DOJ Tax Obtains a John Doe Summons for U.S. Bank Information at Treaty Request by Finnish Tax Administration (5/1/19)

DOJ Tax announced that it had obtained a district court order to serve John Doe Summonses (JDS) on Bank of America, Charles Schwab, and TD Bank.  See press announcement here.  The JDS's were sought at the request of the Finnnish Tax Administration pursuant to the tax treaty between Finland and the U.S., which has an exchange of information and commitment to use each country's tax enforcement processes (such a summonses).  The following are key excerpts:

“The Department of Justice and the IRS are committed to working with the United States’ international treaty partners to identify and stop individuals using hidden offshore accounts to evade tax laws,” said Principal Deputy Assistant Attorney General Richard E. Zuckerman of the Justice Department’s Tax Division. “The United States does not tolerate offshore tax evasion, nor does it sanction tax evasion committed through U.S. financial institutions.” 

“Our continued success in combatting offshore tax noncompliance has been helped by the assistance we receive through the network of tax treaties around the globe,” said IRS Commissioner Charles Rettig. “Yesterday’s effort reflects that the U.S. will return this help by working under the law with tax administrators in other nations to help them in their fight against tax evasion and avoidance. A global economy should not be allowed to serve as a possible vehicle for tax evasion in any country.” 

The United States petitioned the United States District Court for the Western District of North Carolina to authorize the summons at the request of the government of Finland under the tax treaty between Finland and the United States. That treaty allows the two countries to cooperate in exchanging information that is necessary for carrying out each country’s tax laws. The IRS summons seeks the identities of Finnish residents who have payment cards linked to bank accounts located outside of Finland so that the Finnish government can determine if those persons have complied with Finnish tax laws. Finland has advised the IRS that, in circumstances where the payment cards are used only at ATMs or in other transactions where authorization is by PIN code, and the cardholder need not identify himself or herself to the merchant, the cardholders cannot be identified from sources in Finland. 

The filing does not allege that Bank of America, Charles Schwab, or TD Bank violated any U.S. or Finnish laws with respect to these accounts. 

As described in the petition and supporting documents filed by the United States, the request is part of a foreign payment project being conducted by the Finnish Tax Administration (FTA), in which information on the use of payment cards issued by foreign financial institutions is used to identify non‑compliant Finnish taxpayers. Earlier FTA investigations of approximately 120 to 150 Finnish taxpayers who used foreign payment cards in a similar manner have yielded extremely high rates of tax non-compliance, as noted in the United States’ memo in support of the petition, which indicates that it is likely that the John Does sought by the summons are Finnish residents who are failing to report these foreign accounts and associated income. 

The court order in this case authorizing this enforcement action is part of ongoing international efforts by the United States and its treaty partners to stop persons from using foreign financial accounts to evade taxes. Courts have previously approved John Doe summonses allowing the IRS to identify individuals using offshore accounts to evade their U.S. obligations, and have also approved John Doe summonses to be used to identify individuals using U.S. financial institutions or accounts to evade foreign tax obligations.

The Ex Parte Petition for Leave to Serve "John Doe" Summonses and Memorandum in Support are linked on the announcement and are here.

Swiss Supreme Court Approves Netherland Group Requests Under Double Tax Treaty (9/16/18)

Although other countries' tax initiatives involving secret accounts is not the main focus of this blog, I thought readers might be interested in this article because it illustrates the continuing and expanded interest in an area where the trail was blazed by the U.S. starting with the UBS initiative in 2008.  In addition, the decision reported here plus related initiatives reported will have wide impact.

The Swiss Federal Tax Administration has decided that it will respond to so-called group requests may be made under the Switzerland-Netherlands double tax treaty (sometimes referred to as "DTT NL"), just as it is now responding to such requests under the Switzerland-U.S. double tax treaty.  (I sometimes refer to such group requests as John Doe treaty requests because they function like John Doe Summonses in the U.S. system in terms of identifying unknown taxpayers by identifiable characteristics.) That decision has been sustained by the Swiss Federal Supreme Court.  For a good write up, see Jueng Birn, Swiss Federal Supreme Court considers Dutch Group Request as permissible (KPMG Switzerland Expert Blog 9/14/16), here.

The Netherlands group request had the following characteristics to identify the account information requested:

• UBS clients domiciled in the Netherlands who had held an account with UBS in Switzerland between 1 February 2013 and 31 December 2014.
• UBS had sent the client in question a letter in which they were informed that their account would be canceled unless the client could prove his or her tax conformity.
• The client did not prove his or her tax conformity to UBS.

And, a practically identical request was made to Credit Suisse.

JAT Note:  the characteristics of such requests made by the U.S. are more detailed.  See Swiss FTA to Pass HSBC U.S. Depositor Information to IRS Under Treaty (Federal Tax Crimes Blog 7/27/16; 7/28/16), here.

The KPMG report indicates that, after the FTA approved the request, an affected client successfully appealed to the FTA Court on the ground that requests without names were not authorized under the DTT NL.  The Swiss Supreme Court then on further appeal allowed the request.  The KPMG report discussion of the Swiss Supreme Court decision is:

According to the Swiss Federal Supreme Court’s interpretation of the DTT NL, it is sufficient if the group request contains sufficient information that will allow an identification of the person in question to be able to provide administrative assistance. That specifically naming a client is not mandatory is due to the purpose of the DTT NL, which according to the relevant protocol consists of, “an exchange of tax information to the maximum extent without allowing the states partial to the agreement to go on “fishing expeditions”. 

