According to the Parillo article, the draft NPA requires the Category 2 banks to :
- cooperate fully with the DOJ, the IRS, and any other domestic or foreign law enforcement agency designated by the DOJ regarding all matters related to the conduct described in the NPA;
- assist the DOJ or any designated domestic or foreign law enforcement agency in any investigation, prosecution, or civil proceeding arising out of or related to the conduct covered by the NPA;
- provide testimony as needed to enable the U.S. to use the information and evidence provided by the bank under the NPA; and
- provide the DOJ, upon its request, all information, documents, records, or other tangible evidence not protected by legal privilege or work product regarding matters arising out of or related to the covered conduct.
The draft NPA also requires the banks to assist the U.S. with the drafting of treaty requests seeking U.S. account information (whether the account is open or closed), and to retain all records relating to its U.S. cross-border business for a period of 10 years from the NPA's termination date. The agreement also describes the circumstances under which the DOJ may determine that a bank has violated the terms of the NPA and may be prosecuted.
The requested changes included limiting what the Justice Department could do with the information it collected and dropping a requirement that banks also agree to disclose similar information to other foreign authorities.
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In the letter, attorneys representing the banks took issue with a number of aspects of the program, including a provision that participants disclose information related to foreign parent companies or affiliates. The banks also panned a stipulation that they also open their books to other, unspecified foreign legal authorities probing hidden accounts.
For prior coverage of the draft NPA Agreement, see Swiss Category 2 Banks Reportedly Get Draft of NPA Agreement (Federal Tax Crimes Blog 10/11/14; 10/14/14), here.
Addendum 10/24/14 4:00pm:
David Voreacos, Giles Broom and Jeffrey Vogeli, Swiss Banks Ask U.S. to Amend Proposed Tax Amnesty Deals (Bloomberg 10/23/14), here.
“This requirement is not found in the program and, indeed, turns a program specifically focused on U.S. tax issues into a global cooperation agreement without any safeguards or guarantees of appropriate consideration of the banks’ cooperation,” according to the letter from 18 law firms obtained by Bloomberg News.
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The banks also object to requirements that they disclose information on parent companies and that they share material with governments other than the U.S. And they dispute the scope of provisions on breaches of the agreement.
“The model agreement goes quite far from the perspective of the banks,” said Philippe Zimmermann, who advises financial firms on compliance matters for Ernst & Young in Zurich. “The banks now have to find a way of negotiating with the Justice Department.”
Switzerland is just one stop in the U.S. crackdown on offshore tax evasion. The Justice Department has also built criminal cases based on offshore accounts in India, Panama, the Cayman Islands, Hong Kong, Liechtenstein, Israel, and Bermuda. Switzerland is already under pressure from India to turn over bank data on tax dodgers, while France, Italy and Germany continue to try to recover back taxes from citizens who used Swiss bank secrecy to hide assets.
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“If the larger banks lobby together over the points they deem unreasonable, the Justice Department may relax some elements of the model agreement,” said Patel, who represents companies and individuals embroiled in the program. “Otherwise, it is either accept it as it is, or withdraw from the program.”
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Banks are wary of dropping out because of the example of Wegelin & Co., the 270-year-old bank forced out of business by a U.S. indictment for helping Americans evade taxes that led to a guilty plea in 2013. The banks need to hold deposits and make transactions in dollars for clients from around the world, as well as to invest their assets in U.S. securities such as Treasuries and in equities traded in New York, and criminal charges would put that at risk.
“An indictment would be game over for Swiss banks if it ultimately prevented them from doing business in the U.S.,” said Xavier Oberson, a Geneva-based lawyer and academic.