Lebanon has long been hailed as “Switzerland of the Middle East” because of its Banking Secrecy Law that was passed in 1965. This law restricted banks from revealing client names or account information to any individual or authority. However, with the IRS searching for American tax dodgers abroad; it is now becoming increasingly difficult to maintain accounts abroad in secrecy. The IRS is actively implementing rules and changes to facilitate foreign bank compliance in disclosing information about US taxpayers’ money held in their banks. Lebanon’s banks are no exception.
In 2010, as a reaction to the 2008 scandal involving the Swiss Bank UBS, IRS passed FATCA, which not only requires individuals to report their financial accounts held outside of the United States, but also compels foreign financial institutions to report to the Internal Revenue Service (IRS) about their American clients. As per U.S. tax law, U.S. persons are required to report and pay taxes on income from any and all sources. In this case, “U.S. persons” refers to U.S. citizens and U.S. permanent residents residing in and outside of the United States. Thus, U.S. citizens residing full time in Lebanon and not filing U.S. tax returns are at risk.
Specifically, FATCA mandates foreign financial institutions to enter into an agreement with the IRS to identify their U.S. account holders and to disclose the account holders’ names and account balance information and specifics. If US persons choose to make payments to non-compliant foreign financial institutions, they are required to withhold 30% of the gross payments. US persons must now report any foreign financial assets or accounts worth more than US $50,000 on a new Form 8938. A 40% penalty on understatements of income would be applied in case of undisclosed foreign assets.
Riad Salameh, Central Bank Governor of Lebanon, made a statement with Executive Magazine in 2011 urging local banks to disregard the law and to choose the 30 percent withholding option instead since compliance with such a law would be difficult. However, in April 2012, while speaking before the Beirut Chamber of Commerce, Salameh upheld a different approach; urging financial institutions in Lebanon to cooperate with the FATCA act passed by the IRS without compromising the Secrecy Law.
Lebanon’s banks have already begun to prepare for cooperation with the IRS. An excellent example of this is a statement from Chahdan Jebeyli, a chief legal and compliance officer with Bank Audi. Jebeyli recently made a statement that his bank plans to request US account holders to sign waivers allowing the bank to disclose their account information to the IRS, should the need arise. In the case of a client’s refusal, the bank will notify the IRS, as per FATCA agreement.
Lebanon’s own changing laws seem to support such disclosure. In 2001, Lebanon’s own parliament passed Law 318, which allows revoking banking secrecy if a client is suspected for money laundering or funds embezzlement. Now, the Central Bank of Lebanon is pushing to amend Law 318 to include tax evasion as a reason to lift banking secrecy. Muhammad Baasiri, third vice-governor of the Central Bank argues that law 318 allows for banking secrecy waiver in case of embezzlement, which could be viewed as a definition of tax evasion. Therefore, there may not even be a strict need for this particular amendment. Tax evasion may already be covered as one of the reasons to circumvent banking secrecy under Law 318.
Adding to Lebanon’s banking sector woes, in 2011, the United States Department of the Treasury designated Lebanese Canadian Bank as a money laundering concern in regards to Hezbollah cash. In order to control the situation, Bank du Liban (BDL), Lebanon’s central bank, intervened, ultimately facilitating LCB, without the questionable accounts, being bought out by Société Générale de Banque au Liban. The LCB crisis has made it somewhat difficult for Lebanon’s banks to maintain their international reputation. Backing of the international community is now a major concern for the Lebanese financial sector, which gives Lebanon’s banks and financial institutions further reason to comply with the IRS on FATCA.
In February 2013, the head of Lebanon’s banking association, Joseph Torbey, confirmed that Lebanese and Arab banks intend to cooperate with the FATCA act in order to maintain their international reputation. As of June 2013, as one of the last steps toward full compliance with the FATCA act, Lebanese banks are making coordination efforts ahead of sign-up instructions that are expected to be announced soon by the U.S. Treasury.
There are several alternatives for U.S. citizens residing in Lebanon to come into compliance with the IRS. The key, however, is to do something before your bank turns over information to the IRS. At that point, criminal prosecution or an aggressive civil audit by the IRS is likely.
Vic Abajian, a, continues to assist taxpayers with foreign account and asset issues before the IRS. He currently represents dozens of clients with foreign accounts both within the IRS offshore voluntary disclosure program and those that are involved in civil audits. He also represents several clients who have received criminal grand jury subpoenas requesting information related to offshore bank accounts. Mr. Abajian has also consulted with foreign banks. To learn more about options and how to make a voluntary disclosure of an offshore bank account, please contact Los Angeles Tax Attorney Vic at 818-396-5059. We have offices in Irvine and Glendale, California and represent taxpayers throughout the nation and those located in foreign countries. To date, Mr. Abajian has assisted dozens of taxpayers who are voluntarily disclosing to the IRS over $250 million in off-shore bank accounts, assets and related income tax liabilities.