Switzerland and the United States have reached an agreement to permit some Swiss banks to disclose information and to participate in a settlement program with the US Department of Justice to avoid criminal prosecution in connection with Swiss accounts maintained by US taxpayers. Switzerland's Finance Minister and the Justice Department announced the agreement on August 29, 2013, which resolves the ongoing tax evasion investigation by the US within the scope of existing Swiss law. A previous attempt by the Swiss government to reach an agreement with the US failed in June of this year.
According to the Department of Justice, the settlement program will permit Swiss financial institutions to disclose financial information about US taxpayers with undeclared Swiss accounts and pay a penalty to the US to resolve criminal liability. Swiss financial institutions currently under formal investigation by the US are not eligible to participate in the settlement program. At present, 14 Swiss banks are under criminal investigation for allegedly helping US taxpayers evade taxes, including Credit Suisse and Julius Baer. In February 2012, the United States indicted Wegelin & Company, the oldest Swiss bank. Wegelin later pled guilty to one count of conspiracy to defraud the IRS and is no longer in business.
It is expected that the settlement may involve nearly 100 Swiss banks that held accounts for US clients. The settlement is expected to cost the Swiss banks hundreds of millions, and could exceed a billion dollars. Attorney General Eric Holder stated that "[t]his program will significantly enhance the Justice Department's efforts to aggressively pursue those who attempt to evade the law by hiding their assets outside of the United States" and "will improve our ability to bring tax dollars back to the US treasury from across the globe."1
The settlement program would require the Swiss banks to pay a 20 percent penalty to the US on all non-disclosed US accounts that were held by a Swiss bank on August 1, 2008. The penalty would increase to 30 percent if there is evidence that the accounts were opened after that date but before the end of February 2009, when UBS entered into a deferred prosecution agreement and agreed to pay a $780 million fine and turn over information on thousands of US accounts. The penalty would increase to 50 percent for accounts opened after February 2009. Swiss banks will also need to provide the Justice Department with a description of their banking activities, including providing the names of bank employees involved and third-party advisers or professionals.
Under the program, Swiss banks must also make a complete disclosure of their cross-border activities, provide detailed information on an account-by-account basis for accounts in which US taxpayers have a direct or indirect interest, provide information as to other banks that transferred funds into secret accounts or that accepted funds when secret accounts were closed, agree to close accounts of account holders who fail to come into compliance with US reporting obligations, and cooperate with US treaty requests for account information. Banks meeting these requirements, in addition to payment of an imposed penalty, will be eligible for non-prosecution agreements. Bank employees, financial advisors and other individuals are excluded from the program.
A key component of the program requires cooperating Swiss banks to provide information that will assist the United States to follow the money to other Swiss banks and to bank located in other countries. US officials also expect that this agreement will encourage US taxpayers with Swiss accounts to take advantage of the voluntary disclosure program conducted by the IRS. Under the voluntary disclosure program, the US has collected more than $5 billion.
Footnote
1. See Press Release, US Department of Justice, August 29, 2013.
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