The Permanent Subcommittee on Investigations (the "PSI") of the Committee on Homeland Security & Governmental Affairs of the U.S. Senate held a hearing on Wednesday, February 26, 2014, entitled "Offshore Tax Evasion: The Effort to Collect Unpaid Taxes on Billions in Hidden Offshore Accounts." A video of the hearing can be watched here.  The PSI is responsible for "studying and investigating the efficiency and economy of operations relating to all branches of the government" as well as "compliance or noncompliance with rules, regulations and laws, investigating all aspects of crime and lawlessness within the United States which have an impact upon or affect the national health, welfare and safety, including...the use of offshore banking and corporate facilities to carry out criminal objectives."  The Chairman of the PSI is Senator Carl Levin (D-MI) and the Ranking Minority Member is Senator John McCain (R-AZ).

The hearing was intended to continue the PSI's examination of tax haven bank facilitation of U.S. tax evasion and focus on the status of current efforts to hold Swiss banks and their U.S. clients accountable for unpaid taxes on "billions of dollars in hidden assets."  A number of executives from Credit Suisse Group AG were scheduled to testify at the hearing as well as the Honorable James M. Cole, Deputy Attorney General – Office of the Attorney General, U.S. Dept. of Justice, and the Honorable Kathryn M. Keneally, Assistant Attorney General – Tax Division, U.S. Dept. of Justice.

This hearing reflected the Department of Justice's and Internal Revenue Service's continuing efforts to crack-down on offshore tax evasion by U.S. persons holding accounts overseas.  The U.S. has sought cooperation from Swiss banks not currently under investigation and has offered an "initiative" whereby Swiss banks must comply with the following in order to "reach a resolution with the United States" (i.e., reach a non-prosecution agreement):

  • Agree to pay substantial penalties;
  • 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; and
  • Agree to close accounts of account holders who fail to come into compliance with U.S. reporting obligations.

As a result of the "initiative," participating Swiss financial institutions have been issuing letters to clients informing them of the Offshore Voluntary Disclosure Program and the fact that their name will be disclosed to the U.S. government.  Such letters are effectively a wake-up call for many persons with Swiss accounts, who must now give thorough consideration to their options.

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