Saturday, July 27, 2013

The U.S. - Swiss Spat: On Leaver Lists and the Like (7/27/13)

I have made only passing reference to so-called "leaver lists" in the U.S. - Swiss offshore account spat.  Because of recent developments, I thought I would pass on what I know about those lists.  I hope that readers with more nuanced information with add to, clarify or correct this blog by making comments.

The U.S. needs information on U.S. depositors using Swiss banks for tax evasion.  Relatedly, the U.S. needs information on the Swiss banks involved and the individuals related in some way to enabling the U.S. depositors in their U.S. tax evasion.  These include the banks and the persons associated with the banks (employees or independent persons such as attorneys with a relationship with the banks).

As to U.S. depositor information, Switzerland has historically not provided information about U.S. depositors, except pursuant to its restrictive interpretation of the double-tax treaty exchange of information provision.  That interpretation required the U.S. to name the depositor and give some indication of tax fraud and the like.  While the Swiss might relax that, by interpretation, the Swiss usually would not respond to what I call John Doe treaty requests -- i.e., identifying persons by categories rather than by individual names which the U.S. does not know.  However, as I noted in a recent blog, Switzerland has relaxed its rules about John Doe treaty requests, which it calls "group requests."   Swiss Court Ruling in Credit Suisse Case (Federal Tax Crimes Blog 7/8/13), here.  As best I understand this relaxed interpretation, the U.S. must still provide some information indicating fraud in order for the Swiss to respond.

In order to frame good "group requests," of course, the U.S. needs to be able to identify the Swiss banks involved.  At one level, of course, the U.S. could just send a group request for every Swiss bank (including all financial institutions), but I suspect such a mass group of group requests would be treated as a fishing expedition.  How best can the U.S. identify the more active offending banks, other than those it already knows were big players in the U.S. tax evasion market?  Apparently, one way is to identify the banks who received transfers of U.S. deposits from targeted Swiss banks as they got in the IRS's cross-hairs.  U.S. depositors wanted to hide their money would move the deposits from the targeted banks to other Swiss banks (destination banks) to keep the evasion going.  Indeed, as in the Wegelin case, these destination banks actively solicited the transfers, on the notion / sales pitch that secrecy would prevail because, without a U.S. presence such as UBS had, the destination banks were not susceptible to pressure that would force them to disclose the U.S. depositors' information.  Aha, the U.S. figured out, if the U.S. could obtain so-called "leaver lists" -- i.e., lists that, without disclosing U.S. depositors' identity, would disclose the closing of U.S. depositor accounts at the target bank and the transfer of the funds to the destination Swiss bank.  With that information, the U.S. could identify the banks who actively promoted U.S. tax evasion and thus who should be targets for additional group requests and perhaps even criminal prosecution in the U.S.  So, as I understand it, upon request, the banks will have to provide "leaver lists" to the U.S.

A good article appeared yesterday on this subject.  Banks start controversial US data handover ( 7/26/13), here.  Here are some excerpts:
The latest release of sensitive bank data to the United States, including numbers of clients who moved assets to other banks, will open up a dangerous new front in the tax evasion row, according to a lawyer who represents bank employees. 
Credit Suisse and Zurich Cantonal Bank have admitted to being the first Swiss banks to get government approval to transfer the so-called “leaver lists” to the US under the terms of a recently brokered deal. 
Earlier this month, the Swiss government decided to grant banks special permission to release the names of their employees and other third parties involved in their US business dealings, despite failing to get parliamentary approval for the plan.
More controversially, the data will allow the US authorities to trace assets that were switched from one Swiss bank to another as their investigative net began closing on Switzerland. While names and account details will be excluded, the data will include numbers of clients, the number of assets moved together with the identity of destination banks. 
“The real purpose of the leaver lists is not for the US authorities to obtain information in cross-border activity to help them determine the size of fines to be imposed on Swiss banks,” Geneva lawyer Douglas Hornung, who has represented several bank employees fighting against their name being disclosed to the US, told
“It is to help them build criminal investigations against other banks.” 
* * * * 
Swiss Finance Minister Eveline Widmer-Schlumpf has warned that the hastily concluded data exchange deal is the last chance of avoiding further US prosecutions of the type that sank Bank Wegelin in January of last year.
Besides the leaver lists, the Swiss  courts could also be busy hearing complaints from lawyers, asset managers and trust fund managers about their names being handed over to the US.

Several bank employees have opposed the transfer of their names to the US, but apart from a handful of temporary verdicts in their favour, most of the information has been allowed to pass to the US.
There is apparently a related dispute over the U.S. wanting information about the individual enablers (Swiss bank employees or third persons such as outside attorneys) who enabled the U.S. depositors' tax evasion.  U.S. tax evasion was big business in Switzerland, and this community of individuals (as opposed to lifeless, breathless and heartless juridical entities) will be exposed to the U.S. ire over Swiss bank enabled tax evasion.  Some of the persons so identified will undoubtedly be investigated and prosecuted by the U.S. (although, they may not be actually tried if they remain fugitives, as most would).  This community -- apparently a large and prominent community -- is very perturbed about the Swiss decision to provide information about them.  There are apparently some other Swiss law problems with providing such information, but I am not that familiar with those issues. I don't know whether this information would be part of the leaver lists or would be disclosed in some other way.

