Friday, June 26, 2015

Another Swiss Bank Enters NPA Under US DOJ Swiss Bank Program (6/26/15)

DOJ just announced here another Swiss Bank NPA resolution under the DOJ program for Swiss banks.  The Swiss bank is Ersparniskasse Schaffhausen AG (EKS).  The penalty is $2.066 million.  Here are key excerpts (emphasis supplied by JAT):
EKS was founded in 1817 and is wholly owned by a Swiss charitable foundation.  It is headquartered in the city and canton of Schaffhausen, Switzerland.  EKS opened, maintained and serviced accounts for U.S. persons that it knew or had reason to know were likely not declared to the Internal Revenue Service (IRS) or the U.S. Department of the Treasury as required by U.S. law. 
From 2004 through 2011, EKS accepted referrals of U.S. persons as new clients from an external asset manager who, until 2009, resided in the United States and conducted some of his business through a corporation organized under the laws of the United States.  The majority of the accounts that came to EKS as a result of these referrals were held in the names of non-U.S. entities that were beneficially owned by U.S. persons.  
In May 2008, with the knowledge and approval of EKS management, the external asset manager and an EKS relationship manager visited five U.S. cities to meet with U.S. clients and attorneys who had the potential to refer new clients.  Topics discussed during their meetings included the “crisis” involving Swiss bank UBS AG, client satisfaction with EKS, the performance of client accounts at EKS and the “asset protection” benefits of EKS. 
Until 2009, EKS opened numbered accounts for U.S. persons, including code-name or pseudonym accounts, upon request.  Upon opening this type of account, an EKS employee would  enter the accountholder’s name in a physical register rather than in the bank’s electronic records system.  This action limited the number of EKS personnel who knew the client’s identity.  Holders of these accounts could also provide documents to EKS using only their code names or numbers as their authorized signatures.  
EKS provided all of its clients, including U.S. persons, with the option to request that EKS retain all mail related to a client’s financial accounts in exchange for a standard service fee.  EKS understood that providing such hold-mail agreements upon request could allow U.S. persons to keep evidence of their EKS accounts outside of the United States and thus assist them in concealing assets and income from the IRS.   
EKS also accepted IRS Forms W-8BEN for U.S.-related accounts held in the names of non-U.S. entities, such as foreign corporations, trusts or foundations.  Because Swiss law required EKS to identify the true beneficial owners of the entities on a document called a Form A, EKS knew that these accounts were beneficially owned by U.S. persons.  Nonetheless, EKS accepted Forms W-8BEN that it knew falsely stated that the entities were the beneficial owners of the accounts.  
EKS was aware of the 2009 IRS Offshore Voluntary Disclosure Program for U.S. persons.  Despite knowing of that program and knowing or having reason to know that some of its U.S. clients had likely not declared their EKS accounts to the IRS, EKS made no effort to encourage its U.S. clients to disclose their accounts through that program.
During 2009, consultants reported to EKS, among other things, that EKS had increased risks because of its relationship with the external asset manager; that it was only a matter of time until small banks came into contact with U.S. authorities; and that there was a latent risk that previous revenues from EKS’s “U.S. strategy” could be seized or corresponding fines imposed.  According to minutes of a 2009 meeting of the EKS board of directors, an EKS executive stated, among other things, that “there is practically no risk if U.S. customers travel to Switzerland and a customer account is handled locally,” and that he had been informed that Swiss bank Wegelin & Co. was going to keep its previous U.S. customers. 
In October 2009, the EKS board of directors voted to continue the account relationships with clients of the external asset manager, including his U.S. clients, under certain conditions, including that his business be relocated to Switzerland.  The board also voted to “have the option of entering into new cross-border business relationships.” 
Since Aug. 1, 2008, EKS provided private banking services for 90 U.S.-related accounts with approximately $65 million in assets.  Thirty-seven of these accounts were opened after Aug. 1, 2008.  EKS will pay a penalty of $2.066 million.
EKS will be added to the IRS's Foreign Financial Institutions or Facilitators, here (not added as of 6/26/15 12:30pm).

 My updated statistics are:

US DOJ Swiss Bank Program
Number Resolved
Total Costs
   U.S. / Swiss Bank Initiative Category 1 (Criminal Inv.) *
   U.S. / Swiss Bank Initiative Category 2 **
   U.S. / Swiss Bank Initiative Category 3

   U.S. / Swiss Bank Initiative Category 4

Swiss Bank Program Results


* Includes subsidiary or related entities counted as separate entities, so the numbers may exceed the numbers the IRS and DOJ posted numbers which combine some of the entities.

