In August 2013, the U.S. Department of Justice, in conjunction with the Swiss Federal Government, announced a compliance program that enables Swiss financial institutions to address and resolve their status with the U.S. Department of Justice. Similar to the Offshore Voluntary Disclosure Programs that have been made available to U.S. taxpayers, in exchange for amnesty from criminal prosecution and pre-determined civil penalties, Swiss banks will provide the U.S. government with data regarding U.S. taxpayers who use the foreign financial institutions to hide income and assets from the IRS. Swiss banks will also be required to disclose the name of financial advisors who assisted U.S. taxpayers with their evasion and non-compliance.
The U.S. Department of Justice has identified four different categories of banks under the program:
- Category One: The fourteen Swiss Banks currently under investigation by the Department of Justice as of August 29, 2013 are not eligible for the disclosure program. Non-Swiss Banks and individuals (such as banking professionals and financial advisors) are not eligible either.
- Category Two: Swiss Banks that have “reason to believe” they may have committed tax-related or monetary transaction offenses in connection with undeclared “US Related Accounts” (accounts that exceed US$50,000 in value and that were either directly or indirectly related to a taxpayer) held by the Swiss bank between August 1, 2008, and either the latter of December 31, 2014, or the effective date of an Foreign Financial Institution Agreement under the Swiss Inter-Governmental Agreement, or the date of the Non-Prosecution Agreement or Non-Target Letter if that date is earlier than December 31, 2014. This category of banks must provide a letter to the Department of Justice stating their intent to request a non-prosecution agreement and their commitment to comply with the terms and conditions applicable to this category no later than December 31, 2013.
- Category Three: Swiss Banks that have not committed any tax-related or monetary transaction offenses in connection with undeclared U.S.-related accounts held during the applicable period. These banks may request a Non-Target Letter based on satisfying certain conditions, including demonstrating the existence of an effective compliance program. A bank requesting a Non-Target Letter under this category must provide a letter to the DOJ no earlier than July 1, 2014, and no later than October 31, 2014. This category effectively requires certitude that the bank “has not committed” any tax-related or monetary transaction offenses. If a bank later discovers that it previously committed a tax-related or monetary offense, the Department of Justice will not permit the bank to reapply as a Category Two bank. However, the Department of Justice may, at its discretion, make an exception to this rule under extraordinary circumstances.
- Category Four: Swiss Banks that as of December 31, 2009, and as of August 29, 2013, would have satisfied the ten conditions to be classified as a “Financial Institution with a Local Client Base” under the Registered Deemed Compliant Category of Annex II of the Swiss Inter-Governmental Agreement. In general, in order for a Swiss bank to come within this category, it is necessary that the bank (and any more than 50% controlled affiliates) be a Swiss incorporated bank whose presence and activities are limited to Switzerland, 98% or more of whose account holders by value are residents of Switzerland or a member state of the EU, policies and procedures are maintained to ensure there are no US account holders not resident in Switzerland and there are no policies or practices that discriminate against opening or maintaining accounts for US persons such as US citizens who are residents of Switzerland. A Swiss bank requesting a Non-Target Letter under this category must submit its written request to the DOJ no earlier than July 1, 2014, and no later than October 31, 2014.
In order to protect themselves, Swiss foreign financial institutions will be giving up U.S. taxpayer information to the IRS and the Department of Justice. If the IRS gets a taxpayer’s name and information before that taxpayer has requested participation in one of the IRS Offshore Voluntary Disclosure Programs, that taxpayer will not be allowed to disclose under the terms of the taxpayer program and will likely be at risk for criminal investigation and severe civil penalties.
Swiss Banks Join U.S. Tax Evasion Disclosure Program
Though it remains to be seen how the IRS will use all of the information it obtains as a result of these disclosures, it is unlikely that they will be able to pursue every U.S. taxpayer whose information is disclosed by the Swiss banks. As such, those taxpayers who choose to come forward voluntarily have a high likelihood of being granted amnesty in exchange for disclosure and the payment of penalties. Banks from several Swiss cantons are taking part, including banks in Geneva, Lucerne, Zug, Glarus, Schwyz, Aargau, Appenzell, St. Gallen, Vaud, Graubünden, Obwalden and Nidwalden.
Contact a Swiss Bank Account and Offshore Disclosure Attorney
If you are a U.S. taxpayer with foreign financial accounts in Switzerland or other foreign countries, contact Brown, PC at 817-870-0025 or toll free at 888-870-0025 to discuss a strategy for minimizing your risk and to schedule a consultation for addressing your specific offshore account issues.