Finally, the Swiss Federal Supreme Court also checked whether this could be considered a legitimate group request or indeed a fishing expedition, which would not have been permitted. Despite the fact that the definition of group in the present request for administrative assistance goes quite far, the Swiss Federal Supreme Court judged that it is not an inadmissible fishing expedition.

The KPMG report indicates the impact is:

Impact of this decision 

Switzerland has already concluded more than 60 double taxation treaties and tax information agreements, which permit administrative assistance based on group requests. Moreover, under the OECD administrative assistance convention concerning Switzerland, group requests will be possible in any case as of 2017. The administrative assistance convention foresees retroactive effect to 1 January 2014. 

We expect a number of other states to follow the example set by the Netherlands and to address Switzerland with similar group requests. At this time, it remains to be seen which countries will place a similar request.

For related coverage, see

• Swiss Court Sets Precedent With Release of UBS Client Data (Fiunews.com 9/12/16), here.  
• Joshua Franklin and Angelika Gruber, Swiss Supreme Court rules bank data can be sent to Dutch (Reuters 9/13/16), here.  
• Swiss noose tightens around suspected Dutch tax evaders (Swissinfo.ch 9/12/16), here.

Swiss FTA to Pass HSBC U.S. Depositor Information to IRS Under Treaty (7/27/16; 7/28/16)

Reuters reports that the Swiss Federal Tax Administration announced that it will respond to an IRS treaty request for information on U.S. depositors meeting certain characteristics.  John Miller, Swiss to pass information on HSBC accounts to U.S. tax agency (Reuters 7/26/16), here.  The request appears to be a group request (or what I call a John Doe Treaty request) whereby the U.S. depositors are not named (indeed, the IRS in most cases would not know their names) but certain characteristics of material potential U.S. tax noncompliance are suggested.  As reported:

The Swiss government said it made the announcement about its plans on Tuesday to alert HSBC account holders whom it has been unable to locate, and to give them the chance to lodge a legal appeal if they object to having their information sent to the U.S. Internal Revenue Service (IRS). 

The move comes after the IRS asked Swiss tax authorities in April for assistance on HSBC Private Bank (Suisse) SA accounts held by Swiss-registered "domiciliary companies" with U.S. beneficial owners between 2002 and 2014. 

The Swiss Federal Tax Administration said the IRS targeted HSBC accounts "where there is evidence that the U.S. beneficial owner exercised control, directly or indirectly, over the account in violation of corporate governance ... by withdrawing funds from the account for personal use." 

HSBC said it was cooperating. 

"Following an information request in April 2016 from U.S. authorities to the Swiss Federal Tax Administration (SFTA), the bank has provided certain files, mostly related to former clients, to the SFTA," said Lonnie Frisby, a spokesman for HSBC's Swiss private bank. "The Swiss authorities may forward part or all of this information to U.S. authorities in accordance with applicable laws and treaties. Anyone subject to this request has been notified." 

* * * * 

A spokesman for Switzerland's tax agency in Berne declined on Tuesday to say how many HSBC accounts were involved in the IRS request, citing Swiss privacy laws.

The article does note the SFTA appeals process for U.S. depositors to try to divert or derail the turnover of information.  Good luck on that.

Addendum 7/28/16 8:00am:

As noted by a commenter below (David), the actual announcement can be reviewed here.  The announcement, in pdf format, is in German for the first three pages and in English for the following pages.

Then, another commenter named Bert has the parameters for the request.  I will cut and paste them from the pdf document linked above (bold-face supplied by JAT):

Another Crack in Foreign Account Secrecy - UBS Delivers Singapore Affiliate Records Pursuant to IRS Summons (6/22/16; 6/23/16)

Correction:  The blog has been corrected as a result of new information:  UBS has indicated that the client consented to the disclosure of Singapore account information, thus mooting the summons enforcement issue.  Corrections are made in this blog entry where appropriate, and are specifically noted.

I previously reported that the IRS has summonsed UBS for records from a Singapore affiliate and had sought judicial enforcement of the summons. U.S. Summonses Singapore Bank Records from UBS (3/4/16 & 3/5/16), here.  DOJ Tax has announced in a press release, here, that UBS "has now produced all Singapore-based records responsive to the request and the IRS determined that UBS complied with the summons, the Justice Department has voluntarily dismissed its summons enforcement action against the bank." The press release explained, somewhat cryptically:

The IRS served an administrative summons on UBS for records pertaining to accounts held by Ching-Ye “Henry” Hsiaw.  According to the petition, the IRS needed the records in order to determine Hsiaw’s federal income tax liabilities for the years 2006 through 2011.  Hsiaw transferred funds from a Switzerland-based account with UBS to the UBS Singapore branch in 2002, according to the declaration of a revenue agent filed at the same time as the petition.  UBS refused to produce the records, and the United States filed its petition to enforce the summons.

