After the UBS scandal in 2009, the U.S. government responded by getting more aggressive about identifying undisclosed offshore accounts. Eager not to repeat UBS’ mistakes, Swiss bank Credit Suisse agreed to identify accounts held by U.S. citizens, advise clients to participate in the Offshore Voluntary Disclosure Program, and close accounts belonging to noncompliant taxpayers. Led by Senator Carl Levin, the Senate Permanent Subcommittee on Investigations has been investigating Credit Suisse’s efforts to disclose account information since 2011. A recently released Subcommittee report highlights some interesting findings.
Contrary to what you might expect, the report highlights Swiss efforts to continue shielding U.S. clients. The report also criticizes D.O.J. efforts to collect unpaid taxes from citizens with offshore accounts. Overall, the Subcommittee found the following:
(1) Bank Practices Aiding Tax Evasion. From 2001 to 2008, Credit Suisse banking practices actually helped U.S. clients commit tax evasion. Questionable practices included opening accounts in the names of offshore shell entities to conceal U.S. ownership, opening undeclared Swiss accounts, and sending Swiss bankers to the U.S. for purposes of recruiting new clients and servicing Swiss accounts (without creating paper trails).
(2) Inadequate Bank Response. Credit Suisse’s efforts to close undeclared accounts opened by U.S. customers took longer than five years. Furthermore, Credit Suisse failed to identify how many accounts were undeclared.
(3) Poor U.S. Law Enforcement. Despite having five years in which to do so, the report states that U.S. law enforcement failed to prosecute at least 12 Swiss banks which aided U.S. tax evasion, did not take legal action against thousands of U.S. persons whose hidden accounts were disclosed by UBS, and failed to utilize available legal means uncover tens of thousands of additional citizens whose identities are still being concealed abroad.
As a result of these alarming findings, the Subcommittee issued the following recommendations:
(1) Increase Prosecution of Tax Haven Banks and Hidden Offshore Account Holders. To prevent misconduct and collect tax revenues, the D.O.J. is recommended to use all legal means available. This includes obtaining information about U.S. taxpayers with undisclosed foreign accounts, and enforcing grand jury subpoenas and John Doe summons in U.S. courts. The D.O.J. should hold tax haven banks accountable for aiding and abetting tax evasion, and take appropriate legal action against noncompliant taxpayers.
(2) Increase Transparency of Tax Haven Banks Interfering with U.S. Tax Law Enforcement. U.S. regulators should use their authority to institute increased reporting requirements for tax haven banks that enter into deferred prosecution agreements, settlements, non-prosecution agreements, or other actions with law enforcement for aiding U.S. tax evasion.
(3) Streamline John Doe Summons. As noted above, the Subcommittee recommends more aggressive enforcement pertaining to John Doe summons. Therefore, Congress should amend current tax laws to streamline John Doe summons procedures, including allowing the courts to approve more than one John Doe summons associated with the same investigation.
(4) Close FATCA Loopholes. The U.S. Treasury and IRS should close existing significant loopholes in FATCA regulations. These loopholes allow financial institutions to ignore account information stored on paper, and also allow foreign financial institutions to treat offshore shell entities as non-U.S. entities even when they are controlled and owned by U.S. persons.
(5) Ratify the Revised Swiss Tax Treaty. The U.S. Senate should move quickly to ratify the 2009 Protocol to the U.S.-Switzerland tax treaty. This will help the U.S. to take advantage of new and improved disclosure standards.
The Subcommittee will be hearing from members of both Credit Suisse and the D.O.J. on March 10, 2014 regarding these issues. Unfortunately for noncompliant U.S. taxpayers, the implications may be grim, as this hearing is likely to result in more aggressive crackdown measures for offshore tax evasion.
If you have an undisclosed Swiss bank account, you need to file an FBAR and make a voluntary disclosure before it is too late. To set up a confidential legal consultation with the experienced tax attorneys at The Tax Law Offices of David W. Klasing, call (800) 681-1295 right away.