Recent developments have turned up the heat on offshore tax holders who have or have had unreported bank accounts in Switzerland:
On August 29, 2013, the U.S. Department of Justice (DOJ) and Swiss Federal Department of Finance issued a joint statement with regard a new DOJ non-prosecution and cooperation program for certain Swiss banks and Switzerland’s intention to cooperate within the framework of existing treaties and encourage eligible Swiss banks to participate. Under the program:
- Most Swiss banks, excluding the largest 14 presently under DOJ investigation (e.g., Credit Suisse, HSBC, and Julius Baer) will be eligible to participate.
- Smaller banks (said to exceed 100) who have violated U.S. law can seek a non-prosecution or deferred prosecution agreement.
- Banks that believe no U.S. laws have been violated can request a Non-Target Letter.
- In the case of violators large monetary penalties will be imposed.
- The Swiss banks may opt to participate but are not required to enter the program. If too few opt-in, however, the DOJ may cancel the program under the agreement. The deadline for participation is December 31, 2013.
- Banks entering the program and seeking a NPA must initially provide:
- Bulk account data to DOJ as to number of accounts and dollar values.
- A description of how cross border business for U.S. related accounts was structured and operated.
- Identity of persons who supervised structured or operated the cross border business.
- How the Swiss bank attracted and serviced the business.
- Once the NPA is signed, the bank must, among other information provide:
- “the name and function of any relationship manager, client advisor, asset manager, financial advisor, trustee, fiduciary, nominee, attorney, accountant or other individual or entity functioning in a similar capacity know by the Bank to be affiliated with said account at any time during the period covered by the new program (called “the Applicable Period” which encompasses August 1, 2008 through December 31, 2014)
- “Information about the transfer of funds into and out of the account during the Applicable Period.
- All necessary information for the U.S. to draft treaty requests.
- Make its employees available to testify in court to enable the U.S. to use the above information as evidence.
- Agree to preserve records of all U.S. related accounts exceeding $50,000 and accounts of U.S. persons who have transferred accounts, often referred to as “Leavers.”
- Agree to close accounts of U.S. persons who refuse to come into compliance with U.S. tax laws.
- Later provide detailed information about accounts held directly or indirectly by U.S. persons as defined in the FATCA agreement signed by the U.S. and Switzerland on February 14, 2013.
Once U.S. authorities have the names of promoters, accountants, lawyers and others who have helped U.S. persons evade tax responsibilities, indictments will ensue. Following indictments, guilty pleas are likely as the accused promoters, accountants and lawyers seek to reduce their own jail time by revealing the names of their clients. A recent example is the August 16, 2013 guilty plea of Swiss lawyer Edgar Paltzer, who is a dual U.S. – Swiss citizen. Paltzer admitted to opening Swiss bank accounts for clients of Frey Bank (one of the smallest Swiss private banks) knowing it was illegal. His plea deal requires him to forfeit fees and cooperate “without any limitation,” with the U.S. government (U.S. v. Paltzer et al, U.S. District Court, SDNY, No. 13-cr-282). Paltzer is just one of many U.S. persons (68 to date) and bankers (30 to date) charged with violating the Internal Revenue Code and/or Bank Secrecy Act by not declaring foreign accounts and income from such accounts or with aiding and abetting such violations. Given the severity of the maximum penalties, it is unsurprising that already 58 account holders and 4 bankers have entered into plea agreements similar to Mr. Paltzer’s. (Number of accused and pleas are per DOJ news release of August 29, 2013).
IMPORT OF THESE DEVELOPMENTS
- The noose around tax-scofflaw’s necks is tightening.
- Smaller Swiss banks will have to decide to risk prosecution like the big boys or enter the bank confessional.
- As banks come forward, as promoters, accountants and lawyers, flip on clients, IRS will add data points to its growing data base. It will cross reference names in its tax chase for those still out in the cold. Inevitably, more tax-evader names will be discovered.
- Individuals are not eligible for this Swiss settlement program which is aimed exclusively at Swiss banks.
- “Leavers” are especially vulnerable to criminal prosecution because shuffling money out of Switzerland is an overt act that can be used to prove tax evasion and as evidence of intentional criminal conduct.
- There may be some snags in the agreement’s implementation as the U.S. – Swiss income tax treaty was signed in 1996; but, a 2009 protocol making it easier for Swiss banks to comply with treaty requests has yet to be ratified by the Senate. But, the cannon has been fired and great volumes of snow will avalanche down the mountainside.
- Thus, individuals still out in the cold with undeclared accounts, whether located in Switzerland, moved elsewhere or located elsewhere, should seriously consider the OVDP before disaster is upon them.
© 2013 by Robert S. Steinberg, Esquire
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