** DOJ says original total was 106 but that it expects about 80 to complete the process.


  1. Rand Paul has also been blocking the updated Swiss/US Tax Treaty.

    Switzerland ratified the treaty many years ago.

    This has forced the US Govt to do treaty requests for information as opposed to receiving wholesale data dumps of account information.

  2. Just a note of caution: the courts have been woefully inadequate at protecting the powers of Congress, even in really high profile issues involving the war powers. The court could
    justify not looking at the case by saying that Rand Paul didn’t have enough personally at stake in the issue, the standing problem, or it could argue that this was primarily a political problem, which is also a ground for not considering a case. The D.C. federal district court has tended to make those arguments, which may be why a court in Ohio has been selected.

    I have tried to educate Jack on these matters as early as 2013 but nevertheless it is great to see these issues finally being raised.

  3. I’d love to wake up to the headline that all EU IGAs have been declared in breach. Also I think a legal challenge against an EU FFI would also be necessary because, for example, UK banks have changed their T&Cs allowing them to send account information direct to the US or any other government. It’s no good bringing down the IGAs without stopping the banks sending data direct to the IRS.

    The banks are going to have to forced to change their T&Cs exempting resident EU citizens from this kind of data transfer on the grounds it discriminates against EU citizens deemed as ‘US persons.’

  4. I've wondered if the recent passage of the TPA and TAA isn't a clever way for Obama to get the tax treaties passed. All he has to say is the tax treaties are a form of trade agreement.

  5. Congress granted Obama the authority to negotiate the agreement and it will get an up or down vote (no amendments). They did not vote to authorize him to negotiate and approve the treaties (a violation of the constitution).

    Thus this is the basis for Rand Paul's lawsuit over the IGAs. It is his contention that IGAs are treaties and like any Tax Treaty... it must be approved by the US Senate.

    Article II, Section 2, Clause 2 of the United States Constitution, includes the Treaty Clause, which empowers the President of the United States to propose and chiefly negotiate agreements, which must be confirmed by the Senate,
    between the United States and other countries, which become treaties
    between the United States and other countries after the advice and
    consent of a supermajority of the United States Senate.

  6. Jin SEO,

    Your comments are good.

    I do think there is too much legal and constitutional water under the bridge (i.e.,, legal precedent) to think they have much hope of winning this issue.

    But, if they do win, place or show, we'll have something to write about.

    Jack Townsend

  7. I guess they can still turn away US residents like me... Planning to buy a place in my home town, started shifting dollars to euros during the last year. Tried the two biggest banks there and one said "no" (I didn't understand why at the time). Bottom line, I just went way over the 100k Euro default government protection (FDIC) as I didn't have time to find/open enough bank accounts.

    By the way, thank you Rand :)

  8. I am an EU citizen that moved to a 3rd country after living in the US for a long time. Both my banks in the EU and in the US now won't let me bank with them properly because of this FATCA mess. I am not a US citizen and don't spend time in the US anymore, but now my bank in the EU doesn't like me because I used to have a US address. I know of no way to rectify this situation.

  9. There is only one way to fix it... Open new accounts, but if you are now living in a 3rd country that is going to be difficult and costly.

    I would go get a new passport before attempting to open new bank accounts if you have a USA address listed as a prior residence in your passport... .

    My banking nightmare was made worse because I was born in the USA -and- my EU passport had a US address as a past residence. So even though my EU passport was updated with LUXEMBOURG, LUXEMBOURG, the prior US address was still there and when bank employees saw "NEW YORK, NEW YORK (USA)" it was not good. I ended up getting a new passport to eliminate the prior US address and although it didn't help at least now bankers don't outright spit on me as they throw me out... they kindly show me the door and tell me never to come back (no spitting) :)

    For US citizens who don't know, EU passports clearly list your place of residence (city, country) and this page is very important when opening a bank account. If you register with your local embassy/consulate while living in the USA, they update the place of residence in your passport and thus your passport is now tainted with a US presence... thus killing all chances of getting a bank account in the EU.

  10. Yes that might be the solution. The existing accounts I have, they want me to prove I no longer live in the US. So I showed them the new embassy registration in Asia. Not good enough. My new job offer in Asia. Not good enough. My new visa for living in Asia. Not good enough. I don't know how to prove a negative (how do you prove you don't live somewhere?!) The strange thing is I've always been compliant with FBAR, FATCA, and having W8ben filled out correctly and everything.

  11. Ask your embassy to provide a letter on embassy stationary with the dates you were registered as a resident outside your home country and within your home country.