JAT Comments: 

1.  According to the U.S.'s Motion for Voluntary Dismissal,(Dkit. 16), there was no formal show cause hearing or order to enforce.  Rather,

Shortly after the petition was filed, the parties engaged in discussions to determine if they could resolve the matter amicably and without the necessity of any further court involvement. Upon completion of those discussions, UBS AG advised the United States that it would comply with the IRS summons and produce all Singapore-based bank records responsive to the IRS  summons. On May 31, 2016, UBS AG served its initial document production and, thereafter, supplemented its production on June 10, 2016. On June 17, 2016, after reviewing the bank’s document production, the IRS determined that UBS AG has complied with the IRS summons. In view of the above, the United States voluntarily dismisses its petition with prejudice. 

2. [Corrected 6/23/16] UBS has indicated that "complied with the summons based on client consent in accordance with Singapore law."  David Voreacos, UBS Gives IRS Records on U.S. Citizen’s Account in Singapore (Bloomberg 6/22/16), here..  In an earlier posting of this blog I stated that it was not clear on the documents I reviewed why UBS provided the documents required by the summons.  [End of Correction]  Readers will likely recall the earlier UBS proceeding involving a John Doe Summons to UBS that was the starting point for the IRS and DOJ's offshore account initiative starting around 2008.  The summons in this case was a regular summons, although since it was for financial account records, it might have been a third party recordkeeper summons.  The summons is here.  The key difference would be that, in a criminal investigation,  regular summonses require no notice to the taxpayer but third party recordkeeper summonses do. § 7609(c)(2)(E). [Addition 6/24/16]  Asher Rubinstein noted in the comment below that the summons was a Bank of Nova Scotia Summons, which, I understand is just a regular summons to an affiliated entity of a foreign bank for records of the affiliated foreign bank.  I discussed this issue when originally reporting on the case.  U.S. Summonses Singapore Bank Records from UBS (Federal Tax Crimes Blog 3/4/16 & 3/5/16), here, see particularly paragraph 1 under JAT Comments.  [End of Addition]

3.  Normally, in high stakes summonses, if the summonsed third party has an interest in not producing the documents (and certainly, given UBS's role as a player in the offshore account market, it has that interest), it might await a formal order from the Court.  This would then give the summonsed party some cover with the client and perhaps, in this case, with the regulatory authorities in the foreign jurisdiction whose bank secrecy laws may be implicated. [Clarification 6/23/16]  In this case, however, since the client apparently consented to the disclosure, UBS did not need such cover. [End of Clarification]

4.  [Correction 6/212/16] As note noted in the corrections above, UBS did not cave and therefore this brouhaha is mooted in terms of its future effects, but I have to think that, if the IRS did it once, it will do it again in either a regular summons (perhaps of the thirdparty recordkeeper genre) or a John Doe Summons. [End of Correction]

5.  Singapore does not have a tax treaty or mutual legal assistance with the U.S., for exchange of such tax information, so there is no formal mechanism for exchange of information that might permit a specific request to a named taxpayer or what has become known as a group request for unidentified U.S. taxpayers meeting certain characteristics.  (I call such group requests under a treaty request a John Doe Treaty Request.)

6.  It is interesting that the press release specifically mentions that Hsiaw apparently moved his account from UBS Switzerland to the UBS affiliate in Singapore in 2002.  The IRS has been obtaining so-called leaver lists from Swiss Banks, but I was not aware that they would go all the way back to 2002.  Of course, UBS is a special situation so that the IRS may have obtained such a leaver list or even the UBS bank records on U.S. clients from 2002.

U.S. Senate Foreign Relations Commitee Hearing on Tax Treaties and Protocols, Including Swiss (11/8/15)

On October 29, 2015, the Senate Foreign Relations Committee had a hearing on pending amendments to several tax treaties and tax protocols, including one for the Switzerland-U.S. tax treaty.  The hearing can be viewed here.  Two key witnesses testified.  One was Robert Stack, Treasury deputy assistant secretary (international tax affairs).  Stack's prepared opening statement is here.  The other was Thomas Barthold, chief of staff, Joint Committee on Taxation.  Barthold's statement can be downloaded here.

Both statements offer excellent introductions to the U.S. tax treaty system and to the specific treaties and protocols being considered.  I highly recommend them.  Given the focus on Switzerland in this blog, I thought it might be helpful to excerpt the portions of the statements dealing with Switzerland.

From Stark's statement:

[*5 ff] 

Combating Tax Evasion and Improving Transparency through Full Exchange of Information 

As noted above, effective information exchange to combat tax evasion and ensure full and fair enforcement of the tax laws is a top priority for the United States. A key provision found in all modern U.S. tax treaties is a rule that obligates the competent authorities of the two countries to obtain and exchange information that is foreseeably relevant to tax administration in the requesting country. In recent years there has been a global recognition of the need to strive for greater transparency and for full exchange of information between revenue authorities to combat tax evasion. The United States has taken a leading role in this movement. 

The proposed protocols amending the bilateral tax treaties with Switzerland and Luxembourg and the Multilateral Convention that are before the Committee today are intended to ensure full exchange of information to prevent tax evasion and enhance  transparency. These proposed protocols incorporate the modern international standards for exchange of information, which require countries to obtain and exchange information for both civil and criminal matters, and which require the tax authorities to obtain and exchange information held by banks or other financial institutions. 

