Thursday, August 29, 2013

DOJ Tax Announcement on U.S. Swiss Deal (8/29/13; Updated 8/30/13)

DOJ Tax Press Release is here.  The press release links to two documents -- Joint Statement and Program, here, and Signed Joint Statement and Program, here.

Key excerpts from the press release (emphasis supplied) are:
This program will provide us with additional information to prosecute those who used secret offshore bank accounts and those here and abroad who established and facilitated the use of such accounts,” said Deputy Attorney General James M. Cole.  “Now is the time for all U.S. taxpayers who hid behind Swiss bank secrecy laws or have undeclared offshore accounts in other foreign countries to come forward and resolve their outstanding tax issues with the United States.” 
Under the program, which is available only to banks that are not currently under criminal investigation by the department for their offshore activities, participating Swiss banks will be required to: 
  • Agree to pay substantial penalties 
  • Make a complete disclosure of their cross-border activities
  • Provide detailed information on an account-by-account basis for accounts in which U.S. taxpayers have a direct or indirect interest
  • Cooperate in treaty requests for account information
  • Provide detailed 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 U.S. reporting obligations
The program holds banks to a higher degree of responsibility for opening secret accounts after it became publicly known that the department was actively investigating offshore tax evasion in Switzerland.  Under the penalty provisions of the program, banks seeking a non-prosecution agreement must agree to a penalty in an amount equal to 20 percent of the maximum aggregate dollar value of all non-disclosed U.S. accounts that were held by the bank on Aug.1, 2008. 
 The penalty amount will increase to 30 percent for secret accounts that were opened after that date but before the end of February 2009 and to 50 percent for secret accounts opened later than that.     
The program will significantly assist the department’s efforts to investigate and prosecute U.S. taxpayers who, when faced with the risk of detection, chose to move funds away from banks under investigation to banks that they believed might be better havens for tax secrecy.  A key component of the program requires cooperating banks to provide information that will enable the United States to follow the money to other Swiss banks and to banks located in other countries.
I focus my comments below on what this new initiative means to U.S. depositors who have not yet joined OVDI/P.

1.  First 2 key definitions.
6. "Applicable Period" shall mean the period between August 1, 2008, and either (a) the later of December 31, 2014, or the effective date of an FFI Agreement, or (b) the date of the Non-Prosecution Agreement or Non-Target Letter, if that date is earlier than December 31, 2014, inclusive. 
9. "U.S. Related Accounts" means accounts which exceeded $50,000 in value at any time during the Applicable Period, as measured by the account balance on the last day of each month during the Applicable Period, and as to which indicia exist that a U.S. Person or Entity has or had a financial or beneficial interest in, ownership of, or signature authority (whether direct or indirect) or other authority (including authority to withdraw funds; to make investment decisions; to receive account statements, trade confirmations, or other account information; or to receive advice or solicitations) over the account, as determined by applying the due diligence procedures applicable to "Lower Value Accounts" in the FATCA Agreement, Annex I, Part II, for accounts with $250,000 or less in value at all times during the Applicable Period, and by applying the due diligence procedures applicable to "High-Value Accounts" in the FATCA Agreement, Annex I, Part II, for accounts with more than $250,000 in value at any time during the Applicable Period, notwithstanding the amounts and dates set out in the FATCA Agreement, Annex I, Part II.
2.  The Fourteen Swiss banks currently under criminal investigation are not covered by the initiative.  (Perhaps some of these have just found out that they were under criminal investigation.)  These banks are called Category 1 Banks.  Several of those in this group have been identified publicly.  I believe that they include Bank Frey, Basler Kantonalbank, Credit Suisse, HSBC, Julius Baer, Pictet, and Züricher Kantonalbank.  I presume that most or all of these 14 were identified via the disclosures required in the various iterations of OVDI/P as the most egregious offenders based on that dataset.  There is no doubt that the IRS will get U.S. depositor information and documents from these 14 banks, and some have already advised U.S. depositors of the expected turnover and have started the process.

