Tax Notes Today Article on Swiss Bank Category 2 Issues (6/5/15)

Tax Notes Today has this article:  William Hoke, Swiss Banks Avoid Fines by Persuading Clients to Disclose, 2015 TNT 108-3 (6/5/15), no link available.  The key points of the article are:

1. Some practitioners question whether banks joining Category 2 really had U.S. criminal exposure.  One, Milan Patel of Anaford AG, noted that the banks were "pressured by FINMA [the Swiss Financial Market Supervisory Authority], which was under pressure by the U.S., and also by the legal advisers, who had an economic interest in scaring banks into the program."  He would have advised "half of them not to join the program."  [It is not clear whether he would have advised half of all Swiss banks not to join or whether he wold have advised half of the Swiss banks who did join not to join.]

2.  A key feature of the program is that the seemingly steep penalties for Category 2 banks can be mitigated to the extent that the banks encouraged their U.S. depositors to disclose their accounts to the U.S.  As a result of that mitigation, the nine NPAs announced to date have lower actual penalties than the nominal rate.   The actual rates "expressed as a percentage of the maximum value of U.S.-related accounts, that start as low as 0.03 percent and go as high as 12.6 percent."  [My stats show 10 NPAs, and I don't know what the difference in number is.]

3.  By contrast, the penalties (including fines, etc.) paid by the banks resolving their cases outside the program (such as UBS and Credit Suisse) show comparable percentages of 2.9% (UBS, exclusive of amount paid to SEC), 12% (Credit Suisse, exclusive of regulatory fines), 6.17% (Wegelin), and 7% (Liechtensteinische Landesbank AG).  However, the article noted that strict comparison of the percentages may not be fair.  The banks resolving their cases outside the program got resolutions more onerous than NPAs (i.e., they got DPAs or convictions).

4.  The article notes the huge compliance costs for for BSI SA which paid a penalty of $211 million.  See Swiss Bank BSI SA Is First to Get NonProsecution Agreement; Pays $211 Million (Federal Tax Crimes Blog 3/31/15), here.  Its reported legal and audit fees for joining the program were $38.6 million.  Those costs apparently paid off to BSI in mitigating the penalty that would otherwise have applied.

5.  One practitioner, Thierry Boitelle of Bonnard Lawson, is quoted as saying that the real purpose of the program was "not to hit too hard on the banks but to get as many people as possible into the OVDP and to retrieve a maximum of information on the evasion, facilitators, intermediaries, and leavers."

6. The article describes how the information about DOJ's focus on leaver lists maintained by Swiss banks.  It quotes Patel as saying that, instead of asking for all U.S. leavers other than those the bank establishes have entered into U.S. tax compliance, DOJ is apparently asking for a smaller subset based on certain parameters (presumably such as amount and other characteristics to support the group requests).  He says "The DOJ is cherry-picking a much smaller number, and it's not clear why."

7.  The article states the figure previously published that perhaps 80 banks will complete the Category 2 requirements, which means that 26 banks will not complete and thus could be at risk of "further investigation."