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Swiss Bank Program Summary | Offshore Accounts Lawyer

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On December 29, 2016, the US Department of Justice (“DOJ”) and the IRS announced that they have reached final resolutions with Swiss banks that have met the requirements of the Swiss Bank Program. In this article, I would like to provide the Swiss Bank Program summary and explain the importance of the Program to the overall US international tax enforcement efforts.

Swiss Bank Program Summary: History of the Swiss Bank Program

The Swiss Bank Program was a groundbreaking initiative of the DOJ and the IRS. It was the very first time when the tax authorities of one country (United States) conducted a voluntary disclosure program for banks in a different country (Switzerland) as if it were not an independent sovereign territory.

At the core of the Swiss Bank Program was the promise of the DOJ not to prosecute Swiss banks that would come forward and participate in the Swiss Bank Program. The banks were divided into four categories.

Category 1 banks were not eligible to participate because they were already under the DOJ investigation.

Category 2 banks had to pay a penalty and consisted of banks for which was a reason to believe that they committed tax-related criminal offenses with respect to undisclosed foreign accounts owned by US persons. In addition to paying a penalty, Category 2 banks also had to disclose all of their cross-border activities and provide detailed information with respect to US-owned accounts to the DOJ and the IRS.

Category 3 consisted of banks that established, with the assistance of an independent internal investigation of their cross-border business, that they did not commit tax or monetary transaction-related offenses and had an effective compliance program in place. These banks did not pay any penalties.

Finally, category 4 was reserved for Swiss banks that were able to demonstrate that they met certain criteria for deemed-compliance under the Foreign Account Tax Compliance Act (FATCA). They also did not pay any penalties.

Swiss Bank Program Summary: Results

Let’s discuss the results of the Program in our Swiss Bank Program summary. The Swiss Bank Program was announced on August 29, 2013 and it was in operation until December 29, 2016. During that time the DOJ executed non-prosecution agreements with 80 Category 2 banks and collected more than $1.36 billion in penalties. The Department also signed a non-prosecution agreement with Finacor, a Swiss asset management firm. Between July and December 2016, four banks and one bank cooperative satisfied the requirements of Category 3, making them eligible for Non-Target Letters. No banks qualified under Category 4 of the Program.

Swiss Bank Program Summary: Legacy

No Swiss Bank Program summary would be complete without a discussion of the legacy of the Program. In our Swiss Bank Program summary, let’s divide the impact of the Program into four parts: impact on Switzerland as a bank secrecy fortress, impact on other tax havens, impact on US tax compliance and the precedent for the future.

The most immediate impact was felt in Switzerland itself. The Swiss Bank Program has in effect completely destroyed the vaunted Swiss bank secrecy laws with respect to US taxpayers and gave the green light to other European countries to conduct similar interventions. In essence, the Swiss Bank Program has completely destroyed the main fortress of bank secrecy that had existed for centuries.

The destruction of the Swiss bank secrecy laws also influenced the other tax havens. Fearing a similar DOJ intervention, the rest of the world’s tax havens have significantly softened their own bank secrecy laws and have agreed to an automatic exchange of information regarding their account owners with the IRS. There can be no doubt that the Swiss Bank Program has greatly facilitated the implementation of FATCA on the global scale.

The combined effect of the Swiss Bank Program, the softening of the bank secrecy laws in tax havens and the implementation of FATCA was acutely felt by noncompliant US taxpayers. Tens of thousands of US taxpayers participated in the IRS voluntary disclosure programs (often, they were urged by the Swiss banks to enter the OVDP, because this is how the banks mitigated their own penalties under the Program). Many more tens of thousands of taxpayers became tax compliant through a noisy or quiet disclosure. The greater awareness of US international tax laws among the tax preparers has greatly improved US annual tax compliance, bringing huge amounts of additional revenue to the US treasury.

Finally, no Swiss Bank Program summary would be complete without mentioning the potential for repetition of the Swiss Bank Program in another country. It may not necessarily come in the same format, but it is very likely that a version of the Program will be implemented elsewhere, especially since the IRS commitment to offshore tax compliance will remain a priority in the immediate future.

Contact Sherayzen Law Office for Help With Your Undisclosed Foreign Accounts

If you have undisclosed foreign accounts or other foreign assets, contact Sherayzen Law Office for professional help. Our legal team will thoroughly analyze your case, explore your voluntary disclosure options, prepare all of the necessary legal documents and tax forms, and defend your case against the IRS.

We have helped hundreds of US taxpayers to bring their tax affairs into full compliance and we can help you! Contact Us Today to Schedule Your Confidential Consultation!

Credit Suisse and Italy Settle Dispute Over Undisclosed Offshore Accounts

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On December 14, 2016, Credit Suisse and Italy settled their dispute over Credit Suisse undisclosed offshore accounts owned by Italian tax residents. The settlement between Credit Suisse and Italy was approved by a judge in Milan and obligates Credit Suisse to pay a total of 109.5 million euros – 101 million euros in taxes, interest and penalties; 7.5 million euros as a disgorgement of profits; and 1 million euros as an administrative penalty.