    01/01/2010 - Before this date NoBankWantsMe had never been registered as living outside (home country) and was registered as living at (address) in (home country). This can easily be proven because all EU people are registered in their location commune/marie/prefecture/etc

    01/01/2010 - 01/01/2014 - NoBankWantsMe was registered as living in the USA at (address) and was living within the administrative area of the (location) consulate/embassy within the USA.

    01/02/2014 - Present - On (date), NoBankWantsMe registered with the embassy/consulate in (Asia) and has registered as living at (address in Asia).
    I had my EU embassy do a similar thing for an entirely different issue. What was turning into a nightmare was resolved very quickly with an official letter from the embassy.

  12. For treaty requests, is it true that once the request is approved then the request would become public and the account-holders who would fall under the request would be notified and given the opportunity to contest the request?
    Also, does anyone know whether the IRS request is a blanket request or whether it has a database of account number from OVDI (or people who were compliant all along) and these are excluded from the request since the IRS already has the information?

  13. Thanks for the information.
    Unfortunately the law does not go far enough in that it only requires the availability of a "payment account." This works much like a checking account in the US (deposit salary, pay bills) but typically pays no interest (not a big deal given current rates, but rates may go up.) There are banks that limit their offering to just that in the case of US persons, meaning no savings account, no certificates of deposit, no stocks, no mutual funds. For someone to have to keep all his savings in a non-interest account it's a huge problem

  14. I'm don't think the wording of the request(i.e. the search criterion) is generally made public. There was some talk a while ago about having the data transmitted without notifying the account holders(or at least not notifying them until after the data had been released.) In order for the account holders to not be notified in advance, the DOJ must claim that to notify the account holders would jeopardize the investigation. That might have worked for the FIFI situation but I don't think it would work when searching for closed account such as on a leaver list.
    So, generally, the account holders are notified by the bank or the relevant authority. The purpose of the notifications in the Bundesblatt is to attempt to notify those account holders whose address is unknown or uncertain. So the individuals partially identified in the Bundesblatt are probably only a fraction of the targets of the treaty requests.
    Since the requests are generally not public, an answer to your second question is a educated guess. The banks in Category 2 are incentivized to determine if the account holder has declared his accounts to the DOJ/IRS. Im guessing that the Category 1 banks are being handled in a similar manor. Statements made by the DOJ/IRS in the past have indicated that they are very closely checking the accuracy of those determination by the banks because the penalty amount is related to which accounts have been declared or not. My guess is that the DOJ/IRS will eventually trust that the banks know which accounts are declared or not. The treaty requests will then only ask for those accounts which have not been determined to be declared by the bank.
    An account that has been declared to the DOJ/IRS but has not demonstrated to the bank that it is declared may have its details included in a treaty request. Many banks were very rude and aggressive when they tried to shed their US account holders. Many account holders are upset about the treatment they received. They have no incentive to demonstrate to the bank that they are or became US tax compliant. Some of them decided to "pay back" the bank by letting them pay a penalty because the bank couldn't show they were compliant.

  15. Andre, Thanks for your discussion. I think it is very good and consistent with what I know.

    Jack Townsend

  16. One possible solution if you're uncomfortable leaving more than 100K EUR in the bank is to have them buy for you short term government bonds (such as European Central Bank, not Greece obviously. And you want short maturities to reduce interest rate risk.) Unlike bank accounts and CDs, stocks/bonds held in custody are not an obligation of the bank and should (should, but there are no guarantees) be safe if the bank goes belly up. Disclaimer: that is my understanding, I am not a legal expert. But having the bank buy and hold bonds isn't cheap.

  17. Dear Jack,
    Which banks and respective amounts are included in the $3,470,550,000 penalty for category 1 Swiss banks in the statistics? I could identify UBS, Credit Suisse and Leumi Bank but did not manage to match the numbers.
    Thank you!

  18. Credit Suisse AG

    UBS AG

    Wegelin & Co.

    Please let me know if my numbers are incorrect or I have missed anything.

    Jack Townsend

  19. This weekend someone reminded me of the fact that a significant percentage of account holders have died since 2008. Many of the account holders were elderly. Quite a few of the reported FBAR cases have been against people in their late 70s or 80s. The question that came up is; What is the IRS/DOJ going to do if a bank reports, through a treaty request, the account of someone who died several years ago?
    It could well be possible to claim that the account holder was willful. If the money of the deceased was transferred to a US person, will the IRS/DOJ be able to go after their assets?
    If the money of the deceased was transferred to a non-US person(as was the case with which one person was familiar) does the IRS/DOJ have any chance of determining who that was and going after their assets?
    It is certainly the case that some of the accounts where the Swiss banks was unable to confirm US tax compliance were held by people who are now deceased. This is in addition to those people who decide not to prove US tax compliance to the bank to get back at them for bad treatment.

