As Swiss Banking Becomes More Transparent, Americans with Undeclared Swiss Accounts Are Warned

by Holland & Knight LLP
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In a move that was likely celebrated by United States governmental officials, Swiss banking secrecy eroded even further on Thursday, March 6, 2014. This is the day that parliament voted to provide foreign tax authorities with identifying information on accountholders with undeclared accounts in Swiss banks without giving the accountholder advance notice. The one requirement is that the requesting country must demonstrate that by providing notice to the accountholder, the investigation would be hindered.1

The move, which further loosens Swiss banking secrecy, was a byproduct of actions taken by the Organisation of Economic Co-operation and Development (OECD).2 Swissinfo.ch indicates that The Global Forum on Transparency and Exchange of Information for Tax Purposes ("Global Forum"), which is a division of the OECD, advised Switzerland in 2011 to take measures to increase its tax transparency. Failure to take such action would cause Switzerland to land on a global blacklist. The Global Forum is a "continuation of a forum which was created in the early 2000s in the context of the OECD's work to address the risks to tax compliance posed by tax havens."3

The Global Forum provided three suggestions to Switzerland. The hope is that by fully implementing one of the suggestions, Switzerland will be permitted to proceed to the second phase of the Global Forum's peer review and examination process, which tests countries' transparency in the global tax landscape.4 If Switzerland fails to comply with the OECD standards, it risks falling onto a global blacklist.

Swiss law previously required accountholders to receive advanced notice, which then permitted accountholders the opportunity to file suit seeking to prohibit the disclosure. This process no doubt had a impact on guidance applicable to taxpayers participating in the Offshore Voluntary Disclosure Program ("OVDP"). Frequently Asked Question 21 states that "if a taxpayer appeals a foreign tax administrator's decision authorizing the providing of account information to the IRS and fails to serve the notice as required under existing law, see 18 U.S.C. 3506, of any such appeal and/or other documents relating to the appeal on the Attorney General of the United States at the time such notice of appeal or other document is submitted, the taxpayer will be ineligible to participate."5

Prior to the introduction of the 2012 OVDP, the Department of Justice took the same position as that stated in FAQ#21. Tax Notes contained an article on March 8, 2010 titled, "Practitioners Handling Offshore Account Cases Warned About Sanctions for Nondisclosure."6 In the article, Kevin Downing was quoted as having stated at the Federal Bar Association Section on Taxation Tax Law Conference in Washington on March 5, 2010 that 18 U.S.C. 3506 required individuals to provide "the U.S. attorney general with notice if they challenge a U.S. request for evidence from a foreign government or agency." He went on to add that "[t]here is no Fifth Amendment right not to comply with the statute, as filing with a foreign court waives that right." As the title of the article states, Downing also warned US attorneys who represent such clients that they would be referred to the IRS Office of Professional Responsibility if they failed to provide the Department of Justice with a copy of their opposition motion.

For a wonderful overview of the reach of 18 USC 3506, see attached legal memorandum from Stephen E. Becker with the law firm of Pillsbury Winthrop Shaw Pittman LLP which is available here. 18 USC 3506 is titled "service of papers filed in opposition to official request by United States to foreign government for criminal evidence" and provides as follows:

    (a) Except as provided in subsection (b) of this section, any national or resident of the United States who submits, or causes to be submitted, a pleading or other document to a court or other authority in a foreign country in opposition to an official request for evidence of an offense shall serve such pleading or other document on the Attorney General at the time such pleading or other document is submitted.

    (b) Any person who is a party to a criminal proceeding in a court of the United States who submits, or causes to be submitted, a pleading or other document to a court or other authority in a foreign country in opposition to an official request for evidence of an offense that is a subject of such proceeding shall serve such pleading or other document on the appropriate attorney for the Government, pursuant to the Federal Rules of Criminal Procedure, at the time such pleading or other document is submitted.

    (c) As used in this section, the term "official request" means a letter rogatory, a request under a treaty or convention, or any other request for evidence made by a court of the United States or an authority of the United States having criminal law enforcement responsibility, to a court or other authority of a foreign country.7

1 http://www.swissinfo.ch/eng/swiss_news/Parliament_relaxes_terms_for_tax_
data_exchange.html?cid=38106272

2 http://www.step.org/swiss-bank-account-holders-lose-right-be-warned-foreign-requests

3 http://www.oecd.org/tax/transparency/

4 http://www.swissinfo.ch/eng/swiss_news/Parliament_relaxes_terms_for_tax_
data_exchange.html?cid=38106272

5 http://www.irs.gov/Individuals/International-Taxpayers/Offshore-Voluntary-Disclosure-Program-Frequently-Asked-Questions-and-Answers

6 Tax Notes, 2010 TNT 44-4, which appeared in the March 15, 2010 magazine on page 1314

7 http://codes.lp.findlaw.com/uscode/18/II/223/3506

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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