According to a Department of Justice press release, two more financial institutions have agreed to the terms of the Swiss Bank Program that was established by the DOJ. It was announced that Cornèr Banca SA (Cornèr) and Bank Coop AG (Bank Coop) agreed to comply with all of the requirements of the program including the identification and transmission of the names of Americans who have patronized either of the two institutions.
The Swiss Bank Program, established in 2013, allows Swiss banks that have reason to believe that they have broken or assisted U.S. residents in the breaking of U.S. tax laws. In exchange for strict compliance with the requirements of the Swiss Bank Program, the United States agrees to not criminally prosecute the banks for their actions or inactions. Some of the Swiss Bank Program requirements include:
- Make a complete disclosure of their cross-border activities;
- Provide detailed information on an account-by-account basis for accounts in which U.S. taxpayers have a direct or indirect interest;
- Cooperate in treaty requests for account information;
- Provide detailed information as to other banks that transferred funds into secret accounts or that accepted funds when secret accounts were closed;
- Agree to close accounts of accountholders who fail to come into compliance with U.S. reporting obligations; and
- Pay appropriate penalties.
In addition to the Swiss Bank Program requirements detailed above, the participating Swiss financial institutions are required to fully cooperate in any civil or criminal proceeding in the United States. Further, the banks are required to develop and implement measures to ensure that further violations of U.S. law are prevented. Lastly, participating banks are required to pay a penalty to the U.S. government in order to be admitted into the program.
Cornèr is headquartered in Lugano, Switzerland and has offered a full range of traditional Swiss banking services. One of Cornèr’s more unique services offered to U.S. clients was the CornèrCard, a payment card that could be used by U.S. taxpayers in order to access funds that were being kept in undeclared foreign accounts. In order to maintain relationships with U.S. customers, relationship managers from Cornèr travelled to the United States over 10 times between 2001 to 2008. Finally, Cornèr took several steps to try to ensure that the secrecy of client’s accounts was maintained.
Cornèr’s efforts included maintaining correspondence accounts in the United States to allow its customers to transfer money in and out of their overseas accounts. The Swiss bank also allowed American customers to initiate a “hold-mail”, a status that stops mail that could include incriminating information from reaching the United States. Lastly, Cornèr allowed the use of code-name correspondence, allowing customers to further conceal the existence of their Swiss bank account. Cornèr will pay a penalty of just over $5 million.
Bank Coop is a publically traded company on the Swiss Stock Exchange and has many branches around Switzerland. it has offered various Swiss banking services including the creation and maintenance of accounts that were owned by Americans. Bank Coop helped aid Americans and their want to keep the existence of their bank accounts a secret by masking ownership by interposing nominee corporations in other countries as owners.
Although Bank Coop entered into a Qualified Intermediary Agreement with the United States in 2001, relationship managers looked the other way when their American clients knowingly lied about their requirement to report foreign bank accounts in the United States. Since 2008, Bank Coop maintained over 300 accounts for American taxpayers and their penalty was assessed at nearly $3.25 million.
U.S. law requires taxpayers to report the existence of a foreign bank account to the IRS if the taxpayer has an interest in or signature authority over the account and the high-balance of the account meets or exceeds $10,000 in any given tax year. Those taxpayers who are believed to have willfully failed to disclose the existence of the accounts under the Foreign Bank Account Reporting (FBAR) laws will be subjected to a criminal investigation and prosecution. In addition to facing several years in a federal prison, they will also be subject to penalties, back-taxes, and interest. Penalties for willful nondisclosure are typically 50% of the high-balance of the foreign bank account, even if the money in the account has been spent. As the two new banks to the Swiss Bank Program continue to send the IRS and Department of Justice names of U.S. clients, it is only a matter of time until the IRS Criminal Investigations Division and the DOJ begin criminal investigations, obtain federal grand jury indictments, and begin criminal trials for taxpayers with undisclosed foreign bank accounts.
There is one way that a taxpayer can mitigate the negative consequences of owning an interest in an undeclared foreign bank account. The IRS established the Offshore Voluntary Disclosure Program (OVDP) as a way for Americans to step forward, disclose the details of their foreign account, and pay a penalty, back-taxes, or interest, in exchange a non-prosecution agreement from the Department of Justice. Although the taxpayer may have to pay penalties, they will likely not be as great as if the government had caught the taxpayer on their own. Further, and potentially most importantly, under the OVDP, the taxpayer will not face a lengthy stay in a federal prison.
But there is a catch: the OVDP may become off the table for taxpayers who are already being investigated by the government. Thus, if you are a customer or former customer of a Swiss bank that has given a list of client names to the Department of Justice, time is working against you. If you have interest in a foreign bank account, it is in your best interest to contact an experienced tax attorney to discuss your options as soon as possible.
The tax and accounting professionals at the Tax Law Offices of David W. Klasing have extensive experience in assisting taxpayers navigate the upsides and downsides of the OVDP as well as explore other potential strategies. Many taxpayers believe that they can go up against the IRS or DOJ alone, but don’t fall into the trap. Although the professionals that the IRS send to inquire about your financial affairs may seem extremely friendly, they are speaking with you because they are gathering evidence to produce at your criminal trial. It is in your best interest to have an experienced criminal tax attorney present at any questioning to ensure that your innocence is maintained. Contact the Tax Law Offices of David W. Klasing today for a reduced-rate consultation.
