Thursday, August 9, 2012

Credit Suisse Sends U.S. Customers Notice of Compliance with Refined U.S. John Doe Treaty Request (8/9/12; revised 8/11/12)

I previously noted in this blog that the IRS had made a double tax treaty request to Switzerland for Credit Suisse data regarding U.S. taxpayers.  The treaty request was denied for alleged over breadth, but the IRS came back with a more refined request.  The treaty request was refined.  See IRS Submits Reformulated Treaty Request for Credit Suisse U.S. Clients (8/4/12), here.  (See also all blogs on Credit Suisse here.)

I have received a copy of a notice to Credit Suisse depositors that their information is being turned over to the Swiss Federal Tax Administration (the "SFTA") for turnover to the IRS unless the taxpayer invokes Swiss processes to prevent the turnover.  I quote immediately below certain portions of the request.  I then make some comments (I do not include my copy as a pdf because it is too hard to read):
NOTICE TO UNITED STATES BENEFICIAL OWNERS OF ACCOUNTS WITH CREDIT SUISSE 
Dear Mr. ______: 
We have been informed that the United States Internal Revenue Service ("IRS") submitted a new request for administrative assistance to the Swiss Federal Tax Administration (the "SFTA") pursuant to Article 26 of the Convention of October 2, 1966 between the Swiss Confederation and the United States of America with respect to Tax on Income ("the 1996 convention").  The IRS is seeking information with regard to accounts of certain U.S. persons owned through a domiciliary company (as Beneficial Owners) that have been maintained with CREDIT SUISSE AG ("CREDIT SUISSE") in Switzerland (as applicable in a given case in the "IRS Treaty Request") at any time during the years January 1, 2002 through and ending on December 31, 2010. 
In connection with the IRS Treaty Request, the SFTA has issued an order directing CREDIT SUISSE to submit responsive account information to the SFTA.  This order is immediately executable and CREDIT SUISSE as an information holder has no right to appeal. 
[*2] 
This letter provides notice to you that the CREDIT SUISSE account of which you have or had the beneficial ownership appears to be within the abovementioned scope of the IRS Treaty Request. 
This letter also provides certain information on the Treaty Process opened by the SFTA and the steps available to you in connection with that process which are the following: 
- Consent to the SFTA's sending the account information directly to the IRS, see #1 below.
- Appoint within 20 days an agent or lawyer in Switzerland to receive all official notifications by the SFTA as described under #2 below. 
Should you have any questions, please consult the CREDIT SUISSE website at www.credit-suisse.com or call our dedicated team at CREDIT SUISSE AT 40 44 335 60 00. 
* * * * 
[*3] 
If, after comprehensive examination of your account information, the SFTA comes to the conclusion that information related to your CREDIT SUISSE account is required to be provided to the IRS pursuant to the 1996 Convention, the SFTA will render an appropriate final decision and notify your agent or lawyer in Switzerland.  The authority will then advise your agent or lawyer of your fight under Swiss law to appeal such a decision by the SFTA to the Swiss Federal Administrative Court. 
The SFTA has asked us to point out that if you choose to appeal such a decision, you should be aware that (I) Title 18 United States Code Section 3506 provides in Section (a) that "any national or resident of the United States who submits, or causes to be submitted, a pleading or other document to a court or other authority in opposition to an official request for evidence of an offense shall serve such pleading or other document on the Attorney General [of the United States] at the time such pleading or other document is submitted" and (ii) you should consult with a qualified lawyer concerning whether to appeal any such decision of the SFTA and concerning any obligations you may have under Section 3506 of Title 18 of the Unites States Code. 
[*4] 
Please be advised that CREDIT SUISSE is not able to provide any information on whether or not information with respect to a specific account will be provided to the IRS.  Because CREDIT SUISSE will not be made aware of this decision, this information can be obtained only from SFTA. 
Sincerely yours, 
CREDIT SUISSE AG
JAT comments:

1.  On a quick search of the referenced Credit Suisse website, I could find no information.  If readers can find it, please post it as a comment or email the URL to me.  The letter also advises that:
The SFTA has instructed us to inform you that there will also be a publication in the Swiss Bundesblatt (Swiss Federal Gazette) and the SFT advises you to consult:  www.admin.ch/ch/d/??  [JAT Note, I could not make out the final letters from my copy, but a reader advised of this Credit Suisse site, which parrots some of the general explanation of the treaty request]
2.  The scope of the refined request is interesting.  "The IRS is seeking information with regard to accounts of certain U.S. persons owned through a domiciliary company (as Beneficial Owners) * * * ."  (See also the Credit Suisse site here.)
a.  The cases indicted in the U.S. to date have involved cases where some intervening entity has been involved, with the suggestion that the purpose of the intervening entity was to insulate the U.S. beneficial owner(s) from detection.   
b.  But the request seems to be much narrower than for accounts in the name of corporations or entities beneficially owned by U.S. persons.  The request is for accounts owned by a "domiciliary company" which is a term of art in Switzerland that usually means, at least as I understand it, a foreign company which is granted special domiciliary status in Switzerland.  As I understand it, for example, a Cayman Islands company with U.S. beneficial owners can hold a Swiss account directly or it can qualify as a Swiss domiciliary company to hold the account.  Only the latter are within the scope of the request as described.  In other words the data set is a narrowly tailored limited scope data set.  It is not at all clear limited the scope of the request.  As I mentioned elsewhere in response to comments, the IRS had already received data reflecting certain key characteristics of the Credit Suisse accounts with ultimate U.S. beneficial owners and thus may have felt that it would pick up enough cases with this narrower data set to put the fear of God (or at least of the IRS) in the beneficial owners in the larger data set because of fear that the IRS will thereafter expand the request.  If the limited data set includes 100 accounts (or even 500 or 1,000), that will offer more than enough cases to prosecute if the owners in that data set do not qualify for OVDI.  And, of course, U.S. beneficial owners of the accounts in the larger data set that do not meet the criteria should be getting into OVDI rather than assuming that the IRS has spent its angst against Credit Suisse and the U.S. taxpayers with whom Credit Suisse consorted (or conspired).  Also, perhaps the IRS thought that the narrower data set -- domiciliary companies -- were particularly bad because of the potential double layer of ultimate beneficial shareholder secrecy they offer.  If they are particularly bad, perhaps that is what convinced SFTA to approve the request despite its earlier refusal of a larger request. 
c.  Does that mean that Credit Suisse U.S. clients who did not use intervening entities can breathe easy?  Either for a treaty request or, extrapolating, prosecution. That would be too bold a conclusion.
3.  Once this type of John Doe treaty request is blessed, I would have to assume that others requests for other banks will be in the pipe line as well (or may already be in the pipe line).  Certainly, one would have to assume that the other banks identified as U.S. tax enablers will have treaty requests for their information.

4.  The Treaty Request is covers also banks affiliated with Credit Suisse -- including Neue Aargauer Bank AG and Clariden Leu AG, specifically.  See Notice to United States Beneficial Owners of Accounts with Credit Suisse AG / Neue Aargauer Bank AG / Clariden Leu (Word Doc), downloadable here. That notice provides that two "groups" are encompassed by the request:

The first group of these accounts includes U.S. securities, and a Form W-9 is not associated with the account. 
The second group of these accounts does not include U.S. securities, but there is evidence that the U.S. beneficial owner exercised control over the account of the DC and a Form W-9 is not associated with the account.
The common element, of course, is the lack of a Form W-9, which seems to be ubiquitous for Swiss bank accounts lending themselves to U.S. tax evasion.

4 comments:

  1. I noticed the limitation on entity accounts only. I recall that for UBS the request had been for individual accounts over $1 million or entity accounts over $250K. (I believe the amounts are in CHF.) I am guessing that perhaps CS did not engage in the same bad conduct as UBS. You raise an interesting question as to those without entities can breathe easily. Another issue is whether the request is limited to entities with balances above a certain amount.

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  2. What's a "domicilary company"? We would expect something more devious than Swiss shell companies from CS?! And what if the account is maintained in a CS branch in Bahamas?

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  3. I have no inside information on this and am just guessing, but it's possible that there may be a two-part request for CS account data. First, those with entities, and second those without entities but meeting certain criteria such as high balance, fund transfers to/from the US, or proceeds of sales of investments, all over a certain threshhold.

    I don't see the use of entities in itself as necessarily a bad fact (I never had foreign entities so I can be impartial.) It's when it's combined with other factors (entities used to obscure the movement of funds, or entities to get around the restriction on Us persons buying US stocks) that it becomes a bad fact.

    I would think that there would be a balance threshhold below which accounts would not be reported, so yes, certain account holders could breathe easy. And that points another flaw in OVDI/OVDP: those who happen to be just under the threshhold can breathe easily and get off scott free if they schoose to, while relatively benign actors who joined OVDI/OVDP with good intentions either will get hit with humungous penalties or risk doing so. That is why I hope more people opt out. If the IRS needed OVDI to deal expeditiously with 3,000 UBS accounts, I'd like to see them try to deal with 30,000 non-UBS opt outs. Maybe this will create some sanity. Basing the penalty on unpaid tax seems the logical solution to me.

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