Swiss Bank Secrecy Succumbs To U.S. Tax Enforcers
It is becoming increasingly dangerous to maintain secret offshore accounts. The Department of Justice and the Internal Revenue Service have been engaged in an aggressive program to identify unreported offshore accounts. Kathy Keneally, Assistant Attorney General for Tax recently told tax lawyers at a Phoenix conference that the U.S. government gave more than 300 Swiss banks until Dec. 31, 2013 to seek non-prosecution agreements if they had “reason to believe” they violated tax laws. Some 106, about 1/3 of the banks, 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. Therefore thousands of Americans with undisclosed foreign accounts may become known and face unwelcome visits from IRS agents.
The 106 Swiss banks have signed agreements to provide the data on their American customers by a date certain. To gain the non-prosecution deals the banks must pay 20 percent of the value of accounts not disclosed to the IRS on August 2008, 30 percent for those accounts opened between then and February 2009 and 50 percent for accounts opened since that date. The banks’ penalties will be reduced for each American who applies to the IRS Offshore Voluntary Disclosure program before the bank discloses their names to the IRS. Participating Swiss banks are now sending letters to American depositors strongly urging them to fully comply with U. S. laws and enter the voluntary disclosure program. It would be foolish for an American to not heed the suggestions of their Swiss bankers.
The current crackdown on offshore accounts began in earnest in 2009. UBS Bank, Switzerland’s largest, avoided prosecution by admitting it encouraged tax evasion and paying a $780 million criminal fine. It later turned over the names of 4700 of its American depositors. Soon after the UBS plea bargain the IRS offered the first of a series of three voluntary disclosure programs to those with offshore accounts whose names were not yet known to the Service. Over 43,000 Americans have been accepted into those disclosure programs. The Justice Department also began prosecuting Americans with offshore accounts, bankers and tax advisors to those depositing money in undisclosed accounts. The most famous American prosecuted to date was Ty Warner, the founder of Beanie Babies, who hid tens of millions in Swiss accounts. He pled guilty to felony tax fraud and faced up to 5 years in prison. In a remarkable sentence, a Chicago federal judge recently sentenced him to community service without jail time and imposed a large fine. Many other less lucky offshore depositors have been sentenced to prison by other judges. One distinguishing factor for Warner was he was a billionaire whereas those sent to prison were merely millionaires.
The Justice Department also indicted Switzerland’s oldest bank, Wegelin Bank. The bank subsequently failed and entered a guilty plea resulting in a $75 million dollar fine. Over the past 5 years the IRS and Justice Department have expanded the investigation of foreign banks throughout the world with undisclosed American depositors. Assistant Attorney General Keneally has warned lawyers in several recent speeches that the probe of offshore accounts continues to expand. It is worthwhile noting that if the Justice Department can overcome 400 years of Swiss bank secrecy it is unlikely that banks located in other tax havens could prevail in a battle against our tax cops.
The current Offshore Shore Disclosure Program (OVDP) began in January 2012 continues until it is terminated by the Service. Taxpayers whose names have yet to be disclosed to the IRS may apply for the program. Those accepted to OVDP must amend their last eight years of income tax returns and pay additional taxes, interest and penalties They must also file eight years of special reports for foreign accounts, known as FBARs. The IRS will then assert a penalty of up to 27 1/2% of the highest balance in the offshore accounts. Taxpayers who are dissatisfied with the penalty regime may opt out and might receive lower penalties but the IRS reserves the right to assert even higher penalties if it finds the offshore depositor’s pleas for mercy unpersuasive.
Any American with unreported offshore accounts should seek the advice of an experienced tax lawyer for advice on the proper way to come into compliance with U. S. tax laws. Accountants and financial advisors do not enjoy a privilege similar to the attorney client privilege in matters that could be a crime and therefore one should consult a lawyer prior to making any disclosures to those professionals.