The Swiss Bank Program: Civil and Criminal Risk for Offshore Account Holders

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The Swiss Bank Program: Civil and Criminal Risk for Offshore Account Holders

The Department of Justice opened the Swiss Bank Program (the “Program”) in 2013.   The Program “provides a path for Swiss banks to resolve potential criminal liabilities in the United States.”[1]  Specifically, the Program allows Swiss banks to disclose their apparent tax-related criminal offenses in connection with undeclared/unreported U.S.-related financial accounts.  Banks eligible to enter the program had to report noncompliance to the Department of Justice by Dec. 31, 2013.  The banks have to report “that they had reason to believe that they had committed tax-related criminal offenses in connection with undeclared U.S.-related accounts.”[2]  Any banks that were currently under criminal investigation by the DoJ could not qualify for the program.

Under the Program, the DoJ required the banks to comply with the following to receive the Program’s benefits[3]:

  • Make a complete disclosure of their cross-border activities
  • Provide detailed information on an account-by-account basis for accounts in which U.S. taxpayers have a direct or indirect interest;
  • Cooperate in treaty requests for account information;
  • Provide detailed information as to other banks that transferred funds into secret accounts or that accepted funds when secret accounts were closed;
  • Agree to close accounts of accountholders who fail to come into compliance with U.S. reporting obligations; and
  • Pay appropriate penalties.

The Swiss banks that disclosed all of the above as part of the Program received special treatment—the opportunity to enter into a non-prosecution agreement with the US government.[4]  84 separate banks have entered into non-prosecution agreements with the DoJ as a result of the Program.[5]  The Program has been wildly successful for the DoJ, as it has resulted in payment of nearly $1.4 billion in penalties paid to the US government.[6]

Programs such as this pose significant threat to non-compliant taxpayers.  The disclosures provided the DoJ with all unreported account information of US taxpayers holding accounts at these 84 banks to the government.  This means that the US government would have the information necessary to criminally and/or civilly prosecute individuals holding an unreported account at the disclosing bank.  Indeed, the information collected through the Program could possibly prevent non-compliant taxpayers from entering the IRS voluntary disclosure program.[7]

Non-compliant taxpayers should be aware that the US government can adopt a new, similar program at any time.  Indeed, some banks are still presumably working with the DoJ to enter into non-prosecution agreements under the Program, so long as the institution notified the DoJ of non-compliance before the end of 2013.  These types of programs can ultimately lead to the prosecution of noncompliant taxpayers if the US government continues to adopt similar programs to encourage compliance.  If you or your client has unreported foreign financial accounts, it is important to contact a tax attorney immediately in order to determine a taxpayer’s reporting obligations, criminal exposure, and penalty exposure.  Time is of the essence for non-compliant taxpayers, as these programs can limit the options a taxpayer may otherwise have to become compliant while maintaining minimal exposure.

[1] https://www.justice.gov/tax/swiss-bank-program

 

[2] Id.

 

[3] Id.

 

[4] Id.

 

[5] Id.

 

[6] https://www.ustaxprogram.com/penalty-statistics/

 

[7][7] A taxpayer may not quality for the new IRS voluntary disclosure program, which limits a non-compliant taxpayer’s criminal and penalty exposure, if the US government already has “received information from a third party (e.g., informant, other governmental agency, or the media) alerting the IRS to the specific taxpayer’s noncompliance” or “has acquired information directly related to the specific liability of the taxpayer from a criminal enforcement action (e.g., search warrant, grand jury subpoena).”  I.R.M. 9.5.11.9 (12-02-2009).