The international standards on transparency and exchange of information for tax purposes are now virtually universally accepted in the global community. Indeed, all jurisdictions surveyed by the Global Forum on Transparency and Exchange of Information for Tax Purposes (the Global Forum) are now committed to implementing these standards. The Global Forum, now the largest international tax group in the world with 126 member jurisdictions (and fifteen observing members), endorses exchange of information. The Global Forum uses a robust and comprehensive monitoring and peer review process by evaluating the compliance of jurisdictions with the international standards of transparency. Initiated by the Organization for Economic Cooperation and Development (OECD), the Global Forum has been a driving force behind the acceptance and implementation of international standards. The United States actively participates in the Global Forum. Treasury’s Offices of Tax Policy and General Counsel, and IRS’s Office of Chief Counsel and its Large Business and International Division have devoted substantial resources over the past two years both to the peer review of U.S. rules and procedures and to our role as members of the Steering Group and Peer Review Group of the Forum. 

In addition, the G-20 has, for the past several years, stressed the importance of quickly implementing the international standards for transparency and exchange of information. It has also requested proposals to make it easier for developing countries to secure the benefits of the new cooperative tax environment, including a multilateral approach for the exchange of information.  

Against the backdrop of the Global Forum and the G-20 process, the proposed Protocol to the Multilateral Convention was opened for signature on May 27, 2010. The Multilateral Convention is an instrument that permits its signatories to exchange information for tax purposes. However, because it was signed in 1989, its provisions are out-of-date in many respects and do not conform to current international standards for transparency and exchange of information. In addition, prior to its amendment by the proposed protocol, the Multilateral Convention was open for accession only to member countries of either the Council of Europe or the OECD. The proposed protocol to the Multilateral Convention conforms the existing agreement to the current international standards for exchange of information, and opens the agreement for signature by any country, provided that the Parties have provided unanimous consent. This important agreement is therefore a centerpiece to the global effort to improve transparency and foster full exchange of information between tax authorities. 

* * * *

[*21]  

Switzerland 

TNT Article Reporting on Panel at USD Law-Procopio Seminar (10/27/15)

Tax Notes Today has this article reporting on a panel discussion at the University of San Diego School of Law-Procopio International Tax Law Institute annual conference:  William Hoke, Focus Shifting Away from Switzerland, Former Investigators Say, 2015 TNT 207-7 (10/27/15) [No link available].  Key excerpts are:

[B]anks cooperating with the U.S. government turn over specific data, including details about the dates, amounts, and destinations of wire transfers that close out U.S. persons' accounts. While the account holders' names are not revealed, it is widely expected that the DOJ will use the detailed information on these so-called leaver lists to file group requests with the Swiss competent authority to obtain the identities of U.S. taxpayers who have not disclosed their account details. 

[Mark] Matthews [of Caplin & Drysdale] said a team will be looking to see if the U.S. has a tax treaty with the country where the funds transferred out of a Swiss account were sent. "They will now have the beginnings of the evidence to create a valid treaty request . . . and go after that same information in that other bank," he said, "so [the IRS has] put together a pretty neat little vice here." The message for individuals who think they're safe because they got their money out of Switzerland and into countries such as Panama is that "there's a very high chance they're going to find you," Matthews said. 

Banks that actively market themselves as discreet destinations for undeclared cash have cause for concern as well. "There's sort of a special place in hell in the Justice Department's mind for people who run and hide," Matthews said. "And the banks who took on people . . . who were running from Switzerland, the Department of Justice really finds that behavior offensive, both on the part of the banks and people who are running. That is a very dangerous thing to be doing these days." 

Steven Toscher, a criminal tax lawyer at Hochman, Salkin, Rettig, Toscher & Perez PC, said the government's strategy with the voluntary disclosure and Swiss bank programs is brilliant because of the magnitude of the problem and the scarcity of resources available to address it. "It's based on the presumption they can't prosecute everybody," Toscher said. "They just don't have the resources."

Other key points:

Guest Blog: Milan Patel on Swiss Expeditiously Approves Recent IRS Treaty Request (8/5/15)

Today, I am pleased to off a guest blog by Milan Patel.  Milan is a U.S. tax attorney and former IRS senior trial attorney.  At present, Milan is a partner and co-head of the U.S. tax group at Anaford AG, a Swiss law firm based in Zurich, Switzerland. During his time at the IRS, Milan co-managed the New York region Offshore Credit Card Program (ostensibly, the first-ever IRS offshore voluntary disclosure program).  Milan now represents clients from around the world in the various IRS offshore voluntary disclosure compliance programs with a particular emphasis on cross-border and international tax issues.  Comments may be made to this blog and, if desired, specific comments may be made directly to Milan via his email milan.patel@anaford.ch.  His web site with contact information is http://www.anaford.ch/project/milan-patel/.

Switzerland has expeditiously approved a recent IRS treaty request for account holder information from Union Bancaire Privee, UBP SA (“UBP”), a Category 2 Swiss bank.  Pursuant to the DOJ Program for non-prosecution agreements or non-target letters for Swiss banks (the “Swiss Bank Program”), any participating Swiss bank requesting a non-prosecution agreement (i.e., Category 2 Swiss banks) must, as a condition, “provide all necessary information for the United States to draft treaty requests to seek account information; such cooperation will include but not be limited to the development of appropriate search criteria.”  Swiss Bank Program, II. D. 4.  Therefore, although UBP is still in the process of negotiating a non-prosecution agreement under the Swiss Bank Program, it is still required to cooperate with the treaty request condition presently.  Similarly, other Category 2 Swiss banks have provided information for such treaty requests, which are being expeditiously approved by the Swiss Federal Tax Administration (the “SFTA”), although still in the process of negotiating a non-prosecution agreement under the Swiss Bank Program.

