The takeaway for U.S. taxpayers playing the offshore financial account game -- particularly with Swiss banks -- who have not done a voluntary disclosure (OVDP or OVDI), the risk/reward ratio is rising. Now is the time to reconsider whether to join the OVDI. Of course, after the OVDI ends in August 30, 2011 (subject to the good faith extension to obtain the necessary documents), the IRS may still permit taxpayers to come into a voluntary disclosure program but the costs will likely rise significantly.
Addendum 6/13/11:
Matthew Allen, The IRS is building up pressure, Swissinfo.ch (6/10/11)
Interesting additional points of Mr. Allen's article:
Rumours are circulating that Swiss and European banks will be invited to join a voluntary disclosure scheme that would inflict fines and the handover of client data in return for the US authorities dropping legal action.
* * * *
The IRS is now aiming further broadsides at other Swiss institutions such as Credit Suisse, Julius Bär and cantonal banks.
* * * *
The deal that Switzerland agreed with the US to hand over UBS client data does contain a declaration that the Swiss would “review and process additional requests for information…if they are based on the pattern and facts and circumstances that are equivalent to those of the UBS case.”
* * * *
Swiss financial legal expert Carlo Lombardini has doubts that politicians would be so keen to sign off another treaty that could lead to a further erosion of banking secrecy.
“UBS was a very flagrant case and even then the treaty was heavily criticised,” he told swissinfo.ch. “Switzerland cannot simply go on paying out fines and passing on client data. That would leave the door open for others to milk the country.”
Such a deal would also contradict ongoing negotiations between Switzerland and other countries to resolve tax evasion legacy issues.
The Swiss authorities hope to conclude unique treaties by the end of this year with Germany and Britain that would sidestep the need for client data transfer by paying out withholding taxes on undeclared accounts.
* * * *
US tax lawyer Asher Rubinstein [a frequent commenter on this blog] said a deal to hand more information would be a major victory for the US administration.
“This would free up significant resources for both the IRS and the Department of Justice that are currently being used to investigate bankers and US citizens,” he told swissinfo.ch.
Those investigations have already seen charges laid against four current and former Credit Suisse bankers while a former employee of the now defunct Neue Zürcher bank has been indicted in the US.
The size of Credit Suisse’s operations in the US would make it a prime candidate to take up the offer of disclosure to avoid prosecution, according to Rubinstein. Like UBS, Credit Suisse has many offices, staff and assets on US soil.
But there would be less sense in smaller Swiss institutions, such as cantonal banks, to sign up to the rumoured treaty.
“The advantage to such a deal would be to end legal prosecution quickly without additional negative publicity that would result in the flight of additional client assets,” he told swissinfo.ch.
“But I do not know why smaller banks, with limited or no presence in the US, would sign up to this. The IRS is able to wield a very big stick against banks such as Credit Suisse, because it could withdraw their license to operate. That stick is considerably smaller for the cantonal banks.”
All the government has to do now is start dilogue with other governments and a perceived threat will come into play for those holding undisclosed accounts. It has become a high risk game that has a limited window of opportunity to correct with reduced chances of criminal prosecution and reduced penalties. This offshore agenda is a bonanza for a U.S. government that is in need of collections. To think that this pressure is going away is absurd. I am thinking that to pass up on the current opportunity to disclose with terms may be a grave mistake. I expect the 2011 OVDI to exceed 2009 OVDP in number of disclosures even though the terms are harsher in most regards.
ReplyDeleteMs. Browning has published some good articles on this matter before in the NYT, so she has some good sources.
ReplyDeleteHowever, its not entirely clear to me what leverage the US has wrt smaller Swiss private banks. For Credit Suisse, its large US operations make it vulnerable, and the US probably has ample evidence of wrongdoing by CS bankers. For smaller private banks, the US has less leverage.
Once the US forces its way in, will other countries (UK, Germany, emerging countries like India) be far behind ? Will Switzerland allow the banks that account for such a large portion of its GDP to be essentially brought to their knees ? All I can say is that must be an exciting time to be working at DoJ Tax and IRS CI.
I think Jonf is correct in raising the issue of the leverage that the IRS can bring against a smaller Swiss bank. This is the same issue that Jack and I discussed a few posts down.
ReplyDeleteUBS was forced to settle the US civil and criminal charges against it because of UBS' extensive presence in the US, including branches, employees, significant assets and lucrative US banking license. Credit Suisse, likewise, is subject to the same pressure.
The open issue is whether smaller Swiss banks, especially those without a presence in the US, would agree to the settlement that is being negotiated. However, it is possible that this will be a global settlement, i.e., applying to Swiss banks large and small alike, since negotiations are at the governmental level and not with individual banks. The US might insist that the settlement cover all Swiss banks holding American accounts, including the smaller Kantonal and other banks without US assets or a US presence and would otherwise not be subject to IRS pressure to disclose accounts. This would dramatically increase the number of non-compliant accounts disclosed by the Swiss and would cover the flight of non-compliant accounts from UBS and large Swiss banks to smaller Swiss banks that occurred earlier in the IRS-UBS litigation.
An agreement between the US and Switzerland would allow the Swiss banks to end the DOJ investigation and avoid prosecution. It would also free up US governmental resources; for example, the IRS would obtain information about US account holders without asking a court for a John Doe summons, and without proceeding on the diplomatic level with a TIE or MLAT. The banking data would be delivered to the IRS without a formal investigation, and the IRS could then devote increased resources to prosecuting Americans for tax fraud.
The U.S. government is supposedly in negotiations with the Swiss government to make a deal which involves the banks paying penalties as well as turning over non compliant U.S. account holders. This in itself may compel those non compliant account holders to disclose or dig deeper. Maybe Singapore, Hong Kong, Dubai, Luxembourg and others will be next. I think international tax havens are seeing that the U.S. is serious about this issue. Come 2013 and the implementation of FATCA, no one will want U.S. black money.
ReplyDeleteA one two blow for Swiss private banking? First a global settlement initiative then FATCA. Could the end game be in sight?
ReplyDeleteHere is an interesting comentary from Switzerland:
http://worldradio.ch/wrs/news/switzerland/huge-tax-evasion-deal-with-us-could-see-swiss-bank.shtml?25072
Here is an interesting article that indicates some Israeli banks may have an IRS bullseye tagged on them. The writer indicates that he is seeing a spike in inquiries as to OVDI. As bad as the OVDI terms are, I still think OVDI will yield more disclosures than OVDP as people are realizing the futility of trying to keep their heads down in the sand. This is reinforced by what seems to be a relentless compliance strategy by the IRS on offshore tax evasion.
ReplyDeletehttp://www.mahanyertl.com/mahanyertl/list-of-banks-under-irs-review-grows-bank-leumi-customers-next/754/
Anon123