Thursday, October 10, 2013

Article on DOJ's Swiss Bank Initiative (10/10/13)

Sharp-Kemm, here, firm attorneys William M. Sharp, Sr., here, Larry R. Kemm, here, and William T. Harrison, III, here, have published an article on the new U.S. Swiss bank initiative. The Swiss-U.S. Banking Compliance Program- A Final Settlement?, Tax Notes International, September 30, 2013, at 1345, here.  See other blogs on this initiative here.

Excerpts that I found interesting and of possible interest to many readers of this blog:
The new initiative is not obligatory: The three separately defined categories of Swiss banks may freely elect to participate in the program. Nonetheless, the Swiss government will strongly encourage its banks to participate in the program to finally resolve the U.S. assault on the Swiss banking system — and for sound reasoning. The benefits accruing to the Swiss banking system and to participating Swiss banks are clear: Such banks will no longer be possible targets of the U.S. criminal legal system, and they will walk away with a clean bill of health. This also will end the hemorrhaging of millions of francs of resources that the Swiss government and many of its regulated banks have dedicated to this dispute over the past several years. Finally, and perhaps most important, the global private banking and investment community should have an elevated confidence in the historically preeminent Swiss private banking brand — the number one private banking sector in the world. 
* * * * 
It is also interesting to note that the joint statement includes a commitment by the Swiss government to handle all treaty requests on an ‘‘expedited basis,’’ and this will include providing additional personnel and other resources to process treaty requests. These statements indicate that the U.S. government is most certainly preparing to launch a series of requests under the treaty presumably on a ‘‘behavioral pattern’’ basis and presumably on the basis that the limiting ‘‘tax fraud or the like’’ standard under the 1996 treaty will have been eradicated upon the ratification by the U.S. of the 2009 protocol. This remains to be seen because no apparent progress toward approval of the protocol appears to be in the works at the Senate Foreign Relations Committee level. 
* * * *
A key feature of the penalty provision under the program is the allowance of a credit to the Swiss bank for U.S.-related accounts that were: 
• not undeclared;   
• disclosed by the Swiss bank to the IRS; or 
• disclosed to the IRS through an announced offshore voluntary disclosure program or initiative following notification by the Swiss bank of such a program or initiative and before the execution of the NPA. 
* * * * 
Also, the language contained in the program requires that in order to obtain corresponding penalty reduction, disclosure of an account to the IRS through one of the voluntary disclosure programs occurs ‘‘following notification by the Swiss bank’’ of the program and before execution of the NPA.40 But what if a U.S. noncompliant customer independently learns about the voluntary program, say in 2009, goes through the voluntary disclosure program and becomes compliant, and at the time of signing the NPA was thus not undeclared and the Swiss bank never made any notification?  It would seem reasonable that a Swiss bank should be entitled to a penalty reduction for any account that was declared before execution of the NPA (otherwise both the bank and the account holder are subject to penalty on the same account). There also needs to be clarification on how a bank could show that a customer became U.S. tax compliant, particularly if the bank was unaware of the customer’s participation in the voluntary disclosure program or if the customer was U.S. tax compliant. There are likely numerous situations where banks may have encouraged account holders to enter voluntary disclosure, but have no knowledge concerning whether the account holders in fact participated in an offshore voluntary disclosure program or initiative. 
* * * * 
As another substantial precondition to any NPA granted for a Category 2 bank, the Swiss bank must provide all necessary information for the U.S. by reason of treaty requests to seek account information. As noted in the joint statement, Switzerland intends to process on an expedited basis treaty requests according to the existing treaty as well as the 2009 protocol, if and when it comes into force.41 Thus, the cooperation of Category 2 banks with the Tax Division will provide an even greater amount of information that can be used to identify and prosecute U.S. taxpayers who violate U.S. laws by concealing assets abroad. Primary targets of this valuable information, as emphasized by the DOJ in its August 29, 2013, press release, are ‘‘U.S. taxpayers who, when faced with the risk of detection, chose to move funds away from banks under investigation to banks that they believed might be better havens for tax secrecy.’’ The press release notes that ‘‘[a] key component of the Program requires cooperating banks to provide information that will enable the U.S. to follow the money to other Swiss banks and to banks located in other countries.’’


  1. As I understand it, it is OVDI. So, any banks who enters OVDI will get slammed regardless if they are innocent or guilty. If they don't enter, then then the US will invent some stupid excuse to accuse them of something, causing the bank to get liquidated due to the resulting decline in trust. So, basically, the banks are screwed and the US found an easy means of stealing more money that it can waste on more unnecessary wars and medical corruption.

  2. It is not OVDI, which is an acronym / initialism for the U.S. depositors to join. As to the balance of your comments, I suspect that the banks will go through the same types of concerns in this bank initiative as to U.S. depositors in the OVDI/P initiatives. Should they join or not? What is the downside risk if they do not join? What is the likely downside risk if they do not join? And so forth. Probably the key difference is that the banks, presumably, are all financially sophisticated and well-counseled in order to better assess risks and costs. I find that a lot of U.S. depositors joining OVDI/P did not have those characteristics and thus suffered unnecessary angst and costs.


    Jack Townsend

  3. Jack, remember for US depositors with no criminal facts the OVDI/P program is being used as a way to generate penalty revenue (tax deficiencies and penalties) that is unrelated to tax liability and real culpability.
    The OVDI/P is an “annuity for the tax lawyer” with the additional bonus for the client of suffering the loss of many LCUs. The goal is not compliance - as for the banks and the individual - it is about maximizing penalty jackpot winnings for the IRS !

  4. SwissTechie referred to the program as OVDI. Good metaphor (if that's how it was intended.) We saw how in OVDI everyone is seen as guilty and subject to the same penalty. Banks would be well advised to keep this in mind.

    Lawyers advising banks unfortunately are motivated not only by the factors noone mentioned but also because the bank program, just like OVDI provides predictable results. Thus they can say to clients "You risk draconian penalties but the program offers certainty of penalties that are somewhat less."

    UBS clearly engaged in shenanigans on US soil. But I have a really hard time seeing any responsibility on the part of banks that simply accepted clients who walked in and opened an account on their own initiative.

    After all, if a woman from an Arab country with strict Sharia laws visiting the US a)drives a car, while b) unaccompanied by a male relative with c) her face uncovered and goes to the beach where d)men and women bathe in the same portion of the beach where she bathes in a e) one-piece bathing suit like by grandma would wear, never mind a bikini, then f) has a beer and a hot dog containing g) pork, earns h) interest or buys or inherits i) property and any and all of these are illegal for her to do under her country's laws, what liability do the US businesses have?

    What if a Swiss bar serves alcohol to an American who's 20 years old? What if a US person goes topless on a French beach?

    For that matter what if a US bank opens an account in which a teenager deposits undeclared earnings from mowing lawns or babysitting?

    If a foreign bank opened and maintained an account for a US person, absent any of the shenanigans that UBS engaged in, I fail to see any culpability.

  5. The October 21, 2013 issue of The Nation has a cover story titled "Miami, where luxury real estate meets dirty money," and mentions Florida bankers' opposition to sharing information about foreign depositors with foreign governments. People who live in glass houses shouldn't throw stones.

  6. For accounts that were closed years ago, or where the customer has moved or died, how would the banks be able to contact the customer to inquire whether the account has been declared?


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