As 2016 came to an end, you may have missed an announcement from the US Department of Justice. The Swiss Bank Program that started in the summer of 2013 has officially been completed.
The Program provided an opportunity for Swiss banks to work with the DOJ to limit their exposure to civil and criminal charges. The banks had to agree to disclose information and cooperate in investigations related to the use of foreign bank accounts to avoid US taxes. In exchange, the banks received non-prosecution agreements and paid penalties. In this post, we will discuss how the program worked and what happens next?
Banks were initially placed into one of four categories:
- Category 1 - Swiss banks under investigation at the announcement of the Program were ineligible
- Category 2 - Those that agreed to completely disclose information on US taxpayers and cooperate in criminal and civil proceedings in exchange for non-prosecution agreements along with penalties
- Category 3 - These banks had to show that they had an effective compliance program that ensured no tax or monetary offenses had been committed
- Category 4 - To fit into this category, it was necessary be in line with the reporting requirements of the US Foreign Account Tax Compliance Act.
Banks in the third and fourth categories received a non-target letter. Interestingly, no banks qualified for Category 4. This may not have been a surprise as the international financial sector was racing to understand the exact reporting requirement of FATCA. Between July and December of 2016, four banks and a bank cooperative qualified under Category 3.
Eighty Category 2 Swiss banks finalized agreements with the DOJ between March 2015 and January of 2016. Under this category $1.36 billion in penalties was collected. In addition, 54,000 taxpayers paid some $8 billion in taxes, interest and penalties.
As the Swiss Bank Program enters its "legacy phase" participating banks will need to continue to cooperate in civil and criminal investigation. The intensive scrutiny into offshore tax evasion will now move into new regions.
Israel and Asia
The Criminal Investigations unit of the IRS had broadened its focus and is starting to investigate the money that flowed out of Switzerland under the pressure of the Swiss Bank Program.
Israeli banks are coming under closer scrutiny with several that have been identified as Category 1 banks. Investigations in Asia may be increasing. A federal court action against UBS requested the Singapore account records of a taxpayer under IRS audit who resided in China. A "leaver list" that identifies all accounts closed after August 2008 has also allowed the DOJ and IRS to follow the flow of money.
The Offshore Voluntary Disclosure Programs that has been in place since 2009 has provided the agency a lot of information. This has provided the IRS with even better means for spotting avoidance patterns.
As we frequently say in our blogs, compliance is more important than ever. A mistake in failing to properly disclose a foreign financial account in itself can become a crime. The Swiss banks have generally settled with the IRS, but IRS-CI investigations are now spreading east.