3.  The other Swiss banks fall into two groups -- those that have affirmatively assisted U.S. persons in a way that commits "tax-related offenses under Titles 18 or 26, United States Code, or monetary transactions offenses under §§ 5314 or 5322, Title 31, United States Code." (Category 2 Bank) and those that have not (Category 3 and 4 Banks).  The banks are required to self-identify which group they fall into, and to engage an Independent Examiner to oversee the process.  By entering the process, the Banks will have a powerful incentive to comply and properly self-identify.  I will not focus on those incentives, but suffice it to say that the self-identification process will almost certainly pick all but the outlier Swiss banks that may have played this game.

4. The consequence to the U.S. persons having deposits in the Banks violating the law (Category 2 Banks) are that the banks will provide the following information in order to obtain an NPA:
a. Before execution of NPA, information in the aggregate on the total number of U.S. depositor accounts (i) exisitng on 8/1/08, (ii) opened between August 1, 2008 and February 28, 2009, and (ii) opened after February 28, 2009.
b.  Upon execution of NPA, as to each U.S. Related Account, (i) maximum value during the Applicable Period, (ii) the number of U.S. persons affiliated with the account and the relationships (not clear but probably requires identifying each such person); (iii) identifying any entity related to the account; (iv) identifying all enablers; and (iv) specific informaition about transfers in and out of the accounts, including the source or destinations for such transfers..
In short, the process entails identifying U.S. persons and their relationships to the U.S. Related Accounts.

I project that as this information flows into the DOJ Tax, the Government database the information and, by correlating it to the database of persons joining OVDI/P, identify the persons who have not joined OVDI/P and the characteristics of their Swiss bank activities.  In short, with database searching, sorting, slicing and dicing, DOJ Tax will be able to identify the best targets for criminal prosecution based on the characteristics of the accounts.  DOJ Tax will then proceed accordingly and deliver the balance of the information to the IRS.  [While I expect this to happen, I have some concerns about the process by which it is done and may write on that later.]

Certainly, the more egregious violators should move immediately to join the OVDP 2012.  The less egregious violators should consult with counsel as to whether they should join.  Most of them, I suspect, when counseled will choose to join in order to get some certainty as to the possible outcome.  But that is too large a subject to address here and now.

Other resources:

  • Jullia Werdiger, Tax Havens Close for Wealthy Americans NYT Dealbook 8/30/13), here.


  1. ....They would be stupid not to at this point.......... the only one who is stupid at this point is YOU !

  2. and then go to a social function (I doubt that this will be a topic of conversation at the social function.)...... let us all know if you need someone to clean your behind -lol

  3. Client names will be provided ,according to the NYT and other resources, only by Treaty Channels and Administrative Assistance which has not yet approved by the US Congress.

    JT, can you please comment about it .

  4. The joint statement (linked in the press release) states:

    4. Switzerland intends to process treaty requests according to the Convention between the United States of America and the Swiss Confederation for the Avoidance of Double Taxation with Respect to Taxes on Income, signed at Washington on October 2, 1996, and the Protocol Amending the Convention, signed at Washington on September 23, 2009, if and when it is in force and applicable, as may be amended, and intends to do so on an expedited basis, including by providing additional personnel and the other necessary resources to process the requests.

    This treaty protocol does permit what I call John Doe Treaty Request (without names but with characteristics, in this case, as to the U.S. person and characteristics of the account).

    Banks participating are required to commit to "maintain all records required for compliance with the terms of an NPA as set out in this Program, including all records that may be sought by treaty requests." See II.B.3. Then prior to getting the NPA, the banks must identify key information about the U.S. deposits that will permit the U.S. to formulate the treaty request. II.D.2. This is the information:

    2. Upon execution of an NPA, for all U.S. Related Accounts that were closed during the Applicable Period, the Swiss Bank must provide information including:

    a. the total number of accounts; and

    b. as to each account:

    i. the maximum value, in dollars, of each account, during the Applicable Period;

    ii. the number of U.S. persons or entities affiliated or potentially affiliated with each account, and further noting the nature of the relationship to the account of each such U.S. person or entity or potential U.S. person or entity (e.g., a financial interest, beneficial interest, ownership, or signature authority, whether directly or indirectly, or other authority);

    iii. whether it was held in the name of an individual or an entity;

    iv. whether it held U.S. securities at any time during the Applicable Period;

    v. the name and function of any relationship manager, client advisor, asset manager, financial advisor, trustee, fiduciary, nominee, attorney, accountant, or other individual or entity functioning in a similar capacity known by the Bank to be affiliated with said account at any time during the Applicable Period; and

    vi. information concerning the transfer of funds into and out of the account during the Applicable Period on a monthly basis, including (a) whether funds were deposited or withdrawn in cash; (b) whether funds were transferred through an intermediary (including but not limited to an asset manager, financial advisor, trustee, fiduciary, nominee, attorney, accountant, or other third party functioning in a similar capacity) and the name and function of any such intermediary; (c) identification of any financial institution and domicile of any financial institution that transferred funds into or received funds from the account; and (d) any country to or from which funds were transferred.

  5. I just want to add to my prior reply to Anonymous that the process will require some time before the IRS identifies U.S. depositors pursuant to the process. Nevertheless, U.S. depositors who have not yet come into the IRS programs should consider doing so immediately. Various things can happen that might give the IRS the names before this process is completed -- e.g., there might be a whistleblower either from a bank or from outside who may somehow have the information. More problematic, of course, is the possibility with the 14 banks that are not in the program because they are already under criminal investigation, the IRS might simply announce that depositors in one or more of that category (Category I) simply do not qualify. The IRS has not done that yet, but if I were a U.S. depositor who has done nothing to date, I would move promptly to get in the program unless, on consideration of all the facts, the criminal prosecution risk is minimal (i.e., acceptable to the taxpayer) and the civil penalty risk (FBAR and income tax) is also minimal (i.e., acceptable to the taxpayer).

    Jack Townsend

  6. Jack,

    I am of the opinion that anyone considering entering the IRS programs should also add the option of liquidating and simply leaving the USA. The amount of people who are taking this option should not be discounted.

  7. What exactly would leaving the USA (even for someone with a second citizenship) accomplish, if the information is revealed? I don't believe the legal liability would in any way be affected. Only for smaller accounts might it have the practical result that the US won't bother pursuing them. Needless to say, this is not a step that a lawyer could legally recommend, but I am just talking hypothetical situations.

  8. As I recall, only eleven banks have been identified as being under criminal investigation, but this news release refers to 14. Is there a list of the fourteen banks?

    The penalty to the bank of 20, 30 or 50% of "nondisclosed US assets" doesn't make it clear whether it would be applied to accounts not disclosed at the time but subsequently disclosed (though OVDI or otherwise.) In other words, would there be both a bank penalty and OVDI (or opt out) penalty on the same account? And for accounts that were transfered to another bank, I see no reference to whether each of the banks would pay its own penalty, or the penalty could be split. Theoretically, the US could extract 30% from one bank, 50% from another, and 27.5% through OVDI for a total of 107.5% (or more.)

  9. There is a list that DOJ Tax has. I don't know that it is a public list. I did read that some banks had not yet been notified that they were on the list but those were being notified contemporaneously with the announcement of the agreement.

    As to whether there might be dual and overlapping penalties, I am not sure. I think so, but at that point it is merely a guess since I have not heard otherwise. I would appreciate other readers responding.

    And whether the penalty for transferred funds can be split, I don't know the answer to that. You raise a good point and hopefully others can respond.

    Thank you for your very good questions.

    Jack Townsend

  10. The IRS/US DOJ has a small toolset. It is small but it is very destructive for those within the US borders.

    The toolset:

    1. freeze/seize/forfeiture of assets

    2. Incarceration

    3. Penalties/fees/fines that lead full circle back to #1

    When you remove these tools, their options dwindle.

