On August 29, 2013, the US Department of Justice (“DOJ”) and Swiss authorities jointly announced a landmark non-prosecution program for any Swiss bank that is not a current target of US criminal investigation. On the Swiss side, the agreement with DOJ was signed by the Swiss Federal Department of Finance. The program is designed to encourage all Swiss banks to come forward and admit the role they played in assisting US persons to evade tax. Participating banks that meet all of the demands made by DOJ are eligible for non-prosecution agreements – but employees and agents of the banks are shockingly not protected.
In order to participate, the Swiss banks must undertake arduous internal investigations to sniff out any “US related accounts”, appoint an independent examiner to review the due diligence, make a complete disclosure about the bank’s cross-border activities; provide detailed information on all US related accounts that existed on August 1 2008; and pay a penalty of 20, 30 or 50 percent of the maximum value of all non-disclosed US accounts that were held by the bank. The applicable penalty percentage depends on the date the accounts were opened with the bank with the penalty increasing after news became public that the US government was investigating Swiss banks for offshore tax evasion (a 20 percent penalty is imposed on the maximum aggregate dollar value of all undisclosed US accounts that existed at the bank on August 1, 2008; increasing to 30 percent for undisclosed accounts that were opened after that date, but on or before February 28, 2009 and to 50 percent for undisclosed accounts opened after February 28,2009).
Full details can be found in the signed Agreement.
What is a “US-Related Account”?
Generally, a US-related account means an account which exceeded $50,000 in value at any time since August 1 2008 as measured by the account balance on the last day of each month, and as to which “indicia exist” that a US person or entity “has” or “had” a financial or beneficial interest in, ownership of, or signature authority (whether direct or indirect) or other authority (including authority to withdraw funds; to make investment decisions; to receive account statements, trade confirmations, or other account information; or to receive advice or solicitations) over the account.
There is a presumption that all funds in any “US-related” accounts are undeclared and therefore, the value of the account must be included in the penalty base, UNLESS the bank can prove otherwise. Generally, in order to be eligible to exclude the value of the account from the penalty base, the bank must be able to demonstrate to the Tax Division of DOJ that the account was not undeclared, or that the bank disclosed the account to the IRS, or that the account was disclosed in an IRS Offshore Voluntary Disclosure Program.
Participating Swiss banks will also have to cooperate with treaty requests for account information; provide details about any other banks that transferred funds into undisclosed accounts or that accepted funds when such accounts were closed out. Furthermore, participating banks must agree to shut down the accounts of any US account holders who do not comply with US reporting obligations.
It appears from all initial indications that many Swiss banks will enter into the deal – those that “have reason to believe” they may have committed tax-related offenses, as well as those who believe they did not and who may request a so-called “Non-Target Letter”. Without entrance into the program, the banks are possibly looking at charges for aiding and abetting tax evasion or for certain types of false bank filings. The statutes of limitation covering these crimes are long (generally, 6 and 10 years, respectively) with the statutes being “tolled” if continuing acts of concealment are involved (the clock stops ticking when a statute is “tolled” and the passage of time, simply does not count).
What Does this Mean for US Persons With Undisclosed Offshore Accounts?
Going forward, I believe the program will serve as a template for banks in many other countries. It certainly will not stop at Switzerland. So, if you had an undisclosed offshore account in existence on August 1, 2008 you had best get appropriate legal advice and get it soon. Merely closing out the account won’t help. The IRS is intent on following the money and the agency is clearly having banks “look back” to US-related accounts that existed on August 1, 2008. If you think you are safe simply because you closed out your account – think again. The banks are scared and they are turning over information.
DOJ and the Swiss authorities noted that the Swiss Financial Market Supervisory Authority intends to encourage all Swiss banks to send a letter to US persons or entities having any “US related accounts” at the banks informing them of the DOJ Non-Prosecution Program and drawing their attention to the IRS Offshore Voluntary Disclosure Program.
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