Should Offshore Banks Share FBAR Penalties


Many participants in and out of the Offshore Voluntary Disclosure Program (OVDP) have concerns that the financial institutions who marketed or promoted secret account with tax evasion at its core are not paying their fair share of the penalties. Often U.S. taxpayers express frustration that the banks are responsible only to the Department of Justice, (DoJ) and not to their depositors for helping or inducing non-compliance with U.S. law.

The current state of the law is process is that it is up to taxpayers to come forward and pay for non-compliance, provide leads to DoJ prosecutors and cooperate in prosecutions without credit for sum collected from offshore financial institutions. While cooperation may result in reduced, but not eliminated penalties but no sharing in penalties based upon cooperation.

The DoJ recently announced a “Program for Non-Prosecution Agreements or Non-Target Letters for Swiss Banks,” under which eligible banks that committed U.S. tax-related offenses may request a non-prosecution agreement (NPA) in exchange for providing detailed information about the banks’ activities and their U.S. account holders, cooperating with treaty information exchange requests, and agreeing to close the accounts of account holders who fail to comply with U.S. reporting obligations. The focus of the program is to find noncompliance taxpayers. But non all taxpayers are equal and not all non-compliance is equal. It seems that the only recourse for U.S. taxpayers to consider actions for indemnity. These actions are not without cost and not without difficulty, but are worth considering.

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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