The IRS continues to add to its published list of banks at which an account, even one account, increases the Miscellaneous Offshore Penalty imposed as part of the OVDP from 27.5% to 50% on all offshore assets connected with the non-compliance. The list has now grown to 15 foreign financial institutions with the last three indicated in bold-underlined text below.

Foreign Financial Institutions or Facilitators

  1. UBS AG
  2. Credit Suisse AG, Credit Suisse Fides, and Clariden Leu Ltd.
  3. Wegelin & Co.
  4. Liechtensteinische Landesbank AG
  5. Zurcher Kantonalbank
  6. swisspartners Investment Network AG, swisspartners Wealth Management AG, swisspartners Insurance Company SPC Ltd., and swisspartners Versicherung AG
  7. CIBC First Caribbean International Bank Limited, its predecessors, subsidiaries, and affiliates
  8. Stanford International Bank, Ltd., Stanford Group Company, and Stanford Trust Company, Ltd.
  9. The Hong Kong and Shanghai Banking Corporation Limited in India (HSBC India)
  10. The Bank of N.T. Butterfield & Son Limited (also known as Butterfield Bank and Bank of Butterfield), its predecessors, subsidiaries, and affiliates
  11. Sovereign Management & Legal, Ltd., its predecessors, subsidiaries, and affiliates (effective 12/19/14)
  12. Bank Leumi le-Israel B.M., The Bank Leumi le-Israel Trust Company Ltd, Bank Leumi (Luxembourg) S.A., Leumi Private Bank S.A., and Bank Leumi USA (effective 12/22/14)
  13. BSI SA (effective 3/30/15)
  14. Vadian Bank AG (effective 5/8/15)
  15. Finter Bank Zurich AG (effective

The list will grow exponentially as Swiss banks in the Swiss Bank Settlement Program continue to enter into Non-prosecution Agreements (NPA) with the Department of Justice. The latest of such agreements with BSI, Vadian and Finter Bank are but the tip of the proverbial iceberg.

And, it gets worse.  It is not only announcement of a signed NPA with Swiss banks that will put a bank on the list.  Banks in other countries have also been added after public disclosures of other DOJ action against the bank.  For example, CIBC (Bahamas) was added to the list when the Department of Justice procured a John Doe Summons which was served on the bank, seeking the names of U.S. account holders.  So, any publication of DOJ action against a bank will add it to the list and up the cost dramatically for its U.S. depositors who have yet to submit their names to IRS Criminal Investigation (CI) for pre-clearance.

To grasp the full breath of the public disclosure below is the full text of OVDP FAQ 7.2 which provides:

Beginning on August 4, 2014, any taxpayer who has an undisclosed foreign financial account will be subject to a 50-percent miscellaneous offshore penalty if, at the time of submitting the preclearance letter to IRS Criminal Investigation:  an event has already occurred that constitutes a public disclosure that either (a) the foreign financial institution where the account is held, or another facilitator who assisted in establishing or maintaining the taxpayer’s offshore arrangement, is or has been under investigation by the IRS or the Department of Justice in connection with accounts that are beneficially owned by a U.S. person; (b) the foreign financial institution or other facilitator is cooperating with the IRS or the Department of Justice in connection with accounts that are beneficially owned by a U.S. person or (c) the foreign financial institution or other facilitator has been identified in a court- approved issuance of a summons seeking information about U.S. taxpayers who may hold financial accounts (a “John Doe summons”) at the foreign financial institution or have accounts established or maintained by the facilitator.  Examples of a public disclosure include, without limitation:  a public filing in a judicial proceeding by any party or judicial officer; or public disclosure by the Department of Justice regarding a Deferred Prosecution Agreement or Non-Prosecution Agreement with a financial institution or other facilitator.   A list of foreign financial institutions or facilitators meeting this criteria is available.

Once the 50-percent miscellaneous offshore penalty applies to any of the taxpayer’s accounts or assets in accordance with the terms set forth in the paragraph above, the 50-percent miscellaneous offshore penalty will apply to all of the taxpayer’s assets subject to the penalty (see FAQ 35), including accounts held at another institution or established through another facilitator for which there have been no events constituting public disclosures of (a) or (b) above.

Lawyers are not prognosticators.  But, the clear inference from the above may be translated into a prediction:  If you hold a foreign financial account and have not yet come into compliance under one of the IRS approved processes (OVDP, Streamlined Filing Compliance Procedures, Noisy Voluntary Disclosure), you will likely be discovered sooner than later.  Moreover, waiting one more day to submit your names for pre-clearance may result in the cost for coming into compliance substantially escalating.

Coming into a compliance is a process, the start of which is consulting with an experienced offshore tax lawyer, who can help you decide, during privileged communications, which process is safest and least expensive given your particular factual situation.  Since every case I have seen has unique characteristics, generalities are useless and in fact dangerous for making such decisions.  Most importantly, you must overcome inertia and take action.  Do not mimic the ostrich, burying its head, hoping problems will go away.  This problem will not evaporate. Take action now before you regret your delay.

© 2015 by Robert S. Steinberg, Esquire
All rights reserved

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