Saturday, October 11, 2014

Swiss Category 2 Banks Reportedly Get Draft of NPA Agreement (10/11/14; 10/14/14)

A reader forwarded me a link to an article in Neue Zürcher Zeitung, Zoé Baches, Schock für Schweizer Banken: USA fordern totale Kooperation (11/10/14), here.  The article is in German.  My German is rusty.  So I relied on a Google translation of the article which, I think, is not perfect but better than if I had tried to translate it (not sure how much better, since I did not try very hard).  The Google translation has the title of the article as follows:  Shock for Swiss banks: USA require total cooperation.

A Reuters article in English reports on the NZZ article, Alice Baghdjian, Draft US deal for Swiss banks in tax row seeks "total cooperation" - paper (Reuters 10/11/14), here.  I rely for the comments below principally because the Google translation is not clear on a lot of points, and my inference from it alone might not  be good.

Here is my summary:

1.  DOJ has emailed the banks participating as Category 2 banks in the DOJ Swiss bank program a "Model-NPA."  NPA is the acronym for nonprosecution agreement which is what the Category 2 banks seek in the program.

2.  DOJ demands "total cooperation."  The requirements "would also apply to parent companies, subsidiaries, management, workers and external advisors"

3. Quoting NZZ: ""This total cooperation would, in addition, not only apply with respect to the DOJ and the Internal Revenue Service, but also to anyone, even foreign law enforcement agencies, that the DOJ is supporting in its investigations," with "no end date."

4.  "It is also unclear whether the requested information would only need to be handed over when doing so complied with Swiss law, the paper said."

5.  "Failure to follow any one of the terms of the agreement would render it void, and the bank could risk prosecution from the DOJ."

Although, as noted the Google translation of the German is not perfect, I infer that it says also the following (which is not reported in the Reuters article):

6.  Either within the Model-NPA or separately, the banks must commit for the future to report about U.S. taxes -- presumably violations or suspected violations.

7.  Hardliners have taken over the leadership of DOJ, mentioning Tamara Ashford, Acting AAG Tax, who is awaiting confirmation to the U.S. Tax Court.  (I don't know what this means other than that DOJ Tax will continue to do what it was doing with respect to Category 2 banks; I am not aware that Ms. Ashford is tougher on the issues than the prior AAG.)

Addendum 10/14/14 10:00 AM:

A reader, Andre Watts, sent me the following and gave me permission to post it since, for some reason, he could not get it to post as a comment.  It adds considerable nuance to the article from the German rather than the rough translations:

There always seems to be problems or missing information when a German language document is translated in the popular media.

I've read the article and this is my interpretation The article says that the DOJ has sent the Category 2 Swiss banks a Model NPA agreement. According to the article the DOJ states that the agreement is non-negotiable but the sources spoken to think/hope that there must be some negotiation room in the agreement for reasons that will become clear later in this post.

The article also says there are "draconian" penalties for making public the text of the NPA. I'm not sure why DOJ wants to keep it a big secret. It seems the reporter has not seen the actual text and all of his information is second hand from sources who claim to have seen the agreement.

The main point of the article is that the NPA is different than the agreement made in 2013 between the Swiss banks/government and the DOJ. The NPA puts more requirements on the banks than the 2013 agreement mandates. It requires that the banks(including parent companies, subsidiaries, managers, employees, consultants) report any information that they have on US tax persons. This includes cooperating with any investigation or legal case in any jurisdiction in the world. The banks would also be obligated to cooperate in any cases against their own employees or third parties.

All this cooperation must also extend to any other foreign jurisdiction (US or otherwise) that is cooperating with the DOJ or IRS. It is unclear if cooperation by the banks would be subject to Swiss law or the law of another jurisdiction. The agreement says "consistent with significant law". The banks would be responsible for any costs associated with helping in an investigation or case. This would include translation and providing witnesses. Banks are also responsible to help design and write treaty assistance requests based on the information that they have given the DOJ.

The required cooperation by the banks would be for an unlimited time period. The article says that if the bank violates the NPA then then the NPA is void and the paid fines would be forfeited. The bank would then be charged as if no NPA was in place. It also says that the DOJ will publish on their website the admission of guilt of the banks and the names of the employees involved. This sounds so extreme that I'm not sure if I am reading it correctly. I thought an NPA was a play to pay a fine and avoid pleading guilty. Maybe this only relates to banks and employees who will violate the NPA. If all the banks and many of the employees who sign the NPA agreement would end up named on a website, then that would be a big deal because the Swiss have a high respect for privacy.

The article goes on to say that harshness of this agreement is not a good sign(omen?). It says that it infringes on two of the principles of the original agreement. The first is the sovereignty of the two counties. The second is the fact that the two parties want to put this whole thing behind them. The article says that the bankers are going to call for intensive negotiations with the help of the Swiss government, if necessary. It says that the Swiss banks can't agree to the NPA in it's current form.

The last paragraph starts by asking why the DOJ is now asking for more than the original agreement. It goes on to say that analysts suspect that this new hardline stance is because of Tamara Ashford. It speculates that she needs to take a tough stance because it is an election year. Personally, I don't buy that story. Maybe Carl Levin wrote the NPA :) Now that FACTA is in place, I would have thought that the DOJ would not as worried about getting account data. All the account data will come out once the FACTA compliant institutions(which seems to be almost every institution in the world) starts reporting their accounts next year. So, why play hardball?

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