Vadian Bank AG Signs Non-Prosecution Agreement with DOJ

On May 8, 2015, Vadian Bank AG (Vadian) became the second bank to sign a Non-Prosecution Agreement with the US Department of Justice (DOJ) pursuant to the DOJ Program for Swiss Banks.

Program for Swiss Banks: Background Information

On August 29, 2013, the DOJ announced the creation of the “The Program for Non-Prosecution Agreements or Non-Target Letters for Swiss Banks (Program)”. The basic goal of the program was to allow Swiss banks to purge themselves of the prior US tax non-compliance (or complicity with such non-compliance) in exchange for providing DOJ with detailed description of their illegal activities, bank accounts owned by US persons and, in many cases, the payment of monetary penalties.

The Program is a really a version of the 2014 OVDP for foreign banks. However, it was not open to all banks. The banks already under criminal investigation related to their Swiss-banking activities and all individuals were expressly excluded from the program.

As of the time of this writing, the application process has already been completed for the great majority of the Swiss banks, and the Program has entered into the resolution phase (i.e. the review of the banks’ disclosure and penalty calculation).

Vadian bank’s case was the second such case that completed the resolution phase (BSI SA was the first bank to do so).

Vadian Bank Background

Vadian has one office and 26 employees. Prior to 2008, Vadian’s business predominantly consisted of savings accounts, residential mortgage lending and small business loans. In 2007, Vadian hired a marketing firm to assist with its planned growth into private banking, and focused its efforts on attracting external asset managers. In 2008, after it became publicly known that UBS was a target of a criminal investigation, Vadian accepted accounts from U.S. persons who were forced out of other Swiss banks. At this time, Vadian’s management was aware that the U.S. authorities were pursuing Swiss banks that facilitated tax evasion for U.S. accountholders in Switzerland, but was not deterred because Vadian had no U.S. presence. As a result of its efforts, after August 2008, Vadian attracted cross-border private banking business and increased its U.S. related accounts from two to more than 70, with $76 million in assets under management.

Through its managers, employees and/or other individuals, Vadian knew or believed that many of its U.S. accountholders were not complying with their U.S. tax obligations, and Vadian would and did assist those clients to conceal assets and income from the IRS. Vadian’s services included: “hold mail” services; numbered accounts, where the client was known to most bank employees only by a number or code name; opening and maintaining accounts for U.S. taxpayers through non-U.S. entities such as corporations, trusts or foundations; and accepting instructions from U.S.-based accountholders to prevent investments from being made in U.S.-based securities that would require disclosure to U.S. tax authorities.

Vadian Bank: Terms the DOJ Non-Prosecution Agreement

According to the terms of the non-prosecution agreement that was signed on May 20, 2015, Vadian agreed to cooperate in any related criminal or civil proceedings, demonstrate its implementation of controls to stop misconduct involving undeclared U.S. accounts and pay a $4.253 million penalty in return for the department’s agreement not to prosecute Vadian for tax-related criminal offenses.

In resolving its criminal liabilities under the program, Vadian also provided extensive cooperation and encouraged U.S. accountholders to come into compliance.

Consequences of Vadian Non-Prosecution Agreement for Vadian US Accountholders

If you have (or had at any point since the year 2008) undeclared foreign accounts at Vadian, you may still be eligible to participate in the OVDP (assuming that you can pass the IRS-CI Preclearance process). However, the price of participating in the OVDP has almost doubled from the pre-Agreement 27.5% to the current 50% of the highest value of your undisclosed foreign assets.

Of course, if the behavior was non-willful, Streamlined options remain available at the same penalty rates.

What Should Vadian US Accountholders Do?

If you are a US person and an accountholder at Vadian, please contact the experienced international tax law firm of Sherayzen Law Office to explore your voluntary disclosure options as soon as possible.

IRS Offshore Voluntary Disclosure Program Process

In an earlier article, I discussed the key requirements of the Offshore Voluntary Disclosure Program (OVDP) now closed. In this essay, I would like to outline the general OVDP administrative process from initial pre-clearance through the execution of the Closing Agreement.

