Swiss Banks Agree to Cooperate with DOJ, Now What?

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On August 29, 2013 the U.S. Department of Justice issued a joint new release with the Swiss government. The news release stated the following:

“The Department of Justice today announced a program that will encourage Swiss banks to cooperate in the department’s ongoing investigations of the use of foreign bank accounts to commit tax evasion. The department also released a joint statement with the Swiss Federal Department of Finance, stating that Switzerland will encourage its banks to participate in the program.

“This program will significantly enhance the Justice Department’s ongoing efforts to aggressively pursue those who attempt to evade the law by hiding their assets outside of the United States,” said Attorney General Eric Holder. “In addition to strengthening our partnership with the Swiss government, the program’s requirement that Swiss banks provide detailed account information will improve our ability to bring tax dollars back to the U.S. treasury from across the globe.”

“This program will provide us with additional information to prosecute those who used secret offshore bank accounts and those here and abroad who established and facilitated the use of such accounts,” said Deputy Attorney General James M. Cole. “Now is the time for all U.S. taxpayers who hid behind Swiss bank secrecy laws or have undeclared offshore accounts in other foreign countries to come forward and resolve their outstanding tax issues with the United States.”

“Under the program, which is available only to banks that are not currently under criminal investigation by the department for their offshore activities, participating Swiss banks will be required to:

Agree to pay substantial penalties

Make a complete disclosure of their cross-border activities

Provide detailed information on an account-by-account basis for accounts in which U.S. taxpayers have a direct or indirect interest

Cooperate in treaty requests for account information

Provide detailed information as to other banks that transferred funds into secret accounts or that accepted funds when secret accounts were closed

Agree to close accounts of account holders who fail to come into compliance with U.S. reporting obligations

Banks meeting all of the above requirements will be eligible for non-prosecution agreements. Banks currently under criminal investigation related to their Swiss banking activities, and all individuals, are expressly excluded from the program.”

What the agreement portends for U.S. taxpayers with undeclared foreign financial accounts is less and less opportunity to avoid what are often draconian penalties for not coming forward and entering the offshore voluntary disclosure program (OVDP). What will happen as a result of the bilateral agreement between the Swiss and the U.S. is that the Swiss banks, not currently under investigation, will turnover account information on U.S. account holders and pay penalties of between 20%-50% of each account holders highest account balance in exchange for a non- prosecution agreement. Just how the exact amount of each penalty will be determined and whether the penalty will be in addition to penalties chargeable to the account holder or treated as a credit against taxpayer penalties is uncertain. The issue will be further complicated if the Swiss banks try to offset against the account holder and the account holder.

So, now what for U.S. taxpayers?

U.S. taxpayers may lose the opportunity to enter the OVDP. The Swiss Bankers Association stated on August 30, 2013 that “each bank is now requested to analyze its situation unconditionally with the very tight deadline…” The import of this statement is that U.S. taxpayers will have to come forward quickly or they will likely find that their request to enter the OVDP will be rejected. Once the DOJ has information from the Swiss or any other bank that identifies U.S. taxpayers as offshore account holders those taxpayers not only will be denied access to the OVDP, but may very well face a fifty percent (50%) penalty for failing to timely file a Report of Foreign Financial Account (FBAR). The fifty percent (50%) penalty is based upon the highest single year account balance in the preceding six (6) years and a determination that the taxpayer’s conduct is “willful”. The OVDP also affords participants the opportunity to avoid Information Return penalties, which in the case of unreported foreign gifts can be as great as twenty-five percent (25%) of the value of the gift. In addition to losing the benefits OVDP taxpayers’ may also face a seventy-five percent (75%) income tax (Fraud) penalty on all unreported income. The option for prosecution tax evasion and other charges, is always an option for the DOJ.

Conclusion:

The benefit of coming forward before being discovered is certainty. Certainty is knowledge of the OVDP costs and avoidance of the risk of prosecution and horrendous penalties. To quote one unnamed Justice Department lawyer, “U.S. taxpayers have had three (3) chances to come forward, consisting of the 2009,2011 and 2012 voluntary disclosure programs, if we find them first our position is we want prison time, a fifty percent (50%) FBAR penalty and seventy-five percent (75%) civil income tax fraud penalty” . With the aid of the Swiss banks , recalcitrant taxpayers will find out if the DOJ is truly serious about its stated intention. To quote Dirty Harry “Are you feeling lucky…?”, if so then take your chances, if not, it is time to come forward.

 

 

Topics:  DOJ, EU, Foreign Banks, Offshore Banks, Offshore Funds, OVDP, Voluntary Disclosure

Published In: Finance & Banking Updates, International Trade Updates, Tax Updates

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.

© Sanford Millar, Law Offices of Sanford I. Millar | Attorney Advertising

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