Last week I received a call from a high net worth divorce client. He told me that he had located on the internet a “forensic investigator” who said he could easily locate hidden bank accounts. My client was still fuming about our discussion wherein I told him that we could not get the banks to disclose accounts in his lovely wife’s name and that it was impossible, as a practical matter to find her alleged offshore accounts. When I foolishly asked why he thought she had offshore accounts there was some yelling about a boyfriend from Monaco - but I digress.
Those of us who practice in the divorce area get asked all the time to find hidden bank accounts. Sadly, there is no easy, legal way to do this. Financial institutions will not release account information without the owner’s consent, a subpoena, or a court order. Obtaining this information by trick or deceit is a violation of federal laws. The Gramm-Leach-Bliley Act requires banks to safeguard customer information and represents a major roadblock in asset search investigations. Therefore, I advised my client to stay away from this so called investigator.
We then discussed the possibility of her moving large sums of cash offshore. Unlike in the movies this is not as easy as it seems and can create significant IRS issues. I explained that generally, $10,000 in currency can be moved offshore without leaving tracks. However, that only works if the withdrawal of $10,000 is from such a large domestic account that it won't be noticed. We discussed the fact that transfers of large amounts leave a trail.
Since his wife doesn’t have a habit of withdrawing significant amounts of cash, some bank employee is likely to file a suspicious activity report. This could get the IRS interested, which would come to his attention quickly.
As far as the U.S. tax law is concerned, U.S. citizens and permanent residents are required to report any income from foreign bank accounts. There are substantial penalties for failing to report income from foreign accounts.
We discussed the communications she would need to have with her foreign banker. The foreign banker has to get well enough acquainted with her to do business by email, phone or other impersonal means. With the pressure of the U.S. and other major countries to require bankers to "know their customers", it will be much more difficult to establish a new banking relationship outside the U.S. than in past years.
I would enjoy comments from my readers on their experience attempting to locate hidden cash accounts in foreign countries. Also, if you want to learn about some best practices on how you can uncover hidden assets domestically…make sure you read “Part 1 of Show Me the Money,” just click here.