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US Reminds Swiss Banks Of Cooperation Deadline

by Leroy Baker, Lowtax.net, New York
15 November, 2013

While the courts were busy authorizing the Internal Revenue Service (IRS) to issue summonses for records relating to United States taxpayers with offshore bank accounts, the Department of Justice (DOJ) was pointing out the approaching deadline for Swiss banks to participate in the program for non-prosecution agreements or non-target letters.

On August 29 this year, US Deputy Attorney General James Cole and the Swiss Ambassador Manuel Sager signed a joint statement announcing the program, under which eligible Swiss banks that want to seek non-prosecution agreements to resolve past "cross-border criminal tax violations" are given a framework that permits them to provide their cooperation.

The Swiss Federal Department of Finance has released a model order and guidance note that will allow Swiss banks to cooperate with the DOJ and fulfill the requirements of the program, and the DOJ's Tax Division has committed that it will not authorize formal criminal investigations of any additional Swiss banks prior to the program's December 31, 2013, deadline.

Under the program, each cooperating bank will be required to provide detailed information as to other banks that transferred funds into undeclared US accounts or that accepted funds when such accounts were closed. A bank that wants to come forward to cooperate can do so before the deadline with the assurance that information received from others has not made its cooperation untimely. Any bank that does not come forward before the deadline is said, howver, to face the very real risk that information provided by others may cause the bank to be targeted and prosecuted.

The DOJ continues to encourage Swiss banks to consider the program, which, in addition, will require banks that receive non-prosecution agreements to provide detailed information on an account-by-account basis for accounts in which US taxpayers have a direct or indirect interest, cooperate in treaty requests for account information, and agree to close accounts of account holders who fail to come into compliance with US reporting obligations.

Those banks will also pay substantial penalties in an amount equal to 20 percent of the maximum aggregate dollar value of all non-disclosed US accounts that were held by the bank on August 1, 2008. The penalty amount will increase to 30 percent for undisclosed accounts that were opened after that date but before the end of February 2009, and to 50 percent for such accounts opened later than that.

Banks that are already under criminal investigation have been notified that they are expressly excluded. The program also does not apply to individuals, who must resolve any liability separately.

In fact, the IRS has now been authorized by a New York District Court to serve "John Doe" summonses ordering two US banks, Bank of New York Mellon and Citibank, to produce information about taxpayers who may be evading federal taxes using undisclosed accounts at at Zurcher Kantonalbank and its affiliates (ZKB) in Switzerland, while the same two banks, plus JPMorgan Chase Bank, HSBC Bank USA and Bank of America, have to produce similar information in connection with undisclosed accounts at The Bank of N.T. Butterfield & Son Limited and its affiliates in the Bahamas, Barbados, Cayman Islands, Guernsey, Hong Kong, Malta, Switzerland and the United Kingdom.

It was confirmed that, to date, US taxpayers have identified 371 previously undisclosed accounts at ZKB and 81 such accounts at Butterfield. A number of US taxpayers with beneficial ownership and control over funds held in accounts at ZKB and Butterfield have admitted, within IRS Offshore Voluntary Disclosure programs, to failing to report income earned from their offshore accounts on their federal tax returns, and the IRS pointed out that it has reason to believe that other US taxpayers have held or presently hold similar accounts.

"(This) action show that the use of foreign banks for tax evasion remains a high investigative priority of this office and US citizens should understand that loud and clear," said U.S. Attorney Preet Bharara. "By issuing these John Doe summonses, we continue our joint efforts with the IRS to identify and hold accountable those who try to evade their legal responsibility to pay taxes."

"International issues remain a major focus for the IRS, and we are continuing our efforts to fight tax evaders who use offshore accounts to skirt the law," said IRS Acting Commissioner Danny Werfel. "These John Doe summonses for correspondent account records show our determination to pursue evaders using offshore accounts, even if the person hiding money overseas chooses a bank that has no offices on US soil."

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