  20. Not all EU countries' passports list residence. I have seen PPs from two EU countries that do not. What they do however show is place of issuance, which often is, but need not be place of residence (you could have an expiring or lost passport reissued while traveling, for example.)
    But what matters in your case is that your PP shows it.
    Also, some banks may allow opening an account with national ID which of course does show the current address.

  21. Thank you for the answer and all the great infos you provide.

    I guess it is not 100% defined what Category 1 is.
    According to the media it seems that Leumi is counted as Category 1 (

    Most of the websites don't seem to count UBS and Wegelin as Category 1 Banks. I assume the talk about these Categories took place later.

    The following page seems to sum up the fines and provides some statistics.

  22. Ombak,

    Thanks for your comments. I was not aware of the graphs you linked. They are very good. If I were better with Excel, I could perhaps produce that type of graph.

    Also, I have treated both UBS and Bank Leumi (via its Swiss affiliate that was covered by the larger DPA) as category 1 banks.

    Jack Townsend

  23. I am an Australian and US citizen. I respect that I am obligated to pay US taxes on my world wide income, while Australia exempts me from that requirement.
    FATCA and FBAR have proven very difficult for me to cope with because the foreign banks which hold accounts for me only report at June 30 - so I have to estimate, and should I err I'll be in trouble.
    The obligation to pay taxes should not require the depth of reporting that I am obligated to disclose. The reporting aspect is the Rand Paul argument, not the obligation to pay taxes, and I agree with him.
    As for foreign businesses not wanting to deal with me because I am an American citizen - I have had this problem in Canada, Philippines, Australia, and England. Any institution which receives funds from anyone with an American address is exposed to penalties for Patriot Act funding. Stockbrokers decline to open accounts, banks won't issue credit cards, and I've found institutions that won't accept credit cards issued by a US bank. Where does it stop?
    The United States has signed 22 agreements with foreign countries to have their banks and institutions report FATCA directly to the IRS, so is the data the property of the banks who are forced to report, or the data of the taxpayer? Remember, the obligation to pay taxes is not the issue - that is low and is uncontested - the question is a privacy issue, but since those governments who have signed agreements (even the Cayman Islands have signed) force their institutions to report, I reckon that the reporting will continue.

  24. Jack - one of the requirements to be considered as a covered expatriate under section 877A is that Your average annual net income tax for the 5 years ending before the date of expatriation or termination of residency is more than a specified amount that is adjusted for inflation ($147,000 for 2011, $151,000 for 2012, $155,000 for 2013 and $157,000 for 2014).

    Is this the computed US Tax on gross income or the US tax liability after set off for foreign taxes paid by a U.S. a citizen residing in a foreign country.

  25. Jack - one of the requirements to be considered as a covered expatriate under section 877A is that Your average annual net income tax for the 5 years ending before the date of expatriation or termination of residency is more than a specified amount that is adjusted for inflation ($147,000 for 2011, $151,000 for 2012, $155,000 for 2013 and $157,000 for 2014).

    Is this the computed US Tax on gross income or the US tax liability after set off for foreign taxes paid by a U.S. a citizen residing in a foreign country.

  26. Anon,

    I don't know the answer to that. I have not spent much time on section 877A or renouncing citizenship. Perhaps another reader knows the answer and will respond.

    Jack Townsend

  27. I think the answer is that it is the actual tax due and/or paid. I cannot, however, recall exactly where I read that, but I imagine is was either this blog: or, both of which I find quite helpful for some technical aspects of taxation of expats. The author of the first often responds to questions in comments so may be worth posting the question there.

  28. Michael J. MillerJuly 16, 2015 at 2:54 PM

    Yes, under section 877A, the term "net income tax" has the definition
    prescribed in section 38(c)(1). Section 38(c)(1) refers to the sum of
    the regular tax liability and the AMT, "reduced by the credits allowable
    under subparts A and B of this part ..." This includes section 27,
    which allows a credit for taxes to the extent provided in section 901.

  29. Thanks Michael. So it is the income tax liability after offsetting the foreign tax credits. Just to be clear, so a person who makes, say $1 million overseas, pays tax at 30% or $300k to the foreign govt and has a minimal liability to the US govt based on exemptions etc would not be covered under 877A since the net liability to the US govt after offsetting the $300k to the foreign govt would be less than the $157k threshold as specified.

    Is this correct?


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