United States v. Gentges

• Decision Date: 31 March 2021
• Docket Number: No. 18-CV-7910 (KMK),18-CV-7910 (KMK)
• Parties: UNITED STATES of America, Plaintiff, v. Heinz GENTGES, Defendant.
• Court: U.S. District Court — Southern District of New York

531 F.Supp.3d 731

UNITED STATES of America, Plaintiff,

v.Heinz GENTGES, Defendant.

No. 18-CV-7910 (KMK)

United States District Court, S.D. New York.

Signed March 31, 2021

Samuel H. Dolinger, Esq., U.S. Attorney's Office, SDNY, New York, NY, Counsel for Plaintiff.

Michael J. Pisko, Esq., Pillsbury Winthrop Shaw Pittman LLP, New York, NY, Counsel for Defendant.

Richard Sapinski, Esq., Sills Cummis & Gross, P.C., Newark, NJ, Counsel for Defendant.

OPINION & ORDER

KENNETH M. KARAS, United States District Judge:

The United States of America ("Plaintiff" or the "Government") brings this Action against Heinz Gentges ("Defendant") to collect civil penalties assessed against Defendant based on his failure to disclose two foreign bank accounts in violation of the Bank Secrecy Act, 31 U.S.C. §§ 5314 and 5321. Currently before the Court is the Government's Motion for Summary Judgment. (See Not. of Mot. (Dkt. No. 29).) For the reasons discussed below, the Motion is granted in part and denied in part.

I. Background

A. Factual History

Unless otherwise noted, the following facts are taken from the Parties’ Rule 56.1 Statements and Counterstatements. (See Pl.’s 56.1 Statement in Supp. of Pl.’s Mot. ("Pl.’s 56.1") (Dkt. No. 32); Def.’s Counter 56.1 Statement in Opp'n to Pl.’s 56.1 ("Def.’s Counter 56.1") (Dkt. No. 38).)¹

1. Defendant's Failure to File an FBAR for Calendar Year 2007

In 2007, Defendant was a U.S. citizen with financial interests in two foreign bank accounts—one ending in -4959 (the "4959 Account"), and another ending in -4337 (the "4337 Account")—at UBS AG ("UBS") in Switzerland. (Pl.’s 56.1 ¶¶ 1–2.) During 2007, the balance of both accounts exceeded $10,000. (Id. ¶ 3.) Under 31 U.S.C. § 5314(a) and supporting regulations, Defendant was therefore required to file Form TD F 90-22.1 ("Report of Foreign Bank and Financial Accounts"), commonly known as the "FBAR," for calendar year 2007. See 31 U.S.C. § 5314(a) ; 31 C.F.R. §§ 103.24, 103.27, amended and recodified at 31 C.F.R. § 1010.350 (2011). (See also Pl.’s 56.1 ¶ 4.)

Defendant failed to do so. (Id. ) Between December 2013 and August 2016, Defendant's representative agreed in writing to extend the period in which the Treasury Secretary could assess a penalty against Defendant based on his failure to file an FBAR for 2007. (Id. ¶ 51.) On October 7, 2016, the IRS assessed two penalties based on Defendant's allegedly willful failure to comply with the FBAR filing requirements. (Id. ¶ 52.) One penalty, in the amount of $679,365, was based on the 4959 Account, while the other penalty, for $224,488, was based on the 4337 Account. (Id. ¶ 53.) The IRS examiner's report set forth the agency's basis for concluding that Defendant had willfully failed to disclose his UBS accounts, as well as its determination of the penalty amounts. (Id. ¶ 54.)

2. Defendant's Foreign Accounts

a. The 4959 Account

Although Defendant avers that the 4959 Account was not technically "open[ed]" in 2001, as the Government claims, but had in fact been opened years earlier at a different Swiss bank that was subsequently acquired by UBS, he nevertheless concedes that he "partially filled out a UBS form entitled ‘Opening of an Account/Custody Account’ relating to [the 4959 Account]" in 2001. (Def.’s Counter 56.1 ¶¶ 5–6.) Defendant identified himself as the beneficial owner of the account and listed his address in Hawthorne, New York. (Id. ¶ 7.) It is undisputed that the 4959 Account at UBS was established as a "numbered" account, as opposed to a "named" account, (See Pl.’s 56.1 ¶ 6; Def.’s Counter 56.1 ¶ 6), even though Defendant testified that he did not intend to establish such an account, "and did not think of the 4959 Account as a numbered account," (Def.’s Counter 56.1 ¶ 6).²

As part of the documentation provided by UBS, Defendant also signed an instruction to UBS that stated: "I would like to avoid disclosure of my identity to the US Internal Revenue Service under the new tax regulations. To this end, I declare that I expressly agree that my account shall be frozen for all new investments in US securities as from 1 November 2000." (See Pl.’s 56.1 ¶ 8; Def.’s Counter 56.1 ¶¶ 8–9.) Although Defendant protests that he was merely signing his name next to a handwritten "X" that indicated where he should sign, and further asserts "that he did not understand the form to mean that he wanted to conceal his identity from IRS by avoiding US securities investments," he does not dispute having signed the declaration. (See Def.’s Counter 56.1 ¶¶ 8–9.)³

The form signed by Defendant also acknowledged that he was "liable to tax in the USA as a US person." (See Pl.’s 56.1 ¶ 9; Def.’s Counter 56.1 ¶¶ 8–9.) Defendant professes that he understood this language "as confirming that he was a US citizen." (Def.’s Counter 56.1 ¶¶ 8–9.)

