On Monday, March 30, 2015, the Department of Justice (the "Department") announced its first settlement under the Swiss Bank Program, potentially exposing thousands of U.S. taxpayers to a steep 50 percent penalty for failure to report their offshore accounts.
The Swiss Bank Program, which was introduced on August 29, 2013, seeks to resolve the potential criminal liability of various Swiss banks. The voluntary program offers the banks a Non-Prosecution Agreement (NPA) in exchange for the payment of a hefty fine and their cooperation in disclosing the financial information of U.S. persons.
BSI S.A., one of Switzerland's ten largest banks, signed a Non-Prosecution Agreement on Monday, March 30, 2015. BSI agreed to pay $211 million to the Department, but will also provide the Department with financial information on more than 3,000 U.S.-related bank accounts, including accounts where the money was transferred to another country. The Department announced that it intended to use this information to prosecute individual taxpayers.
Under the terms of the 2014 Offshore Voluntary Disclosure Program (OVDP), U.S. taxpayers may come into compliance by declaring their offshore accounts and paying a penalty equal to 27.5 percent of the highest value of the accounts over an eight year period. The FAQs published under the OVDP state that a 50 percent offshore penalty applies if a foreign financial institution at which the taxpayer has or had an account has been publicly identified as being under investigation or as cooperating with a government investigation. Today BSI was added to the list of banks which trigger the 50 percent penalty.
For U.S. persons that have or held an account at BSI S.A., the penalty has increased to 50 percent if such taxpayers did not initiate their disclosure prior to March 30, 2015. It is critical to note that the higher penalty applies to the total value of all of the taxpayer's undeclared offshore accounts and not just to the balance of the account at BSI S.A. FAQ 7.5 clearly states that once the 50 percent miscellaneous offshore penalty applies to any of the taxpayer's accounts, it will apply to all of the taxpayer's assets subject to the penalty. Thus, taxpayers with a relatively small BSI S.A. account balance, but with larger unreported account balances at other institutions, will be exposed under the OVDP to a higher penalty on all of their accounts.
U.S. persons with unreported accounts at any of the foreign financial institutions on the following list, which was updated this morning, are subject to the 50 percent penalty:
- UBS AG
- Credit Suisse AG, Credit Suisse Fides, and Clariden Leu Ltd.
- Wegelin & Co.
- Liechtensteinische Landesbank AG
- Zurcher Kantonalbank
- swisspartners Investment Network AG, swisspartners Wealth Management AG, swisspartners Insurance Company SPC Ltd. and swisspartners Versicherung AG
- CIBC FirstCaribbean International Bank Limited, its predecessors, subsidiaries and affiliates
- Stanford International Bank, Ltd., Stanford Group Company, and Stanford Trust Company, Ltd.
- The Hong Kong and Shanghai Banking Corporation Limited in India (HSBC India)
- The Bank of N.T. Butterfield & Son Limited (also known as Butterfield Bank and Bank of Butterfield), its predecessors, subsidiaries and affiliates
- Sovereign Management & Legal, Ltd., its predecessors, subsidiaries, and affiliates (effective December 19, 2014
- Bank Leumi le-Israel B.M., The Bank Leumi le-Israel Trust Company Ltd, Bank Leumi (Luxembourg) S.A., Leumi Private Bank S.A., and Bank Leumi USA (effective December 22, 2014)
- BSI SA (effective March 30, 2015)
The IRS initially published this list on August 4, 2014. At that time, it only included ten financial institutions. The IRS added Sovereign Management & Legal in December 2014 following a court's authorizing a summons for records held by the bank. Then on December 30, 2014, the IRS added Bank Leumi to the list and its inclusion was made retroactive to December 22, 2014. As this list grows, it is prudent to consider whether your foreign bank might be next on the list.