General Description

In order to participate in the OVDP, the taxpayer must first be accepted into the program. The acceptance process consists of the basic pre-clearance and the submission of the Offshore Voluntary Disclosure Letter with Attachments. Once the IRS approves the preliminary acceptance into the OVDP, the next step is to prepare and timely submit the voluntary disclosure package that includes all of the required documentation covering the entire voluntary disclosure period. Then, the IRS will assign an Agent to complete the certification of your tax returns and assess your Offshore penalty. Assuming that the taxpayer agrees to the Offshore penalty and the results of the Agent’s certification, the taxpayer should execute the Closing Agreement with the IRS.

This is a very simplified description of the process; there are numerous other considerations and requirements that must be taken into account. It will be up to your attorney to determine the precise process of your voluntary disclosure.

The following discussion of the process assumes that you retained an attorney to help you with the OVDP process; I also strongly recommend securing an international tax attorney’s help with the OVDP in order to improve the chance of success of your voluntary disclosure.


The OVDP acceptance process begins with securing the pre-clearance from the IRS Criminal Investigation Lead Development Center (CILDC). It is usually secured by your attorney who sends a fax to CILDC with the identifying information (name, date of birth, social security number and address) and executed power of attorney. If each spouse intends to apply for OVDP, the attorney should make a separate request for each spouse.

Generally, CILCD will notify your attorney by fax within thirty days whether or not you are cleared to make an offshore voluntary disclosure. If you are not cleared, this most likely means that the IRS has already launched an investigation of your tax affairs. If you are cleared, you can proceed to the next OVDP step.

Note, pre-clearance does not guarantee your acceptance into the OVDP. You must truthfully, timely, and completely comply with all OVDP process and requirement provisions.

Offshore Voluntary Disclosure Letter and Preliminary Acceptance

If you are deemed cleared for the OVDP, the next step is to prepare and file the Offshore Voluntary Disclosure Letter with all of the required attachments (the “Letter”) within 45 days from receipt of the pre-clearance fax notification.

As of February of 2013, the Letter with attachments should be submitted to the following address:

Internal Revenue Service
Voluntary Disclosure Coordinator
2970 Market Street
Philadelphia, PA 19104

The IRS Criminal Investigation will review the Letter and notify your attorney by mail or fax whether your offshore voluntary disclosure have been preliminarily accepted or declined. It is intended this process should be completed within 45 days of receipt of a complete Letter, but there is no guarantee that this will occur. In general, however, the IRS is able to render its decision within this time period.

Note that preliminary acceptance into the OVDP is conditioned upon the information provided by the taxpayer being, and remaining, truthful, timely, and complete. Further note that there is a different process for domestic disclosures contemporaneous with the OVDP.

Voluntary Disclosure Package

If the preliminary acceptance is secured, the letter from the IRS Criminal Investigation will instruct your attorney to submit the full voluntary disclosure package to the Austin Campus within 90 days of the date of the letter.

The Voluntary Disclosure Package is the most intense part of your voluntary disclosure in terms of the time it will take to produce the package. The voluntary disclosure submission must be sent in two separate, yet simultaneous, parts.

The first part is to submit a check payable to the Department of Treasury in the total amount of tax, interest, accuracy-related penalty, and, if applicable, the failure to file and failure to pay penalties, for the voluntary disclosure period. The check should be sent along with information identifying the taxpayer name, taxpayer identification number, and years to which the payment relates to the following address. If you cannot pay the total amount of tax, interest, and penalties as described above, submit your attorney should submit a proposed payment arrangement and a completed Collection Information Statement (Form 433-A, Collection Information Statement for Wage Earners and Self-employed Individuals, or Form 433-B, Collection Information Statement for Businesses, as appropriate).