In a recent treaty request sent by the IRS to the SFTA regarding U.S. account holders at UBP, the SFTA approved the treaty request within three days, which is unusually fast compared to prior requests and seems to indicate that the IRS and SFTA worked out an arrangement to facilitate the swift approval of all IRS treaty requests involving Category 2 Swiss banks.  This notion is generally supported by the comments previously made by then AAG for the Tax Division Kathryn Keneally, who testified before the Senate Permanent Subcommittee on Investigations on February 26, 2014, indicating that the U.S. and Switzerland had made such an arrangement, but could not disclose the details of that arrangement.

It appears that the IRS/DOJ is using information provided by the Category 2 Swiss banks under II.D.2 of the Swiss Bank Program – the so-called “leaver data list” – to make these treaty requests.  It also appears that the IRS/DOJ is “cherry picking” only certain accounts to avoid possible rejection by SFTA, or even worse, a negative court decision in Switzerland on the grounds that the request does not meet the “tax fraud or the like” standard set forth in Article 26 (Exchange of Information) of the 1996 U.S.-Switzerland income tax treaty.  The fear for the IRS/DOJ here is that if the treaty requests for Category 2 Swiss banks, which are based on the “leaver data” information, are insufficient to show “tax fraud of the like” then a Swiss court would deny the treaty request if challenged.

For prior IRS treaty requests involving Swiss banks, the history is checkered.  In the UBS matter, ultimate resolution required a special protocol to the U.S.-Swiss income tax treaty (signed on August 19, 2009) incorporating an agreed-upon criteria for determining “tax fraud or the like” under the treaty to finally withstand a challenge brought in Swiss court (the so-called “4450 UBS cases”).  In the Credit Suisse cases, after some back and forth, the Swiss Federal Supreme Court ruled ultimately on July 8, 2013, that U.S. “group requests” were permissible under the treaty if the request included enough detail to establish “tax fraud or the like.”  However, a subsequent Swiss court decision on January 6, 2014, invalidated a treaty request for client data from Julius Baer attempting to draw a distinction between a detailed group request that is considered valid and the treaty request under review that was deemed a “fishing expedition” and therefore invalid under the treaty.  This most recent decision also referenced the 2009 protocol that is still stalled in the U.S. Senate, which would remove the distinction between “tax fraud or the like” and tax evasion, thus facilitating the exchange of information under the treaty and potentially obviating future legal challenges in Switzerland.

What seems clear at this time is that the IRS and DOJ are being more circumspect about the scope of these Category 2 bank treaty requests.  However, what still seems unclear at this time is the following:  (i) whether these treaty requests will include individual account holders, which does not seem to be the case thus far; (ii) whether there is an established criterion for these treaty requests as was done in the UBS matter; and, most importantly, (iii) whether these treaty requests would meet the “tax fraud or the like” standard if challenged in Swiss court.  On this last point, you should bear in mind that the IRS considers any challenge subject to the notice requirements on the Attorney General of the United States under 18 U.S.C. 3506, and failure to do so will cause a taxpayer to be ineligible for the Offshore Voluntary Disclosure Program.

Reminder: Category 2 Banks Will Serve Up Their U.S. Depositors (6/11/14)

I recently read Stephen Dunn's blog entry, Beware Of Swiss Banks Urging Offshore Voluntary Disclosure To IRS (Forbes 6/8/14), here.  The general caution he gives is to understand the motives of Swiss Banks in requesting that their U.S. depositors enter OVDP.  The Swiss banks are serving their own self-interest by getting U.S. depositors to join OVDP because, provided the Category 2 Swiss banks can show proof of their U.S. depositors having done so, the Swiss banks can avoid the penalty on the account imposed by DOJ's Swiss bank program.  For example, on a $1,000,000 high amount deposit during the applicable period, the Swiss bank can save $200,000 to $500,000 by showing such proof (which, of course, the Swiss bank will have to get from the U.S. depositor, which is another story / blog entry).

The blog reports that one of the inducements made by the bank was that, failing return of the waiver, the account would be treated as a "Non-Consenting U.S. Account" that would start a process of disclosure of aggregate data that will lead to a group request for identities under the Implementing Agreement.  The blog then reports that, because the particular client in issue had closed the Swiss bank account in 2009, the client's deposit information in issue was not subject to the Agreement (which applies only to accounts in existence as of 12/31/13).  The blog entry rightly notes that the Swiss Bank therefore cannot (i) include the particular client's information in the aggregate data required by FATCA and (ii) disclose the client's identify should a request for identity be made (as is likely).

But, that is not the end of the story, which is why I write this blog.  Persons situated similarly to the client discussed in the blog -- i.e., who have closed their Swiss Bank accounts prior to 12/31/13 -- will indeed dodge the disclosure bullet under FATCA and the Implementing Agreement.  But there is another bullet, of similar effect, that they will not be able to dodge.

