Article on DOJ's Swiss Bank Initiative (10/1/13)

Scott Michel, here, and Mark Matthews, here, both major players in in representing clients in the Offshore account drama and the general federal tax criminal area, have written an excellent article, titled The Justice Department and Swiss Banks: Understanding The Special Disclosure Program (BNA's Banking Report 9/24/13).  The article is on their law firm's web site here (with link to a pdf version).  I highly recommend the article for its analysis is what is now known about the program involving Swiss banks.

I cut and paste just a few items.  The PFSB referred to is the "Program For Non-Prosecution Agreements Or Non-Target Letters For Swiss Banks," or in shorthand, Program for Swiss Banks ("PFSB").

4. Account Holders and OVDP 

* * * * Perhaps more significantly, the PFSB incentivizes banks to persuade U.S. account holders to go into the OVDP, and some clients will do so. Indeed, in our experience, bank notification to customers that their identities face likely disclosure to the U.S. government, or a requirement that they demonstrate U.S. compliance or sign a Form W9 to avoid account closure, are common ‘‘last straws’’ leading the customer to take action. We see no reason why a participating financial institution could not threaten to close any account that has not been reported to the IRS or as to which the client chooses not to undertake a voluntary disclosure; indeed, many banks already have been communicating such a policy to U.S. account holders. As to former clients, though, there is little the financial institution can do other than to provide notice that disclosure is likely given the bank’s participation in the PFSB. 

Also, the OVDP’s FAQs provide that the IRS can terminate or change the terms of the program at any time as to any class of taxpayers, and more specifically, the IRS reserves the right to deem ineligible for OVDP account holders at certain banks that are subject to U.S. enforcement activity. Thus, the PFSB may cause the IRS to consider whether clients of participating banks should after a point in time be ineligible for the OVDP’s penalty caps. The IRS may give little or no warning before announcing this. This is just another factor that should cause both Swiss banks and their customers to ensure quickly that any holdout U.S. customers make a prompt and educated decision about entering OVDP.

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8.  Other Countries 

Quite obviously, the PFSB  is limited to Swiss banks. But it is widely known that the DOJ is investigating banks in Israel, the Caribbean, India and perhaps other countries. Swiss banks that participate in the PFSB will have to provide information on transfers, and some Americans seeking to continue to hide their money moved funds to other countries, where the U.S. government might turn next. We can envision a further increase in investigative activity outside Switzerland if the U.S. obtains significant information concerning activity in other nations. 

Moreover, the PFSB could serve as a template for the U.S. to resolve cases involving financial institutions in other countries. To be sure, such agreements could differ materially with the PFSB, depending on whether, for example,  a tax treaty is in place or there is a FATCA IGA. But one could envision a circumstance that involves, for example, Israel, where a few banks may be identified as targets and ineligible for a program like the PFSB, but then the U.S. announces a PFSB-like program for other banks there. Many of the same incentives would be in place for banks to participate and for bank clients to enter OVDP.

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Conclusion 

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As to individual employees, advisors, lawyers, fiduciaries and similar third parties – all not eligible for protection from prosecution in the PFSB – such persons should consider all options, including contacting the IRS and/or Tax Division to make a disclosure, avoid prosecution, or obtain the lenience traditionally associated with full cooperation if prosecution cannot be avoided. 

And finally, for U.S. account holders, the lessons of the past five years remain in place. Any account holder who has not entered OVDP for unreported accounts will face pressure from their financial institution to do so, and ought, even on their own, to consider seriously whether the time has finally come to undertake a voluntary disclosure in order to avoid the risk of criminal prosecution.

For my prior blog, see  DOJ Tax Announcement on U.S. Swiss Deal (Federal Tax Crimes Blog 8/29/13; Updated 8/30/13), here.