As of February of 2013, the address to which the check must be sent is as follows:

Internal Revenue Service
3651 S. I H 35 Stop 1919 AUSC
Austin, TX 78741
ATTN: Offshore Voluntary Disclosure Program

The second part of the voluntary disclosure submission is the rest of the Voluntary Disclosure Package which should include among other requirements:

1. Copies of previously filed original (and, if applicable, previously filed amended) federal income tax returns for tax years covered by the voluntary disclosure;

2. For taxpayers who began filing timely, original, compliant returns that fully reported previously undisclosed offshore accounts or assets before making the voluntary disclosure for certain years of the offshore disclosure period, copies of the previously filed returns for the compliant years;

3. Complete and accurate amended federal income tax returns (for individuals, Form 1040X, or original Form 1040 if delinquent) for all tax years covered by the voluntary disclosure, with applicable schedules detailing the amount and type of previously unreported income from the offshore account or entity or domestic source (e.g., Schedule B for interest and dividends, Schedule D for capital gains and losses, Schedule E for income from partnerships, S corporations, estates or trusts and, for years after 2010, Form 8938, Statement of Specified Foreign Financial Assets);

4. A completed Foreign Account or Asset Statement for each previously undisclosed foreign account or asset during the voluntary disclosure period;

5. Properly completed and signed Taxpayer Account Summary With Penalty Calculation;

6. For those applicants disclosing offshore financial accounts with an aggregate highest account balance in any year of $500,000 or more, copies of offshore financial account statements reflecting all account activity for each of the tax years covered by your voluntary disclosure. For those applicants disclosing offshore financial accounts with an aggregate highest account balance of less than $500,000, copies of offshore financial account statements reflecting all account activity for each of the tax years covered by your voluntary disclosure must be readily available upon request; and

7. Properly completed and signed agreements to extend the period of time to assess tax (including tax penalties) and to assess FBAR penalties.

The above seven items is not a complete list; other forms and statements may also be required to be submitted.

As of February of 2013, the second part of the Voluntary Disclosure Package should be submitted to the following address:

Internal Revenue Service
3651 S. I H 35 Stop 4301 AUSC
Austin, TX 78741
ATTN: Offshore Voluntary Disclosure Program

Remember, a full and complete submission is required for acceptance into the program.

Assignment of Agent, Additional Requests, Certification

After your attorneys submits both parts of the Voluntary Disclosure Package, your case will be assigned to a civil examiner to complete the certification of your tax returns for accuracy, completeness and correctness. However, do not expect this to be a fast process despite the IRS efforts to expedite the process; depending on how busy the IRS is, it make take months before an agent is assigned to your case. The OVDP operates on a first-come, first-served basis.

During the certification process, it is likely that the examiner will request additional information as needed to process your voluntary disclosure, especially if your disclosure involves PFIC calculations or complex returns. This may delay the process further.

Offshore Penalty Negotiations, Opt-Out and Closing Agreement

After the certification process is completed, your Offshore Penalty will be calculated by the IRS (as approved by a technical specialist) and presented to your attorney.

At this point you will have three options. First, if you disagree, your attorney may attempt to re-negotiate the Offshore Penalty by pointing out any mistakes in the agent’s calculations. Second, if option number one does not work, you should discuss the opt-out option with your attorney. In this article, I will not be discussing this very important and complex subject. Finally, the third option to agree with the Offshore Penalty calculations, pay the Offshore Penalty and sign the Closing Agreement on Final Determination Covering Specific Matters.

Contact Sherayzen Law Office for Help with Your Offshore Voluntary Disclosure

Offshore Voluntary Disclosure Program comes with a very long and complex process. It is too easy to get lost within the process or submit to the calculation of the IRS agents without proper consideration of your alternatives. This is why you need to make sure that you are represented by a tax attorney experienced in this area of law.

If you are already in the OVDP or you are only considering the option of doing so, contact Sherayzen Law Office as soon as possible. Our experienced international tax law firm will thoroughly review your case, identify the available options, implement the agreed-upon legal strategy, guide your case through the entire process of the OVDP and rigorously represent your interests during your negotiations with the IRS.