Under the U.S. DOJ program for Swiss banks, Category 2 banks must provide the following for "all U.S. Related Accounts" (par. 2.D.2):

a. the total number of accounts; and
b. as to each account:
i. the maximum value, in dollars, of each account, during the Applicable Period;
ii. the number of U.S. persons or entities affiliated or potentially affiliated with each account, and further noting the nature of the relationship to the account of each such U.S. person or entity or potential U.S. person or entity (e.g., a financial interest, beneficial interest, ownership, or signature authority, whether directly or indirectly, or other authority);
iii. whether it was held in the name of an individual or an entity;
iv. whether it held U.S. securities at any time during the Applicable Period;
v. the name and function of any relationship manager, client advisor, asset manager, financial advisor, trustee, fiduciary, nominee, attorney, accountant, or other individual or entity functioning in a similar capacity known by the Bank to be affiliated with said account at any time during the Applicable Period; and
vi. information concerning the transfer of funds into and out of the account during the Applicable Period on a monthly basis, including (a) whether funds were deposited or withdrawn in cash; (b) whether funds were transferred through an intermediary (including but not limited to an asset manager, financial advisor, trustee, fiduciary, nominee, attorney, accountant, or other third party functioning in a similar capacity) and the name and function of any such intermediary; (c) identification of any financial institution and domicile of any financial institution that transferred funds into or received funds from the account; and (d) any country to or from which funds were transferred.

Reciprocity -- the U.S. Issues John Doe Summonses to Identify Norway Tax Cheats (7/29/13).

Janet Novack reports this morning that the IRS has filed John Doe Summons "petitions in nine different federal district courts asking judges to approve summonses for records that could reveal the identities of Norwegian taxpayers with secret U.S. bank accounts and of residents of Norway who should be, but aren’t, paying taxes there."  U.S. Seeks PNC, Wells Fargo, JP Morgan Records To Find Tax Cheats--From Norway (Forbes 7/28/13), here. The summonses are sought pursuant to Norway's request under the double tax exchange of information provision, which requires a treaty partner upon the request of the other to use internal processes to obtain information relevant to taxes of the requesting treaty partner.

Further, Ms. Novack reports::

Already, judges have approved previously unreported summonses for records from PNC Bank and RBS Citizens in the Western District of  Pennsylvania; USAA Federal Savings Bank in the Western District of Texas;  BOKF  and 66 Federal Credit Union in the Northern District of Oklahoma;  Prairie Sun Bank in Minnesota; and East West Bank and Global Cash Card in the Central District of California.  Summons requests involving Wells Fargo WFC -0.32% and JP Morgan Chase, among others, are pending. There is no suggestion in the DOJ’s court filings that any of the U.S. institutions have done anything improper.

Each of the summonses

asks for information about bank account applications, signature cards and other records tied to one or a few specific payment or credit card numbers that have been used over a period of years for ATM withdrawals and other transactions in Norway which require a PIN, but don’t require the card holder’s name.  For example, according to a court-filed affidavit from IRS agent Cheryl Kiger, Norway reports one East West Bank payment card it wants information about was used from 2004 through 2012 for 661 transactions in Norway totaling 1,305,400 Norwegian Krone (NOK).  (That’s $221,918 at an average exchange rate for the period of one Krone equaling 17 U.S. cents.)

I will post more as I receive it, but obviously if the U.S. insists on such John Doe treaty requests when it makes them, it will have to reciprocate when treaty partners make them.  In this regard, historically exchange of information treaty requests have required some identification of the taxpayer.  However, as observers of the U.S.-Swiss spat know, Switzerland has recently approved "group requests" -- I call them John Doe treaty requests.  See Swiss Court Ruling in Credit Suisse Case (Federal Tax Crimes Blog 7/8/13), here.

The U.S. - Swiss Spat: On Leaver Lists and the Like (7/27/13)

I have made only passing reference to so-called "leaver lists" in the U.S. - Swiss offshore account spat.  Because of recent developments, I thought I would pass on what I know about those lists.  I hope that readers with more nuanced information with add to, clarify or correct this blog by making comments.

The U.S. needs information on U.S. depositors using Swiss banks for tax evasion.  Relatedly, the U.S. needs information on the Swiss banks involved and the individuals related in some way to enabling the U.S. depositors in their U.S. tax evasion.  These include the banks and the persons associated with the banks (employees or independent persons such as attorneys with a relationship with the banks).

As to U.S. depositor information, Switzerland has historically not provided information about U.S. depositors, except pursuant to its restrictive interpretation of the double-tax treaty exchange of information provision.  That interpretation required the U.S. to name the depositor and give some indication of tax fraud and the like.  While the Swiss might relax that, by interpretation, the Swiss usually would not respond to what I call John Doe treaty requests -- i.e., identifying persons by categories rather than by individual names which the U.S. does not know.  However, as I noted in a recent blog, Switzerland has relaxed its rules about John Doe treaty requests, which it calls "group requests."   Swiss Court Ruling in Credit Suisse Case (Federal Tax Crimes Blog 7/8/13), here.  As best I understand this relaxed interpretation, the U.S. must still provide some information indicating fraud in order for the Swiss to respond.

