If so, what does it mean to those who had a JB Account?
Shortly before New Year's, on Wednesday, December 30, 2015, the media reported that Julius Baer Group AG (“JB”) expected to pay about $547 million to settle the U.S. investigation into how the bank (and its bankers) assisted U.S. taxpayers in evading tax. This investigation began more than 4 years ago, and followed similar investigations into UBS Group AG and Credit Suisee Group AG.
On April 15, 2015, at its annual shareholder meeting, Daniel J. Sauter, chairman of Julius Baer's Board of Directors, stated that the bank was close to a resolution with the United States. He indicated that he was convinced that it "will be among the next banks to conclude this chapter." At that time JB set aside $350 million, which it thought would be sufficient to resolve the examination. Perhaps, the increase in the anticipated penalty by $197 million, will be sufficient to satisfy the Department of Justice. Reports indicate that the resolution may arrive in the first quarter of 2016.
United States taxpayers who currently have an unreported account at JB, or who had such an account, are well advised to quickly find religion and seek immediate legal counsel. Depending upon the facts of the particular taxpayer’s case, it may be that participation in the 2014 Offshore Voluntary Disclosure Program (“OVDP”) is appropriate. Because JB has yet to be added to the list of foreign financial institutions or facilitators (the “List”), the offshore penalty that will apply in the taxpayer’s OVDP remains 27.5%. However, once JB is added to the List, the offshore penalty will jump to 50% in the OVDP.
Whether JB is added to the List is irrelevant to taxpayers disclosing their unreported JB account through the Streamlined Filing Compliance Procedures. Of course, taxpayers need to understand that if the IRS learns about their unreported account before they join the OVDP or one of the streamline programs, they will no longer qualify for any of the programs. Additionally, IRS Commissioner John Koskinen was quoted in a Bloomberg BNA Daily Tax Report article on December 17, 2015 as stating at the George Washington University Law conference on international tax “[a]t some point, we will have assumed that people have had enough notice that they should have become voluntarily compliant,” “At that point—after some period of time and you’re not compliant—it will be assumed that logically you are purposely not compliant.” (See Laura Davison, “Streamlined Disclosure Program Won’t Continue Indefinitely,” Bloomberg BNA Daily Tax Report, 243 DTR G-3, December 18, 2015.)
Taxpayers should also be aware that any current accounts held at JB will be disclosed to the United States as a result of the Foreign Account Tax Compliance Act (“FATCA”). Additionally, any account previously held at JB which was not declared to the US, and transferred to another institution, especially in Switzerland is likely to be disclosed through the Swiss Bank Program (the “Program”).
In an effort to assist the United States in resolving numerous cases against banks efficiently, the Department of Justice announced on August 29, 2013 that it had designed a program providing Swiss banks with an opportunity to resolve potential criminal liabilities arising from their dealings with United States customers.
Eric Holder, the Attorney General when the program was announced, stated at that time: "[t]his program will significantly enhance the Justice Department's ongoing efforts to aggressively pursue those who attempt to evade the law by hiding their assets outside of the United States.”
What made the Program so unique was that it provided taxpayers with unreported accounts with a new threat. One of the features of the Program for those banks seeking to benefit from it required the Swiss banks to provide the Department of Justice with information on US accountholders. The banks had to disclose detailed financial information on accounts in which US taxpayers had any connection. Included in the information was the maximum account value, the name of any individual or entity affiliated with the account, and the connection such individual or entity had to the account. The banks also had to document the flow of funds into and out of the account. The information had to include how transfers were made, and from where and to where funds were transferred.
Banks were classified under one of four categories, 1-4. Those banks already under criminal investigation, of which JB was one, were specifically excluded from the program, and placed in Category 1. Those banks that were faced with potentially criminal exposure were placed into Category 2. Clearly, the program is a success. Seventy-five category 2 banks have resolved their cases with the Department of Justice in 2015. These banks have paid more than $1 billion in penalties to avoid prosecution, as well as the detailed information on the accounts.
The 75 banks will also be obligated to assist the Department of Justice in prosecuting taxpayers who hid their assets. Not only will the banks disclose information on their US account holders, but they will be obligated to provide ongoing assistance to the DOJ, which also includes providing testimony in a US prosecution based upon the information, including cooperating with treaty or other requests for additional information.