One reader of the blog passed this on which offers some insight on this issue:
The main concern of targeted banks, especially ZKB (state-owned cantonal bank), is not the client data. They can share this through the exchange of information treaty, as you wrote.

The main concern though has been the employee data and the money trail, which are not protected by Banking Secrecy Law, but by Data Protection Law. DOJ wants information on where the money went after leaving each bank in question. They already got these "leaver lists" from UBS, which was bound to compose them by their DPA. The UBS leaver list has been passed to DOJ via the Swiss Finance Ministry (they haven't officially confirmed, though). Government didn't want to repeat this. And banks on their part didn't want hundreds of employees and dozens of banks to block data delivery before Swiss courts, so that's why they needed the law.

What ZKB and others now are doing: Send over this information real quick, and deal with angry employees and colleagues later on. Probably not the worst strategy.
Also, the following excerpts from a TNT article offer information (Stephanie Soong Johnston, Switzerland Authorizes Banks to Send 'Leaver' Data to US. Investigators, 2013 TNT 145-8 (7/29/13)):
Under the framework, banks would have the option of applying individually for government permission to cooperate with DOJ authorities based on article 271 of the Swiss Criminal Code. Upon receiving authorization, banks would be allowed to transmit employee and third-party data, including information about beneficiary banks on leaver lists. Banks also would have to notify concerned employees and third parties before transmitting the data. 
Credit Suisse declined to offer more specifics about the leaver data that would be sent to the DOJ, but Douglas Hornung, a Geneva-based lawyer, said the data would likely include the number of U.S. persons who have left the bank, the total amount of assets transferred by U.S. persons from Credit Suisse to another bank, and the name of the beneficiary bank. 


  1. The main problem that I see with this is that it causes harm to innocent minnows. Little fish who open up small accounts or refinance their mortgage should not be prevented from doing so by US activities, given that national origin discrimination is a US federal crime. The US is thus dealing with US policy by being criminal against the innocent living abroad. While the US government has every right and maybe every reason to be criminal the American people living in America, it should really restrict its criminal activity to US jurisdiction without harming the innocent in other nations.

  2. I have never understood what those leaving a bank under investigation thought they would accomplish, since any disclosure of information from UBS (and, later, other banks) covered accounts open at ANY TIME during the previous several years (since 2003 if I remember correctly.) The request was not limited to accounts still open, so moving the money from UBS to Bank X would do nothing to prevent the information being disclosed. If anything, switching banks would double the chances of discovery since information about the accountholder would now be held by both UBS and Bank X.

    Also, I don't really see how "Bank X" would necessarily be a good candidate for criminal prosecution, unless it was actively pursuing US business in the way that UBS did (for example by sending bankers to the US to conduct business there.) The leaver lists will likely include many Swiss banks, and I think it likely that (until a few years ago when Swiss banks started kicking out US citizens) that probably every bank in Switzerland had at least a couple of US account holders, with of course the larger banks with more branches having more than obscure small-town banks. With the exception of UBS (and possibly others, I have no information one way or the other) before US citizens became undesirable banks would accept walk in business from anyone with a passport, just as bars serve drinks to anyone of age even if he is a citizen of a Moslem country that forbids alcohol. (In line with this analogy there are eight states in the US where bars are not legally liable if a drunk patron causes an accident.) There is a difference between a foreign bank actively soliciting US accounts, and simply accepting them.

  3. Thanks anonymous, your comment is a good one. I think that, if I were the IRS, the information as to the destination banks would be helpful to see which destination banks, like Wegelin, were promoting the business with the thought that their lack of a U.S. footprint (i.e., both the related U.S. entity activities and the anecdotal forays by private bankers into the U.S.) would protect them from U.S. actions (from indictment to forcing out client information). By getting the leaver lists, the U.S. can see who were the active banks in grabbing form UBS and other target banks' clients and, on a relative scale, were more culpable than the Swiss banks that did not actively seek and obtain customers fleeing from UBS and other targeted banks. The U.S. cannot go after all Swiss banks. But it can go after the ones were behaved more egregiously. I think the leaver lists showing the destination banks will give them a good indication of which Swiss banks were more egregious.

    Simply put, those Swiss banks who show up more often on the leaver lists almost certainly were actively promoting U.S. tax evasion.

    But, as you note, all of this was stupid because UBS was turning over the client information (at least the more egregious client information based on the criteria for disclosure).

    Jack Townsend


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