Offshore Voluntary Disclosure Program was a program administered by the IRS that was intended to serve as a vehicle for U.S. taxpayers to attempt to avoid criminal prosecution by disclosing their previously undeclared offshore accounts and paying tax on the income earned in those accounts.   On its website, the IRS strongly encourages taxpayers to come forward under the Offshore Voluntary Disclosure Program and warns them that taxpayers who instead make silent disclosures risk being criminally prosecuted for all applicable years.

According to the criminal information and plea agreement, Schiavo also admitted that for tax years 2003 through 2008, he willfully failed to file FBARs with the Department of the Treasury and failed to disclose that he had an interest in a financial account in HSBC Bank Bermuda.   He further admitted that for tax years 2003 through 2008, he prepared, signed under penalties of perjury, and filed false individual income tax returns with the IRS that falsely represented that he did not have an interest in any foreign financial accounts.   According to the plea agreement, Schiavo agreed to pay a civil money penalty of $76,283, half the value of high balance of the HSBC Bank of Bermuda account, for failing to file the FBAR.

Schiavo faces up to five years in prison, followed by three years of supervised release and a $250,000 fine. Schober was charged separately with failing to disclose his secret UBS AG bank account and is awaiting sentencing.

The case was investigated by the IRS-Criminal Investigation Division.  It is being prosecuted by Assistant U.S. Attorney Andrew E. Lelling of the U.S. Attorney’s Office Economic Crimes Unit and Trial Attorney Mark Daly of the Tax Division of the Department of Justice.