As you probably remember, in 2009, the U.S. began cracking down on undisclosed offshore bank accounts after UBS settled on charges to defraud the U.S. by helping U.S. citizens evade federal taxes. Afterwards, Credit Suisse, another Swiss bank, agreed to identify their accounts held by U.S. citizens, advise these clients to disclose their offshore
account to the IRS, and close these accounts if disclosure is not made.
The Senate Permanent Subcommittee on Investigations (Subcommittee), headed by Senator Carl Levin, has been investigating Credit Suisse’s efforts to disclose such information since 2011.
The Subcommittee recently released a report regarding their findings from this investigation. The report highlights efforts taken by the Swiss to continue hiding U.S. client names and scrutinizes measures taken by the U.S. Department of Justice (DOJ) and Congress to collect unpaid taxes from citizens with offshore bank accounts despite their remarkable progress since the 2008 hearing onUBS.[1]
Overall, the Subcommittee found the following facts to be true:
(1) Bank Practices that Facilitated U.S. Tax Evasion. From at least 2001 to 2008, Credit Suisse employed banking practices that facilitated tax evasion by U.S. customers, including by opening undeclared Swiss accounts for individuals, opening accounts in the name of offshore shell entities to mask their U.S. ownership, and sending Swiss bankers to the United States to recruit new U.S. customers and service existing Swiss accounts without creating paper trails. At its peak, Credit Suisse had over 22,000 U.S. customers with Swiss accounts containing assets that exceeded 12 billion Swiss francs.
(2) Inadequate Bank Response. Credit Suisse’s efforts to close undeclared Swiss accounts opened by U.S. customers took more than five years, failed to identify how many were undeclared accounts hidden from U.S. authorities and fell short of identifying any leadership failures or lessons learned from its illegally-suspect U.S. cross border business.
(3) Lax U.S. Enforcement. Despite the passage of five years, U.S. law enforcement has failed to prosecute more than a dozen Swiss banks that facilitated U.S. tax evasion, failed to take legal action against thousands of U.S. persons whose names and hidden Swiss accounts were disclosed by UBS, and failed to utilize available U.S. legal means to obtain the names of tens of thousands of additional U.S. persons whose identities are still being concealed by the Swiss.
(4) Swiss Secrecy. Since 2008, Swiss officials have worked to preserve Swiss bank secrecy by intervening in U.S. criminal investigations to restrict document production by Swiss banks, pressuring the United States to construct a program for issuing non-prosecution agreements to hundreds of Swiss banks while excusing those banks from disclosing U.S. client names, enacting legislation creating new barriers to U.S. treaty requests seeking U.S. client names, and managing to limit the actual disclosure of U.S. client names to only a few hundred names over five years, despite the tens of thousands of undeclared Swiss accounts opened by U.S. clients evading U.S. taxes. [2]
As a result, the Subcommittee made the following recommendations to for the U.S. to effectively and efficiently continue in their endeavor to collect unpaid taxes from U.S. citizens with undisclosed offshore accounts and prosecute those evading compliance with IRS and SEC regulations:
(1) Improve Prosecution of Tax Haven Banks and Hidden Offshore Account Holders. To ensure accountability, deter misconduct, and collect tax revenues, the Department of Justice should use available U.S. legal means, including enforcing grand jury subpoenas and John Doe summons in U.S. courts, to obtain the names of U.S. taxpayers with undeclared accounts at tax haven banks. DOJ should hold accountable tax haven banks that aided and abetted U.S. tax evasion, and take legal action against U.S. taxpayers to collect unpaid taxes on billions of dollars in offshore assets.
(2) Increase Transparency of Tax Haven Banks That Impede U.S. Tax Enforcement.U.S. regulators should use their existing authority to institute a probationary period of increased reporting requirements for, or to limit the opening of new accounts by, tax haven banks that enter into deferred prosecution agreements, non-prosecution agreements, settlements, or other concluding actions with law enforcement for facilitating U.S. tax evasion, taking into consideration repetitive or cumulative misconduct.
(3) Streamline John Doe Summons. Congress should amend U.S. tax laws to streamline the use of John Doe summons procedures to uncover the names of taxpayers using offshore accounts and other means to evade U.S. taxes, including by allowing a court to approve more than one John Doe summons related to the same tax investigation
(4) Close FATCA Loopholes. To obtain systematic disclosure of undeclared offshore accounts used to evade U.S. taxes, the U.S. Treasury and IRS should close gaping loopholes in FATCA regulations that have no statutory basis, including provisions that allow financial institutions to ignore account information stored on paper, and allow foreign financial institutions to treat offshore shell entities as non-U.S. entities even when beneficially owned and controlled by U.S. persons.
(5) Ratify Revised Swiss Tax Treaty. The U.S. Senate should promptly ratify the 2009 Protocol to the U.S.-Switzerland tax treaty to take advantage of improved disclosure standards.[3]
The subcommittee is hearing from members of both the DOJ and Credit Suisse today with respect to these issues.
Beware – this hearing will likely result in further crackdowns on offshore tax evasion. If you have an undisclosed Swiss bank account, seek experienced criminal tax representation and make a voluntary disclosure before these corrections are implemented and it is too late!
