DOJ Tax AAG Keneally Reports on Swiss Banks Joining DOJ Swiss Bank Program (1/27/14; 1/28/14)

At a bar meeting, DOJ Tax AAG Keneally made an interim report on the U.S. Swiss bank program.  David Voreacos, Swiss Banks Seek Tax Amnesty as Third Accept U.S. Offer (Bloomberg 1/26/14), here. I include excerpts from the article in indents and comments in the flush presentation::

One-third of Swiss banks offered amnesty by the U.S. for helping Americans evade taxes have applied for the program, a federal prosecutor [AAG Keneally] stated at a Jan. 25 conference, according to three lawyers. 

The U.S. government gave more than 300 Swiss banks until Dec. 31 to seek non-prosecution agreements if they have “reason to believe” they violated tax laws. Some 106 sought to join the initiative, which requires participants to disclose how they helped Americans hide assets, hand over data on undeclared accounts and pay penalties. 

I think that those who joined are category 2 banks which were the ones who had to join by 12/31/13.  If the number is 106 and that represents one-third of banks "offered amnesty," then my math indicates that some 318 banks -- probably an approximate number -- were offered amnesty.  If is not clear to me that any set or finite number of banks were offered amnesty.  I think it was a general offer as to which banks would self-identify to join.  So, it is not clear to me where the number 318 ( app.) came from.

Bryan Skarlatos, of Kostelanetz & Fink LLP in New York, who attended the conference, said the number of banks that signed letters of intent was more than expected.

“It’s a result of the banks’ desire to have some certainty regarding their status with DOJ,” Skarlatos said. “I believe that DOJ is pleased with the response to the program so far.”

I don't think banks joined just to achieve certainty, although that may be one of their goals (when that certainty is cheaper than would be the alternative of not joining).  They were supposed to join if they self-identified misbehavior (or at least the strong possibility would that their behavior could be construed as misbehavior).  So, I think that well-counseled banks (and I am sure they were) would have joined to get a certain result that was less than the probable result if they did not join.  In that sense, I don't doubt that they did desire certainty.

“She [AAG Keneally] said that every new bank in the program is a new source of information, especially on where the money went, either to other Swiss banks or banks around the world,” said Josh Ungerman of Meadows Collier Reed Cousins Crouch & Ungerman LLP in Dallas. “She said there are a lot of avenues to get information, and some are visible and some are not so visible.”

 The message is -- those U.S. taxpayers who have not yet outed via OVDI/P need to do so.

At least 33 [Swiss banks] announced through late December that they will join some form of the program, including 19 cantonal banks, or regional lenders typically owned by regional governments.

They include Union Bancaire Privee, the Geneva-based bank founded by Edgar de Picciotto in 1969; Edmond de Rothschild Group, the Geneva-based wealth manager owned by Baron Benjamin de Rothschild; EFG International AG (EFGN), controlled by Greek billionaire Spiro Latsis and his family; and Bern-based Valiant Holding AG. (VATN)

Note that these are the public announcements.  Many, perhaps most Swiss banks are not publicly held and thus do not have to publicly air their dirty linen (their dance with U.S. prosecutors to mitigate the damage).  As noted above, the actual number actually joining is 106.  In this regard, my spreadsheet now includes the banks joining the initiative.  My spreadsheet indicates 48 (not including the category 1 banks who the IRS self-identified as being in that category 1).

The program has provoked Swiss debate on whether the U.S. went too far in trying to pierce banking secrecy that protected American tax cheats for decades. The crackdown escalated after 2009, when the U.S. charged UBS AG (UBSN), the biggest Swiss bank, with helping Americans hide $20 billion in assets.

I am sure that the Swiss have a lot of angst, anger and gnashing of teeth over this U.S. initiative.  But, on the other hand, the U.S. has a lot of angst, anger and gnashing of teeth over learning the scope of the Swiss banks' raid on the U.S. treasury and enticing U.S. citizens into misconduct.

Addendum 1/28/14 9:30 am:

Tax Notes Today reports on the same meeting.  William R. Davis and Lee A. Sheppard, Keneally Reports Success With Swiss Bank Program, 2014 TNT 18-3 (1/28/14).  Here are some select excerpts adding to the above (bold face added by me to draw readers' attention):

"Anyone who thinks they can hide money in Switzerland is fooling themselves," because of support received from Switzerland, said Kathryn Keneally * * * *. 

* * * * 

"We have not determined that they [the 106 banks joining] are all banks, or are Swiss banks. We may have some entities that are trying to get in the program but don't quite fit in the definition," Keneally said. She does not expect 106 non-prosecution or deferred prosecution agreements. As impressive as the number is, one private practitioner estimated that some 350 banks holding 40,000 accounts have not come in. 

"From our point of view, every bank that comes forward under the program is a new source of information for us," Keneally said. "Given the information we expect to receive from these banks about closed accounts and where the money went, I would think that anybody anywhere in the world that has an unreported offshore bank account will be well advised to come forward." 

Keneally isn't surprised that a significant number of the letters of intent indicate that the banks are still early in their internal investigations and may try to become category 3 banks. Category 3 is reserved for banks that did not violate United States law. 

The program says the banks can reduce their penalties if they can show they encouraged their account holders into the voluntary disclosure program, and after that encouragement, the disclosures came in. But if account holders volunteer information on their own and their banks failed to encourage compliance, the banks will not get credit, Keneally said. 

Holders of Swiss bank accounts have a right to appeal disclosure of their account information. Recently, a Swiss court blocked * * * disclosure of account information by the Julius Baer private bank under a U.S. group request, using the pejorative phrase fishing expedition. Keneally told her audience not to rely on the decision because DOJ has other ways to get information. * * * *. 

"We have a lot of avenues for getting information now, some of them visible and some of them not visible. Anyone who thinks they can hide their money in Switzerland or elsewhere is full of themselves and has been for a long time," Keneally said. 

 The TNT report also notes that Keneally said that the IRS does not face the same interpretational barrier ["fraud and the like} under other treaties that it encountered with Switzerland.  So, treaty requests to other countries may be more productive, although as noted the U.S. found some work-arounds for Switzerland.