In order to frame good "group requests," of course, the U.S. needs to be able to identify the Swiss banks involved.  At one level, of course, the U.S. could just send a group request for every Swiss bank (including all financial institutions), but I suspect such a mass group of group requests would be treated as a fishing expedition.  How best can the U.S. identify the more active offending banks, other than those it already knows were big players in the U.S. tax evasion market?  Apparently, one way is to identify the banks who received transfers of U.S. deposits from targeted Swiss banks as they got in the IRS's cross-hairs.  U.S. depositors wanted to hide their money would move the deposits from the targeted banks to other Swiss banks (destination banks) to keep the evasion going.  Indeed, as in the Wegelin case, these destination banks actively solicited the transfers, on the notion / sales pitch that secrecy would prevail because, without a U.S. presence such as UBS had, the destination banks were not susceptible to pressure that would force them to disclose the U.S. depositors' information.  Aha, the U.S. figured out, if the U.S. could obtain so-called "leaver lists" -- i.e., lists that, without disclosing U.S. depositors' identity, would disclose the closing of U.S. depositor accounts at the target bank and the transfer of the funds to the destination Swiss bank.  With that information, the U.S. could identify the banks who actively promoted U.S. tax evasion and thus who should be targets for additional group requests and perhaps even criminal prosecution in the U.S.  So, as I understand it, upon request, the banks will have to provide "leaver lists" to the U.S.

IRS Makes Treaty Request for Wegelin Information Involving Asset Management Companies (6/15/13)

The IRS has filed a treaty request for U.S. taxpayer information from Wegelin & Company, the company that pled and went under.  See US continues hunt for tax dodgers in Swiss banks (6/14/13), here.  The following are key excerpts:

The United States tax authorities have filed a request for legal assistance to identify former American clients of the private bank Wegelin who are suspected of tax dodging. It is the fourth such request against a Swiss financial institute. 

Wegelin, which announced at the beginning of this year it would close its doors, on Friday confirmed reports that it had received notification by Switzerland’s Federal Tax Authorities to comply with the US request, based on a 1996 double taxation agreement.

A bank official added that Wegelin would submit the necessary information.

The request focuses on former Wegelin clients who were listed as beneficiaries of asset management companies between 2002 and 2012 and are suspected of fiscal fraud, according to the Neue Zürcher Zeitung newspaper on Friday. 

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It is the fourth such demand against Swiss banks. The country’s two main banks, UBS and Credit Suisse, have also faced requests against a particular group of clients over the past few years.

JAT Comments:

More Developments on Swiss Agreement with U.S. (5/29/13)

Developments on this front seem to be moving fast.  The latest report I am aware of is Julia Werdigier and Lynnley Browning, Switzerland to Allow Its Banks to Sidestep  Secrecy Laws (NYT DealBook 5/29/13), here.  Key cxcerpts:

The Swiss government said on Wednesday that it would let its banks sidestep the country’s secrecy laws to disclose names of clients in a move intended to help resolve a long-running dispute with the United States over tax evasion. 

The decision is a turning point in what has been an escalating conflict between the two countries. Switzerland’s finance minister said the move would probably enable Swiss banks to accept an offer by the United States government to hand over client details in exchange for a promise against future legal repercussions. 

“It is important for us to be able to let the past be the past,” Eveline Widmer-Schlumpf, the finance minister, said at a news briefing in Bern, Switzerland. She declined to give any details about the program, but said banks would have one year to decide whether to accept the American offer. 

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Ms. Widmer-Schlumpf said on Wednesday that the government would work with Parliament to quickly pass a new law that would allow Swiss banks to accept the terms of the United States disclosure program. She said the new law would make it possible for banks to take part in the program, but that it would be up to each individual bank whether to participate. 

“We expect this to create the base for banks to again gain some room for maneuver so that calm can return to the sector,” she said. “We are convinced that this is a good, a pragmatic solution for the banks to emerge from their past.” 

Ms. Widmer-Schlumpf declined to say how much banks might have to pay. But she said the Swiss government would not make any payments as part of the agreement.

With this development, I am sure that the IRS will be sending a lot of John Doe treaty requests.  I reported on one yesterday involving Julius Baer.  U.S. Treaty Request for Julius Baer Domiciliary Company Accounts with U.S. Beneficiaries (Federal Tax Crimes Blog 5/28/13), here.  That deal which was negotiated before this new development picked off the worst cases -- i.e., the cases with intervening entity classified as a domiciliary company.  With this new development, the question is whether the John Doe treaty requests need be quite so narrow to get the worst cases but will be able to get the less problematic as well.

Addendum 5/29/13 9:34am:

GAO Report On Exchange of Information Between U.S. and Its Treaty Partners (10/12/11)

GAO recently issued a report, titled IRS's Information Exchanges with Other Countries Could Be Improved through Better Performance Information (GAO-11-730 September 2011), here, describing the U.S. treaty system for sharing information between treaty partners (the treaties involved are bilateral negotiated treaties involving only two countries (or states in treaty speak). Readers of this blog will recall that, pursuant to pressure on UBS and indirectly the Swiss system of banking secrecy, the United States obtained information about UBS' U.S. clients by treaty request pursuant to the Exchange of Information provision in the U.S. / Swiss Double Tax Treaty.  I call the type of request where the name of the taxpayer is not known a John Doe Treaty Request. Readers will also remember that the U.S. continues to put pressure to obtain this type of information from other Swiss banks. Negotiations regarding that access are ongoing.