    As has been mentioned before, IRS has no forfeiture abilities in other jurisdictions. For individuals who are in the USA, they usually get around this by having a judge (also using the same tools) demand that you repatriate the assets or else...

    The IRS could have the Dept of State attempt an extradition by twisting the entire case into a fraud case. These are not easy cases and if the majority of the case is FBAR or "check box" issues then they would have difficulties making it into an extraditable offense. Also keep in mind that the IRS/DOJ can't use sealed indictments and the similar in other lands.

    As to lawyers not recommending it... That would be an incorrect assumption and opinion of the legal profession. Certainly foreign lawyers can suggest it and they absolutely are. One only needs to look at the rush for the exits (renunciations) as soon as the UBS situation unfolded. The amount of UHNW people who left on one way flights and renounced is quite large and continuing. To ignore the flow of UHNW and HNW people is to ignore that my input was already considered by others... and acted upon.

  11. JT SEO, Thanks for discussing a topic that rarely gets discussed. There are two concerns here: one is the possibility of extradition which you've discussed; the other is the enforceability of a US judgement abroad. There does not seem to be much information on the latter subject, at least from informed sources. Apparently there are a) countries which would not honor US judgements (Russia and China have been mentioned as examples) b) countries which would require a de novo trial in the country's courts on the merits of the case, and it would be less likely that they would honor disproportionately large US court awards and c) those where the judgement would be honored.

    There have been very few such cases so there isn't much precedent around or lawyers with a deep knowledge of these issues. It should also be noted that skipping town and not defending oneself when sued means that the other party would win by default.

    As to advice from foreign lawyers regarding US legal matters, I agree that they are freer to discuss certain topics; however I would also take their advice with a grain of salt. You will recall the man who was told to close the $250K account inherited from his mother, and mail the cash to the US in packages of less than $10K and what happened to him. Awful advice from a foreign lawyer -- who happened to also be a US lawyer and should have known better.

  12. There is a Multilateral Conventions on Mutual Administrative Assistance in Tax Matters, sponsored by the OECD to which many of the developed nations, including the U.S., are parties. The following is a "cut and paste" of a general description from the OECD web site:

    The amended Convention facilitates international co-operation for a better operation of national tax laws, while respecting the fundamental rights of taxpayers. The amended Convention provides for all possible forms of administrative co-operation between states in the assessment and collection of taxes, in particular with a view to combating tax avoidance and evasion. This co-operation ranges from exchange of information, including automatic exchanges, to the recovery of foreign tax claims.

    See OECD website titled Exchange of information: Convention on Mutual Administrative Assistance in Tax Matters, here:

    For a linked brochure explaining the treaty, see

    For an information brief, see here:

    Finally, Reuters just recently reported that the Group of 20 is encouraging developing countries to join the convention wto which over 50 countries have already signed up. See G20 pledges to help developing countries tackle tax dodging (Reuters 9/6/13), here:

    While I have not studied the amended convention in detail, I suspect that the opportunities to enlist other countries in the collection of U.S. taxes and resulting judgments will be significant. Now, of course, that does not address whether the FBAR penalty would be subject to this convention. I have not looked at that issue and, when I do, I will report my conclusions (but don't know when that will be).

    Jack Townsend

  13. Dear JT SEO thank you for your nice comment I'm agree with you.

    Best Seo company Houston

  14. This only applies to foreign accounts and not local accounts, right?

  15. It should indeed be difficult for the US to harm the innocent with human rights violations simply because they have a legally taxed local checking account! Eritrea is condemned for similar, so why should the US be treated any differently?

  16. A copy of the agreement is at

    Since this is a .pdf I cannot paste words from it, but I am not clear on what part II, section H, last paragraph means. Does the bank pay no penalty if the account was declared prior to the signing of the agreement, or after the bank notified the customer about OVDI?


Please make sure that your comment is relevant to the blog entry. For those regular commenters on the blog who otherwise do not want to identify by name, readers would find it helpful if you would choose a unique anonymous indentifier other than just Anonymous. This will help readers identify other comments from a trusted source, so to speak.