Friday, November 4, 2011

Article on Continuing Negotiations with the Swiss Government / Banks (11/4/11)

Lynnley Browning has a new article on this continuing saga, Exclusive: Swiss offer U.S. tax deal for all Swiss banks (Reuters 10/3/11), here.

The thrust of the article is that the Swiss want an all inclusive deal covering  the 11 prominently mentioned Swiss banks and as many as 355 Swiss banks by paying up to $10 billion. Presumably the deal, if accepted by the U.S. would cover civil and criminal exposure for the banks and perhaps their employees and agents. But, according to the article, the U.S. prefers to negotiatewith the individual banks, at least the 11 ildentified egregious offending banks.

The article says in passing that the IRS referred the names of the 11 Swiss banks to the Justice Department. The term referral and its variants often is used to mean a criminal referral -- a referral with a recommendation for prosecution or for further grand jury investigation (perhaps the latter in this case). Also, the article says that the DOJ is conducting a civil investigation of "scores of other Swiss banks among the 355."

One big problem for DOJ Tax is that the Swiss want to protect the names of their U.S. customers. It would seem to me that DOJ Tax cannot agree to that. But the article suggests that the IRS might be willing to do that, reasoning (such as it is) as follows:
There are some signs that the IRS may in fact be unwilling to craft a deal without a requirement for a turnover of names. Case in point: in September, the agency began mailing an unusual, one-page questionnaire to American taxpayers who entered its voluntary disclosure programs in recent years. 
The questionnaire, a copy of which was obtained by Reuters, asks taxpayers to answer "yes" or "no" to 10 questions regarding their undeclared offshore accounts. Questions include "did a representative of the foreign financial institution visit you in the United States regarding the offshore account or asset?" 
The IRS questionnaire could be a warm-up to a broad request, known as a John Doe summons, to Swiss banks to disclose client data, sources briefed on the matter said.
I have seen the letter she refers to as her "Case In Point" and can't see how that letter supports any inference that the IRS may be willing to craft such a deal producing no names of U.S. customers. Maybe readers can comment on that subject as well.

Probably, rather than seek blanket protection for those U.S. customers, as with UBS, the better part of wisdom would be to deliver up the egregious offenders -- those customers with account characteristics particularly indicating fraud (such as large amounts and dummy entities).

Finally, the article notes that the IRS think that there are far more U.S. persons who have not yet surfaced:
U.S. officials say Swiss banks and their American clients have yet to declare the bulk of the hidden wealth, and point to two recent IRS disclosure programs that brought in only $2.7 billion from 30,000 American taxpayers with accounts in 140 countries. "It's a fraction of the total still out there," said one U.S. government official briefed on the matter, adding that perhaps one quarter of the $2 trillion, or $500 billion, could be undeclared money held by American taxpayers.


  1. To Jack's point regarding the letter, I agree that it is difficult to draw the inference that Mr. Browning draws from it, unless, of course, she is privy to more information that she has not published.

    Politically, I believe that any deal that did not produce names, even if it produced a substantial amount of monetary penalty. Any such settlement would be viewed, rightly in my opinion, as capitulation by IRS/DOJ. There is much more at stake here than the money, with industrial scale tax evasion/avoidance being regularly exposed in the media. Btw, what happened the Wylie brothers, another media story that seems to have died.

    All in all, I think the top Swiss banks are screwed if they don't comply and may be behind this Swiss government move to buy off the DOJ/IRS nuisance.


    Switzerland is the least corrupt country in the world, both in image and reality.

    It would be hard for a prosecutor or politician to criticize someone more honest than him.

    Furthermore, from what I read, the Swiss banks moved to negotiate as one with the US. (And the article lists 355 banks). But I read elsewhere that they also threatened the US, that if anyone of them is indicted they will all pull out of the US.

    And the Swiss parliament is behind them.

    The US cannot easily prosecute outside its borders, nor easily collect taxes there.

    Most of the Swiss bankers indicted prior to now are considered "fugitives", ie living abroad.