The settlement between Credit Suisse and Italy has ended an investigation by the Italian authorities into the bank’s involvement in helping Italians evade Italian taxes. The Italian government’s inquiry into the Credit Suisse’s role in Italian tax evasion appeared to be thorough and, at times, even combined with significant pressure. For example, in December of 2014, the Italian tax authorities raided the offices of a Credit Suisse’s subsidiary in Milan.

The agreement between Credit Suisse and Italy does not mean the end of the Italian tax authorities’ investigation of Italians with undisclosed offshore accounts. On the contrary, these activities will continue their relentless progress.

While a significant event, the settlement between Credit Suisse and Italy pales in comparison with the settlement between Credit Suisse and the US Department of Justice when Credit Suisse paid $2.6 billion.

Nevertheless, the settlement between Credit Suisse and Italy points to the continued global trend of increased focus on international tax compliance. The new trend really started with the IRS victory in the UBS case in 2008, gained steam with the 2009 Offshore Voluntary Disclosure Program and became worldwide with the passage of FATCA in 2010.

Countries throughout the world, including Italy, have followed the US lead in international tax enforcement. In fact, it appears that the European countries have gone further in some aspects than the United States, especially after the adoption of the Common Reporting Standard (CRS). While the United States refused to join CRS arguing that its revolutionary FATCA already achieved the same goals (and, thereby, effectively turning the United States into a tax shelter for nonresident aliens), the vast majority of the European countries adopted the CRS and applied unprecedented pressure on the financial industry to share the heretofore confidential information with various government tax authorities.

Switzerland has arguably felt more pressure than any other country in the world and has largely been forced to give up its much vaunted bank secrecy. After the US DOJ Program for Swiss Banks dealt the decisive blow to the Swiss bank secrecy laws, various European countries decided to take advantage of the Swiss banks’ defeat and swarmed into Switzerland to get their share of penalties and information regarding tax noncompliance of their own citizens. The recent settlement between Credit Suisse and Italy is just one more example of this continued European squeeze of the Swiss banks for money and information.

FBAR Criminal Enforcement: Liechtenstein and Israel

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The voluntary disclosure programs provided the IRS with an enormous amount of information regarding countries, banks and individuals involved in US taxpayers’ non-compliance with U.S. tax laws. With so much information, it was reasonable to expect that the IRS would not be satisfied with solely prosecuting Swiss banks. Year 2012 confirmed these expectations; building up on FATCA and the information provided in voluntary disclosures, the IRS made aggressive moves far beyond Switzerland, initiating negotiations about and, in many cases, concluding bilateral FATCA treaties with over 50 different countries. Among these enforcement efforts, two countries stand out as most likely candidates for future prosecutions – Liechtenstein and Israel.

Banks in Liechtenstein and Israel Are Targets in U.S. Probes

In May of 2012, the IRS issued a request to Liechtensteinische Landesbank AG (LLB) to disclose information regarding accounts of at least $500,000 owned by U.S. taxpayers. The request covers all years 2004 through present time. The bank already sent out the letters to its U.S. clients describing their intention to comply with the request. It should be noted that Liechtenstein has been under tremendous pressure not only from the United States, but also France and Germany to wind down its secrecy laws.

At the same time, the IRS became very concerned about the money flow between Switzerland and Israel. It appeared that some taxpayers decided to exit Switzerland in light of the USB and Wegelin case and moved all of their accounts to Israel. The IRS caught up with this trend and decided to pursue these taxpayers in Israel.

The focus is on three Israeli banks – Bank Leumi Le-Israel, Bank Hapoalim and Mizrahi-Tefahot Bank. It appears that these banks are cooperating even ahead of the 2013 deadline and U.S. taxpayers with undisclosed accounts in these banks are well-advised to assume that their accounts will be disclosed to the IRS sooner rather than later (especially given the close relationship between Israel and the United States).

Voluntary Disclosure for Non-Compliant U.S. Taxpayers in Liechtenstein and Israel

It appears that U.S. taxpayers with undisclosed accounts in Liechtenstein and Israel are in a race against time and they are losing to the IRS. Therefore, at this point, it is absolutely essential for these taxpayers to consider their voluntary disclosure options as soon as possible. Otherwise, they run a tremendous risk of being discovered by the IRS and subject to severe criminal and civil penalties.

2012 OVDP voluntary disclosure, Reasonable Cause (Modified) voluntary disclosure and FAQ #17 and #18 (absence of additional U.S. tax liability) disclosure are options that may be open to such taxpayers. All of these options must be thoroughly analyzed by an international tax attorney who is familiar with these issues.

Contact Sherayzen Law Office for Help With Voluntary Disclosure of Foreign Accounts and Foreign Income

If you have any undisclosed foreign accounts and/or foreign income, contact Sherayzen Law Office. Our experienced international tax firm will thoroughly review your case, advise you on the available voluntary disclosure options, prepare your voluntary disclosure documentation (including tax returns and offshore information returns such as Forms 5471, 8865, 926, 3520, FBARs and others), guide you throughout the voluntary disclosure process and vigorously represent your interests during your negotiations with the IRS.