Are Running a Serious Risk
On August 29, 2013 we posted Swiss Banks Agree to Plan to End Past US Tax Evasion Issues! where we discussed that the Swiss banks were ready to pay hefty fines for sheltering United States tax fugitives under the terms of a new deal given the green light by the Swiss government. t reflects the long-standing desire of the US to end the decades-long practice of Swiss banks, supported by their government, of providing safe haven for US tax evaders through a wall of secrecy and a “don’t ask, don’t tell” policy.
Now the details of this agreement are coming to light. The US-Swiss agreement takes the form of a plea agreement as signified by its name, “Program for Non-Prosecution Agreements or Non-Target Letters for Swiss Banks.” It was signed for the United States by the US Department of Justice, not by the US Treasury Department, implying that US scrutiny of Swiss banks has progressed from tax matters to prosecution concerns.
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20 per cent of the maximum aggregate value of all undeclared US accounts that existed on 1 August 2008,
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30 per cent of the maximum aggregate value of the accounts opened between 1 August 2008 and 28 February 2009, and
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50 per cent of the maximum aggregate value of accounts opened after 28 February 2009.
This exposes the institutions and persons to possible prosecution for Conspiracy to Commit US Tax Evasion and, for the individuals, Failure to File the Foreign Bank Account Report.
There is a major probability that the US persons who have or had accounts at Swiss banks were not all just tax evaders, but who also are or were hiding the proceeds of crimes committed in the United States, such as public corruption, fraud, money laundering and others.
These persons now have a higher probability of being prosecuted for these crimes and of having their Swiss money be the subject of asset recovery efforts by the US government or private sector victims.
In any case, all US persons who are Swiss account holders will have to answer to the IRS, which has a wide array of tools to determine the source and destination of funds.
In a statement announcing the agreement, Deputy Attorney General, James M. Cole said...
“Now is the time for all US taxpayers who hid behind Swiss bank secrecy laws or have undeclared offshore accounts in other… countries to come forward and resolve their outstanding tax issues with the United States.”
The agreement marks four avenues by which three categories of Swiss banks may find their way to softer treatment by the US. One category of Swiss banks, Category 1, is told the door to laxer US treatment is closed because they are under US criminal investigation. The US Justice Department has said 14 banks now fall in Category 1.
The four categories of banks and their treatment are as follows:
- Category 1 Bank: Any Swiss bank under criminal investigation by the US Justice Department as of August 29, 2013. This type of bank is not eligible to participate in the program.
- Category 2 Bank: Any Swiss bank that has “reason to believe” it may have committed tax or “monetary transaction offenses” under the US Code, but against which the US Department of Justice has not commenced a “formal criminal investigation.” This type of bank may request a Non-Prosecution Agreement (NPA).
- Category 3 Bank: Any Swiss bank that has not committed any tax or monetary transaction offenses under the US Code. This type of bank may request a “Non-Target Letter” from the US Department of Justice.
- Category 4 Bank: Any Swiss bank that is considered a “Deemed Compliant Financial Institution” as a “Financial Institution with Local Client Base” under FATCA, meaning a local Swiss bank. This type of bank may request a “Non-Target Letter” from the US Department of Justice.
The bank must also make an “in-person presentation and documentation” providing full details of its operations in English. It must also disclose the US accounts that were closed, their holdings
,and identify the “US person or entity affiliated… with each account,” including their “beneficial interest.”
The bank must promise to cooperate in treaty requests by the US for information on the US accounts.
The banks must also tell the US “the name and function of any relationship manager, client advisor, asset manager, financial advisor, trustee, fiduciary, nominee, attorney, accountant, or other individual or entity known to be affiliated with (the accounts).”
It must also provide “information on the transfer of funds into and out of the account on a monthly basis,” including cash deposits or withdrawals; if an intermediary, such as a financial adviser, attorney, accountant or others, facilitated transfers; the identity and location of financial institutions that transferred or received funds from the account, and the countries “to or from which funds were transferred.”
The Swiss banks must keep for 10 years pertinent records “relating to their US cross-border business” and, if requested, provide witnesses and information for US treaty requests for other information and documents.
The banks must close the accounts of “recalcitrant account holders,” as defined by IRS regulations and prevent employees from “assisting recalcitrant account holders.”
The banks must pay penalties of 20% of the “maximum aggregate dollar value” of all US Related Accounts they held on August 1, 2008, which was, generally, when the UBS US tax evasion conspiracy was exposed.
Meanwhile, FATCA, the other international dragnet from the United States approaches implementation on June 1, 2014.
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