U.S. authorities are scrutinizing Americans' use of Swiss insurance products to determine if they have been used to hide assets, signaling a potential new direction in the U.S. legal crackdown on tax evasion in the Alpine country, according to people with knowledge of the matter.
The U.S. Justice Department and the Internal Revenue Service are looking at the use of private placement life insurance, or PPLI, a product that meshes banking and insurance by linking the value of a client's policy to assets held in a Swiss bank account, these people say.
Swiss insurers offering the product, which can be used legally by Americans to defer taxes, have nonetheless sought to reduce ties to U.S. clients. At least three big insurers say they aren't accepting new U.S. clients. In December, Swiss Life Holding AG SLHN.VX -0.15% returned funds to hundreds of Americans who had invested in PPLI policies. Those policies were linked to accounts at Bank Frey & Co. AG, which is among a number of Swiss banks that have disclosed being under criminal investigation in the U.S. for allegedly aiding tax evasion, according to people familiar with the matter.
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PPLI policies are generally a lawful way for clients to defer taxes on wealth as it grows. But policies can be problematic for their owners and carriers if they haven't been set up in compliance with tax laws in a client's home country, or if they are loaded with undeclared assets.
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The Swiss banks that partner on PPLI once happily accommodated wealthy U.S. clients, but have more recently jettisoned Americans to avoid drawing unwanted attention from the Justice Department. Unlike banks, insurers are contractually bound to hold policies and pay out for a specific event, such as death. Only an unusual circumstance like Bank Frey's closure allows an insurer to prematurely dump a PPLI policy.
Hundreds of Swiss banks have applied to a U.S. program in which they exchange information about dealings with Americans for guarantees they won't be prosecuted. Insurers aren't able to participate in the program.I don't think it is a surprise that insurance products can mimic the essential features of financial accounts and thus should be treated as financial accounts, but provide an added guise in the form of appearing to be an insurance product or have some blended features of an insurance product. If the IRS and DOJ Tax were not interested in those products, that would be an easy way of avoiding the gains made in transparency with banks.
The article also notes that "Hundreds of Swiss banks have applied" to the U.S. Swiss bank initiative. The later authoritative source information I have seen indicated that 106 banks joined as Category 2.