It is also undisputed that Defendant had UBS retain his mail related to the 4959 Account at the bank, for a fee, instead of having it mailed to his address in New York. (Pl.’s 56.1 ¶ 10; Def.’s Counter 56.1 ¶ 10.) Although Defendant contends that he did not manually select this option, but rather, "someone else inserted an ‘x’ in a box he left unchecked," (Def.’s Counter 56.1 ¶ 10), he does not dispute that he retrieved his mail related to the 4959 Account whenever he visited the bank in Switzerland—including during three visits in 2007—and authorized UBS to destroy any mail he did not take with him, (id. ¶ 11). And although Defendant disputes how actively he was involved in managing the 4959 Account, he concedes that he "was involved in any buy/sell decisions." (Id. ¶ 12.) Finally, Defendant concedes that UBS often corresponded with him using an address in Switzerland. (Id. ¶ 13.)⁴

In June 2008—the deadline for filing the FBAR for 2007—the balance in the 4959 Account was $1,358,730.01. (Id. ¶ 14.)

b. The 4337 Account

Just as he had done several months earlier with respect to the 4959 Account, in February 2002 Defendant signed various documents provided by UBS with respect to the 4337 Account. (See Def.’s Counter 56.1 ¶ 15.) As with the 4959 Account, the 4337 Account was also established as a numbered account. (See id. ) Without substantively disputing this point, Defendant avers that he "was periodically asked to sign many UBS forms and thought of it as ‘routine’ ... and did not review what he signed in detail or question what it meant" because "he had dealt with UBS for many years and trusted it was a routine request." (Id. ) Defendant identified himself as the beneficial owner of the 4337 Account and listed his address in Hawthorne, New York. (Id. ¶ 16.)

As part of the documentation he completed regarding the 4337 Account, Defendant stated that he was "liable to tax in the USA as a US person" and agreed that the account would be "frozen for all new investments in US securities." (Id. ¶ 17.)⁵ Again, without disputing that he made this representation, Defendant avers "that he understood the form to be simply an acknowledgement of his US citizen status (which he never denied or sought to conceal) although he admittedly did not read the form carefully because he believed it was just routine paperwork UBS needed signed." (Id. ) As with the 4959 Account, Defendant instructed UBS to hold any mail pertaining to the 4337 Account at the bank and retrieved the mail while visiting the bank in Switzerland, including on three occasions in 2007. (See id. ¶¶ 18–19.) Without substantively challenging this proposition, Defendant explains that he "had no problem with UBS holding his mail because ... he was frequently in Switzerland for extended periods and could easily retrieve his mail at any UBS branch while there." (Id. )⁶ At the end of 2007, the balance for the 4337 Account was $448,975. (Id. ¶ 20.)

3. Defendant's Formation of Trusts

In 2003, Defendant and his wife formed various trusts for estate planning purposes. (Pl.’s 56.1 ¶ 21; Def.’s Counter 56.1 ¶ 21.) But although they transferred the ownership of their New York home and all U.S. accounts into these trusts, Defendant did not transfer his UBS accounts into these trusts. (See Def.’s Counter 56.1 ¶ 22.) Moreover, Defendant did not disclose the existence of the UBS accounts to the attorney he consulted in forming the trusts, nor did he seek any advice about the UBS accounts from this attorney or anyone else. (See id. ¶¶ 23–24.) Though Defendant does not dispute these assertions, he maintains that he "intended the trusts only to address his U.S. assets[,]" and that his "failure to tell the attorney who formed the U.S. trusts about his UBS accounts is understandable since he felt his UBS accounts could pass to [his son] without any problem upon his death ...." (Id. ¶¶ 22–24.)

4. Defendant's 2007 Income Tax Return

For "decades" before Defendant submitted his 2007 U.S. income tax return, he had used the same accountant, Richard Surico ("Surico"), to prepare his tax returns. (Pl.’s 56.1 ¶ 27.) Defendant does not dispute this point. (Def.’s Counter 56.1 ¶¶ 26–27.) He contends, however, that "[o]ver the entire time Surico did [Defendant's] returns, their contact was minimal[,]" and, from 2001 onward, Defendant "never had any actual contact with Surico in person or otherwise," but would "either drop[ ] off the tax information he assembled to Surico's New York office," which would in turn mail the information to Florida (where Surico moved in 2004), or Defendant would simply mail the information directly to Surico's Florida address himself. (Id. )

Surico prepared Defendant's tax return for 2007. (See id. ) According to Defendant, Surico would take the information Defendant provided and input this information into Computax, a software program, which would in turn "generate[ ] a draft tax form." (Id. ) Surico would then review the draft form and mail it to Defendant with instructions on "where to send it, what to pay, etc. along with a comparison to the prior years." (Id. ) Defendant concedes that he "had the opportunity to review this tax return after it was...