Ines Zemelman, EA 05-Sep-13
Many thought it was impossible to break through the confidentiality code of private Swiss banks, but a new deal has been struck between Switzerland and the United States which will do just that.
agreement with Switzerland. Through this agreement, Swiss banks have the option of either entirely assisting the United States in identifying non-compliant US Persons or facing criminal charges pursued by the US Department of Justice. The potential to avoid criminal pursuit is available to the majority of Swiss banks – in particularly those that are not already under investigation.
The United States is not only seeking account information and detailed personal information on American Persons holding Swiss financial accounts, it is also seeking information on tax professionals who assisted or advised noncompliant American Taxpayers. This fact alone indicates that the impact of this agreement will reach far beyond the borders and tax implications for Switzerland.
The crackdown on Swiss banks first began with an investigation by the United States which led to Swiss financial institution, UBS, paying $780M to the US for a settlement reached in 2009, and the continuation of the crackdown 4 years later makes it clear that the United States will stop at nothing to end tax evasion.
Since the United States reached a non-prosecution agreement with Swiss bank, UBS, in 2009, many other Swiss banks have taken one of the following actions:
Avoided criminal and financially punitive pursuit altogether by voluntarily handing over account information on financial accounts held by American Taxpayers,
Agreed to a non-prosecution settlement through which information on US Account Holders would be shared with the United States and bank officials would not face criminal charges, or
Dismissed requests by the United States and left themselves open to indictments issued and enforced by the US Department of Justice.
The remaining Swiss banks are now in a position to comply with the United States’ request for information regarding assets held by American Citizens and Green Card Holders or face criminal prosecution by the United States. The fact that Switzerland (a country in which tax evasion is not a criminal offense) has agreed to comply with FATCA mandates is a rather convincing sign that it will get extremely difficult – if not impossible – for American Citizens and residents of other countries to avoid the international tax obligations imposed by their home country.
Amnesty programs offered by the IRS to American Taxpayers seem to be the most promising method of coming clean with the IRS and becoming current on all tax and reporting obligations. Even though the IRS only promises to make suggestions to the DOJ in exchange for filing past due tax returns and FBARs, it is still much better than the alternative – which is to either be given up by a whistleblower or wait until the IRS and DOJ finish their widespread investigations and penalize all in the dragnet with maximum fines and sentences.
Remember that it is not enough to simply close foreign accounts. The United States is looking at previous years, and any US Taxpayer who held at least $10K worth of unreported foreign financial accounts in previous years will be held accountable for failure to comply with FATCA regulations.
This deal only applies to Swiss banks that are not already under investigation, and banks that may avoid criminal pursuit will not avoid financial penalties.
As indicated at the beginning of this article, the deal recently struck between the United States and Switzerland will only agree to offer non-prosecution agreements to banks that are not already under investigation by the DOJ. Investigations which were already taking place will continue as planned and there will be no special deals offered to such bank officials under the current agreement.
The rest of the Switzerland banks that are being given what may be ‘one final opportunity to assist with US investigations’ will be able to avoid criminal charges being filed against bank officials. They will not, however, be able to avoid paying penalties for holding undisclosed assets for American Taxpayers.
There is a 3-tier penalty structure for banks holding undisclosed funds in recent years. Some will pay as low as 20% of account balances, some will pay 30%, and some will pay as much as 50%!
Through this new deal between Switzerland and the United States, the US will be able to view accounts as far back as 2008. Banks holding accounts that were opened and held before August 1, 2008 will be subject to a 20% financial penalty based on the maximum value of undisclosed financial accounts. Accounts opened between August 1, 2008 and March, 2009, will be subject to a financial penalty of 30%, and any account opened after March, 2009, will be subject to the maximum penalty of 50%.
While this deal has the potential to devastate some Swiss banks to the point of bankruptcy, it still offers a reprieve from indictments being issued to bank officials across Switzerland.