On March 30, 2015, the U.S. Department of Justice (DOJ) announced that it reached the first non-prosecution agreement under the Swiss bank program with BSI, S.A. (BSI). BSI, one of Switzerland's ten largest banks, has agreed to pay $211 million in fines and cooperate in any related civil or criminal proceedings as well as demonstrate its implementation of controls to curb alleged misconduct regarding undeclared accounts of U.S. citizens. BSI's non-prosecution agreement is the latest development in the U.S. government's continuing efforts to prevent alleged offshore tax evasion.
Since 2009, the U.S. government has conducted sweeping investigations of Swiss banks alleged to have aided U.S. clients in evading taxes. In the first wave of investigations, Swiss bank UBS AG, the largest bank in Switzerland, agreed to pay $780 million in a deferred-prosecution agreement and provide financial information for almost 4,500 U.S. clients. In 2013, the DOJ and the Swiss Department of Finance initiated the "Legacy Agreement" allowing certain Swiss banks to avoid prosecution when such institutions cooperate with DOJ investigations. Under the "Legacy Agreement," Swiss banks that have maintained undisclosed offshore accounts for U.S. taxpayers can avoid prosecution by agreeing to pay significant financial penalties, disclosing detailed information on an account-by-account basis for every account in which a U.S. taxpayer has a direct or indirect interest, and assisting DOJ in its work to end alleged offshore tax evasion. In 2014, Credit Suisse Group AG (Credit Suisse), Switzerland's second largest bank, pled guilty to aiding U.S. taxpayers in evading tax and agreed to pay a penalty of $2.6 billion.
The agreement between BSI and DOJ follows an announcement in March of this year that DOJ was revising the non-prosecution agreement for Swiss banks. Dozens of representatives of Swiss banks expressed concerns about the DOJ's original proposal. The DOJ revised the model non-prosecution agreement to eliminate requirements that Swiss banks cooperate with foreign law enforcement agencies and disclose information about their parent companies. Only Category 2 banks, or those that believe they violated U.S. tax law and express an intent to participate in the program, are eligible to enter into a non-prosecution agreement. BSI, a Category 2 bank, is one of nearly 100 Swiss banks seeking to avoid prosecution by disclosing they helped U.S. clients evade U.S. tax obligations.
The U.S. government continues to expand the scope of its probes to banks and other financial institutions in India, Israel, Luxembourg, and the Caribbean. Israel’s largest bank, Bank Hapoalim and its fourth-largest lender, Mizrahi-Tefahot are currently under investigation by the DOJ. On December 8, 2014, the DOJ filed a lawsuit against Deutsche Bank AG in federal court in New York for tax fraud alleging the bank engaged in a series of transactions designed to fraudulently shift tax liability to an underfunded special purpose vehicle. The government is seeking $190 million in unpaid taxes, penalties and interest. On December 19, 2014, a federal judge in Manhattan approved a special summons directed at Sovereign Management & Legal, a Panamanian legal services firm alleged to have helped U.S. clients evade taxes through anonymous banking services.
The DOJ investigations have also led to the prosecution of U.S. taxpayers and generated hundreds of millions in back taxes, interest and penalties. In 2015, the next phase of implementation of the Foreign Account Tax Compliance Act (FATCA) will extend the scrutiny to all foreign financial institutions (FFIs) around the world. Under FATCA, FFIs must provide information regarding accounts held by U.S. citizens and residents or be subject to a 30% penalty on certain transactions involving U.S. corresponding banks and clearing houses.
FATCA is intended to expose any remaining undisclosed accounts maintained by U.S. taxpayers. However, the IRS has various amnesty programs which enable U.S. taxpayers to enter into tax compliance. These include the Offshore Voluntary Disclosure Program and the Streamlined Compliance Filing Procedures for U.S. taxpayers residing inside the United States or U.S. taxpayers residing outside of the United States.
There are advantages and disadvantages to each of these IRS amnesty programs. How these programs apply to each U.S. citizen and resident should be carefully analyzed based upon each person's facts and circumstances. Any U.S. taxpayer with an undisclosed foreign account or asset is strongly encouraged to seek counsel for advice on whether any of the current amnesty programs would be beneficial for such person or any other course of action would be appropriate to avoid potential criminal prosecution.