On March 30, 2015, the US Department of Justice announced the first non-prosecution agreement entered into by a Swiss bank pursuant to the Swiss Bank Program and advised US taxpayers with secret offshore bank accounts that time is running out for them to come forward.
Caroline D. Ciraolo, Acting Assistant US Attorney General for the Tax Division, stated on March 30 that the “agreement is the first of many that will be signed in the near future” and advised that the DOJ anticipates that non-prosecution agreements with all banks remaining in the Program will be signed by the end of the year.
The Program, which gave Swiss banks not already under DOJ criminal investigation an opportunity to avoid possible prosecution, was announced on August 29, 2013, accompanied by a joint statement between the DOJ and the Swiss Federal Department of Finance. To qualify, a bank had to notify the DOJ of its intent to enter the program and to cooperate under its terms by December 31, 2013. Under the Program, cooperation by a bank includes detailed disclosure about the bank’s activities, information about accounts held by or on behalf of US persons, and assistance in making treaty requests to obtain the identities of US accountholders. The DOJ stated that the bank had over 3,000 US-related accounts, and that the bank had encouraged hundreds of US account holders to come into compliance, provided information regarding accounts that were transferred to other banks to avoid detection and was assisting with ongoing treaty requests.
The DOJ has previously announced that over 100 banks met the deadline to state an intention to enter into the Program and also indicated that some did so tentatively and stated at the time that they might withdraw.
Pursuant to the terms of the Program, banks seeking non-prosecution agreements are required to provide extensive information about US accounts, as well as information about persons who assisted US depositors in evading US tax, including account managers, client advisors, asset managers, financial advisors, trustees, fiduciaries, nominees, attorneys, accountants or any other individual or entity that helped US depositors evade tax. The Program was not open to these individuals and these names and contacts may result in prosecutions of many of the individuals who facilitated US tax evasion. The DOJ has repeatedly encouraged these individuals to come forward to cooperate in exchange for possible leniency.
Many of the Swiss banks that have entered the Program have sent letters to their clients informing them of the bank’s participation and advising them to enter the IRS Offshore Voluntary Disclosure Program (OVDP). The DOJ warned that although some may still be eligible to participate in the OVDP, the cost of disclosure is increasing and “time is running out.” Currently, most US taxpayers who enter the IRS offshore voluntary disclosure program to resolve undeclared offshore accounts will pay a penalty equal to 27.5 percent of the high value of the accounts. In August 2014, the IRS increased the penalty to 50 percent if, at the time the taxpayer initiated the disclosure, either a foreign financial institution at which the taxpayer had an account or a facilitator who helped the taxpayer establish or maintain an offshore arrangement had been publicly identified as being under investigation, the recipient of a John Doe summons or cooperating with a government investigation.
The announcement today that one bank has entered into a non-prosecution agreement could have the immediate effect of exposing accountholders with that bank who enter the OVDP to the higher 50 percent penalty, and disclosure by the bank directly or through treaty requests of a taxpayer’s identity could make the taxpayer ineligible for the protections of OVDP. For accountholders with secret accounts at other banks, time could similarly run out in the near future.
Since 2009, more than 100 bank account holders, facilitators and banks have been prosecuted. With ongoing cooperation from Swiss banks and ongoing investigations in (but not limited to) the Caribbean, India, Israel, Liechtenstein and Luxembourg, additional prosecutions are likely.
US persons previously or currently holding undisclosed accounts outside the US should consult a tax lawyer concerning how to come into compliance, or to ensure continuing compliance with tax payment, filing and reporting obligations.