Worldwide: US Introduces New Tool To Combat Tax Evasion: A Voluntary Disclosure Programme…For Banks

Last Updated: 29 September 2013
Article by Michael Parets

On 29 August 2013, the United States and Switzerland issued a joint statement announcing what essentially amounts to a voluntary disclosure programme for Swiss banks, one which carries stiff penalties and is bound to have far–reaching implications.

The programme allows Swiss banks to voluntarily come forward and co–operate with the US authorities in their ongoing fight against tax evasion, within the confines of Swiss law and under protection against prosecution by the US.

How the programme works

Under the new programme, banks that have reason to believe they may have violated US law in connection with undisclosed accounts of US taxpayers may request a 'non–prosecution agreement' from the US Department of Justice. Participation, however, comes at a cost. The programme provides for a tiered–penalty framework for banks seeking a non–prosecution agreement that is designed to impose the greatest penalties on those banks that may have actively solicited customers who were leaving banks under investigation by US authorities. Under this penalty framework, banks must pay 20% of the maximum aggregate value of all undeclared US accounts that existed on 1 August 2008, 30% of the maximum aggregate value of accounts opened between 1 August 2008 and 28 February 2009, and 50% of the maximum aggregate value of accounts opened after 28 February 2009.

Other banks that come forward and demonstrate that they only service the Swiss market or that they have not violated any US laws may obtain a 'non–target letter' and avoid any penalties. Those left out in the cold are the 14 banks currently under investigation by the US Department of Justice. These banks are not eligible to participate in the programme, and their fate remains uncertain.

A copy of the Joint Statement and Programme can be found here.

The broader implications

There is no question that the deal reached by the US and Swiss governments that resulted in this programme will have a deeply–resonating impact on the Swiss private banking industry and its traditions. Perhaps less obvious are its far–reaching implications.

First, the programme provides no protection for individuals. Among the information that must be provided by a participating bank are 'the name and function of any individuals who structured, operated, or supervised the cross–border business' for US accounts and—casting an even broader net—the name of any relationship manager, financial adviser, attorney, accountant, or similar adviser known by the bank to be 'affiliated' with the account. Individuals within and outside the borders of Switzerland who may be viewed as having assisted US taxpayers conceal previously undisclosed accounts disclosed under this programme run the risk of investigation by US authorities.

Secondly, the programme essentially serves as a fishing expedition for information on other financial institutions, including those beyond the borders of Switzerland, that may have actively solicited and knowingly serviced undisclosed accounts of US taxpayers. Participating banks are required to provide the names and locations of financial institutions that transferred funds into or received funds from the account being disclosed under the programme. Moreover, if this Swiss bank disclosure programme is successful, it could encourage the US to seek similar arrangements with other jurisdictions.

Finally, US taxpayers who continue to hold undisclosed accounts in Switzerland, or who held undisclosed accounts in Switzerland but transferred them out and continue to conceal their existence, are running a serious risk. They urgently need to come forward on a voluntary basis. Under the new programme, participating Swiss banks will be required to provide detailed account information, including account values, trust or entity structures connected with the account, and information concerning the transfer of funds into and out of the account. The participating bank must provide all information, other than the identity of the US taxpayer, necessary for the US authorities to prepare an adequate request under the terms of the US–Swiss tax treaty to obtain the identity of the account holder.

This new programme to encourage Swiss banks to come forward very much resembles the Offshore Voluntary Disclosure Programme offered to US taxpayers with undisclosed offshore accounts in both concept and function. The Offshore Voluntary Disclosure Programme has brought in additional revenue in the form of previously unpaid taxes and penalties, but it has yielded a tremendous amount of information for the US government to further investigations into the activities of financial institutions and individual advisers who may have assisted US taxpayers conceal undisclosed accounts. One should expect the new Swiss bank voluntary disclosure programme to yield similar results by providing US authorities with a bounty of information concerning additional US taxpayers with previously undisclosed accounts, as well as information on financial institutions and individuals who may have assisted US taxpayers conceal those accounts.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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