    The US should take the money offered, since taxes are money. If it does not take the money its credibility is in question.

    If it is an issue of "fairness", the US would have to explain to the Swiss how it is fair to disclose names, when it is against the law to do so, how is it fair to collect taxes, when there are no taxes to collect, and how it is fair for the US to jail them, when they don't want to go to jail.

    The situation is absurd.

    The fact is that Swiss banking is a juggernaut, as is the offshore financial network in general. I think that 20% of all the money in the world is held offshore.

    A few dozen US attorneys and IRS auditors will have a minimal impact. They can persecute individual Americans, but even that is fraught with risk because they can leave and renounce US citizenship, and not pay the taxes.

    It is a difficult situation.

  3. M

    "and how it is fair for the US to jail them, when they don't want to go to jail."

    This is certainly a novel idea, perhaps jails should be restricted to those who want to go to jail ? That would certainly lead to a dramatic cutback in prosecutors, judges, jury time etc etc. In fact, it would probably lead to the elimination of most jails. But would that be fair to those with a masochistic streak and those with a martyr complex, who truly want to go to jail ? Surely, it would be unfair to such a people?

  4. Is there a benefit to for US GOV to jail an immigrant and then deport them? If convicted with tax evasion they most probably could face fines bigger than their net worth and would not be able to produce the remaining amounts because of miserable wages offshore. Jailing such individuals will only increase US GOV tax burden. What would be the legal benefit here? In most other countries FBAR is not a crime and once convicted the immigrant will be deported and will not have a second change to do FBAR violation ever again. I am trying to understand the real benefit to US GOV?

    I understand going to jail for murder or the like but i think US GOV has to stop being the world patron and bring justice to the world. The rest of the world does not need it.

  5. The "unusual questionnaire" with 10 questions appears to be one that has been out on the web for a while, asks 10 yes/no questions such as did bankers meet with you on US soil, were there phone/email contacts with them from the US, did they suggest practices such as prepaid calling cards to call them etc.

    I would guess that the answers to these questions were used to identify the 10-11 banks now being investigated.

  6. I find it interesting that the board game "Monopoly", the quintessential business game has a jail on one of the squares, a "go directly to jail" square, "get out of jail card", etc.

    Jail is a place one cannot make money from, ie invest in new properties, though one can collect rent on existing properties.

    So going to jail is part of doing business in the US and has been since before 1904. Indeed England had debtors prisons and such.

    Madoff from jail is praising it as a place to relax, and to be free from the stress of doing business (or lying to people wanting their money back, in his case).

    I do not have a problem with this. But it is not something that non-Americans, non-businessmen understand. Going to jail is not part of most professions, particularly those without high-risk and high pay.

    Notably real estate realtors. Even though the game is about real estate, going to jail is not part of the realtor's curriculum.

    The Monopoly game has been licensed throughout the world, including for advertising purposes. One such place is the Realtors of Lake Tahoe California/Nevada, a ski and lake resort.

    The version of their game, which is handed out as part of promotions and advertising replaced the well known Monopoly properties (from historical Atlantic City, NJ) with local properties and streets, and replaced the jail square with something else, I forgot what.

    I find that interesting, as a cultural insight. As a businessman I always have to be ready to go to jail. I find it interesting that not all professions are ready to go to jail, nor do they want to make it part of their profession.

    Perhaps this is why the US DAs are having problems with the Swiss Bankers. Perhaps jail is one issue, but perhaps they don't have the greed of US businessmen either, which would pay for the risk of jail.

    I see this as a cultural misunderstanding.

  7. I think you misread the article regarding DOJ conducting a civil investigation. The sentence you partially quoted reads in full: "The IRS, which referred the names of the 11 banks to the Justice Department, is conducting a civil investigation of scores of other Swiss banks among the 355." The IRS is conducting the investigation, which it certainly has the authority to do.

  8. To Anonymous November 10, 2011 10:49am

    I did misread. Thanks for calling that to my attention. I will correct it now.

    Jack Townsend


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