The GAO report is a worthwhile read for those interested in the use of treaties to obtain information regarding U.S. persons' offshore accounts. The report is broader than that, of course, but is useful for those interested in offshore accounts. I excerpt below some parts that I think are particularly useful for readers of this blog. I focus only on the concepts involved and not on the specific procedures and implementations (which are summarized in the Report). I also omit footnotes.

The Noose Tightens: Swiss Banks Deliver Up Data (9/11/11)

Ten of the more significant Swiss bank players in assisting U.S. taxpayers hide their income from U.S. tax authorities have delivered statistical data to the U.S. The data is sufficiently broad that it does not identify individual taxpayers but almost certainly could give the U.S. ways to sharpen its focus on the information and documents that it might ultimately demand from the banks.

An article in Tax Notes (Randall Jackson, Swiss Banks Turn Over Statistical Data in Tax Evasion Investigation, 2011 TNT 177-3 (9/13/11)) reports:
The banks include the following:

HSBC
Wegelin
Julius Baer
Basler Kantonalbank
Zürcher Kantonalbank

Eveline Widmer-Schlumpf, chief of the Swiss Federal Department of Finance, on September 10 also stated that statistical data had been turned over to U.S. officials. However, she added that no personal data had been disclosed. "That would be a violation of banking secrecy," she said, as quoted in a September 11 Agence France-Presse report.
Widmer-Schlumpf stressed that reaching a mutually acceptable outcome between the United States and Switzerland over the latest tax argument is of vital importance, but that it would not require an emergency law or separate treaty.
"The fact is that we are working with a lot of commitment for a solution that Switzerland can deliver within the existing legal framework of administrative assistance in the case of tax fraud and tax evasion. This is happening in accordance with the government and in conjunction with the involved banks. There is no need for an emergency law or separate treaty," she said, as quoted in a September 11 interview with NZZ am Sonntag.

Katie Reid, U.S. Obtains Data From 10 Swiss Banks In Tax-Dodging Probe (Huffington Post/Reuters 9/10/11), here.

Breaking News 9/13/11:

As the commenter notes below, the reports are that the Swiss are caving for all banks by now allowing what I call John Doe Treaty requests as follows (US client data to be provided based on activity (swissinfo.ch), here):

In cases where US authorities are able to supply enough details to justify a suspicious pattern of behaviour, Swiss banks will hand over the names and account details of US clients suspected of tax fraud – which happened to 4,500 UBS clients in 2009.

Of course, the U.S. will only be able to supply very general characteristics, such as use of foreign entities between the swiss account and the U.S. taxpayer, failure to supply the required forms, perhaps some minimum dollar amount (say $50,000).  Many of the characteristics might be discernible from the aggregate data discussed above, and were a key component of the UBS requests.

I will post more on this as more details are known.

Reports That the Swiss are Relaxing Tax Information Sharing Rules (7/6/11)

There are reports that the Swiss Government in moving / inching toward real exchange of information under its double tax treaties, which are (like the most U.S. tax treaties, based on the OECD Model Treaty). See Swiss Government Adopts OECD Standards On Bank Secrecy, Tax Offenses, Nasdaq (7/6/11) which reports in part as follows:

ZURICH -(Dow Jones)- The Swiss government Wednesday adopted standards on banking secrecy laid out by the Organization for Economic Cooperation and Development, or OECD, which will allow foreign authorities to pursue citizens suspected of using hidden Swiss accounts for tax evasion, and no longer only for outright tax fraud.  

MAIN FACTS:

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- In spring 2009, the Federal Council took the decision to adopt in future the international standards set out in Article 26 of the OECD Model Convention with respect to administrative assistance in tax matters. According to this, international administrative assistance should be possible not only in the case of tax fraud but also in the case of tax evasion and for tax assessment. The implementation of this decision requires appropriate wording in the double taxation agreements, or DTAs, with other countries. Up to now, over thirty DTAs have been adapted or renegotiated. Execution of administrative assistance must ensue under national law. To this end, the Tax Administrative Assistance Act is to be introduced.

The State of the John Doe Treaty Request to Switzerland (6/1/11)

U.S. double tax treaties have an exchange of information provision. After the U.S. put the full court press on UBS (John Doe Summons and criminal investigation), the matter was finally resolved with a deferred prosecution agreement for UBS (with a whopping fine) and an agreement with the Swiss government that it would process a John Doe treaty request -- i.e., a request for U.S. taxpayers identified only by characteristics (e.g., size of account and use of non-U.S. entities)). Because, prior to that time, Switzerland interpreted the US - Swiss double tax treaty restrictively, this solution required a treaty protocol. At more or less the same time, efforts at more transparency from tax haven jurisdictions were pursued by OECD and G-20 Ministers of Finance. The result is that Switzerland is trying to give the appearance of opening the kimono. (That is different than actually opening the kimono.)

All of this is laid out (or at least suggested) in the Joint Committee on Taxation, Explanation of Proposed Protocol to the Income Tax Treaty Between the United States and Switzerland (JCX-31-11), May 20, 2011. I recommend this report as an excellent summary of the issues with Switzerland and an historical summary of the developments in this area.