Swiss Banks Trying to Force U.S. Clients to Disclose

Facing billions of dollars in potential fines at the hands of U.S. authorities, Swiss banks are scrambling to convince their American clients to voluntarily disclose their accounts to the IRS.

Long known for its secrecy, Switzerland’s banking industry has been turned upside down due to an ongoing U.S. onslaught against offshore tax evasion. In 2013, the Department of Justice announced a program to encourage Swiss banks to cooperate in its ongoing investigation of offshore tax evasion. Under the program, which was made available only to banks that were not already under criminal investigation, the banks would be required to disclose their cross-border banking activities and pay substantial penalties to the United States. Banks that meet all of the requirements are eligible for non-prosecution agreements.

In order to reduce the amount of the penalty they are required to pay, the banks are asking their American clients for proof that they have paid all U.S. taxes, which is usually done by participating in one of the ongoing voluntary disclosure programs being offered by the IRS. The ability to furnish this proof can greatly reduce the amount of penalties the banks will have to pay.

These clients have been receiving letters from their banks, pressuring them to provide proof that they have paid any taxes due to the U.S. government. Some banks have resorted to tactics like threatening to reveal identities to U.S. authorities or freezing accounts as a way to coerce clients into cooperating. In other cases, the banks are withholding 25-30% from accounts for potential fines. Many banks are also pressuring clients to sign bank secrecy waivers, to avoid potential lawsuits that could be filed by the clients in Switzerland.

On March 30, the first non-prosecution agreement was reached with BSI SA, which agreed to pay $211 million and admitted to helping clients evade taxes by using fake identities, coded language, and other means. The U.S. expects to reach non-prosecution agreements with all other participating banks by the end of this year. Another dozen banks were already under criminal investigation when the amnesty program was announced and are ineligible to participate.