Choosing a category. Each eligible Swiss bank should carefully analyze whether it is a category 2, 3 or 4 bank. While it may appear more desirable for a bank to attempt to position itself as a category 3 or 4 bank to receive a non-target letter, no non-target letter will be issued to any bank as to which the Department has information of criminal culpability. If the Department learns of criminal conduct by the bank after a non-target letter has been issued, the bank is not protected from prosecution for that conduct. If the bank has hidden or misrepresented its activities to obtain a non-target letter, it is exposed to increased criminal liability.
Changing from Category 3 to 2 (or 2 to 3).The Program provides that changes from category 3 to category 2 will be approved by the Tax Division only in extraordinary circumstances, and subject to the limitations set out in the Program. (Program III.C.) If a bank has submitted a letter of intent under category 2 of the Program and belatedly determines that it should have applied under category 3, a bank may withdraw its letter of intent. If the bank later submits a timely letter of intent under category 3, it should expect to be asked to describe why it initially believed that it may have committed tax-related or monetary transaction offenses as described in the Program.
* * *
Penalty calculation -- permitted reductions. The Program allows for the reduction of penalties with respect to three categories of U.S. related accounts. The first category -- accounts that are not undeclared -- is intended to address issues concerning lines of business that by their nature did not facilitate the evasion of U.S. taxes and reporting requirements. For example, a corporate account that was declared but had U.S. signatories who did not file FBARs is included in the definition of U.S. related accounts under the Program, but may be excluded for the penalty calculation. The second category -- accounts that were disclosed by the bank to the Internal Revenue Service -- refers only to accounts that were timely disclosed, not accounts that are disclosed under FATCA, as part of the Program, pursuant to treaty requests, as a result of other law enforcement efforts, or similar forms of later disclosure. The third category -- accounts as to which the bank notified its account holders of an announced offshore voluntary disclosure program and can establish that its account holder made a voluntary disclosure under that program -- includes only those accounts that were reported subsequent to notification by the bank. All forms of voluntary disclosure acceptable to the IRS will meet the voluntary disclosure standard of the Program, including the OVDI/OVDP procedures, the Streamlined Filing Compliance Program, and FBAR compliance under FAQs 9 and 17 of the respective IRS programs. The burden to show the application of penalty reductions rests with the bank. (Program II.H.)
* * * *
Civil penalties. The Program is a Department of Justice program, and as such addresses only potential criminal liability that may be pursued by the Department of Justice. The Program does not address civil issues, and any such issues should be directed to the specific agency involved. If a bank has any issues concerning other current or pending NPAs or DPAs involving other DOJ components, questions concerning such agreements should be directed to that component, and notice of such agreements should also be provided to the Tax Division.
Bottom line. Each eligible Swiss bank should carefully weigh the benefits of coming forward, and the risks of not taking this opportunity to be fully forthcoming. A bank that has engaged in or facilitated U.S. tax-related or monetary transaction crimes has a unique opportunity to resolve its criminal liability under the Program. Those that have criminal exposure but fail to come forward or participate but are not fully forthcoming do so at considerable risk.Swiss banks are already requesting proof of the U.S. clients' participation in the OVDI/P in order to accumulate the data and proof required for the penalty reduction.