While many Americans are using the last few weeks of 2015 to take a break from work and spend valuable time with their families, the Department of Justice is hard at work ensuring that taxpayers with undeclared foreign bank accounts end up in a federal prison. Another week brings another five banks that have come to terms with the DOJ and joined the Swiss Bank Program. The addition signals a very dangerous time for Americans and others with undeclared foreign bank accounts.

According to press releases from the Department of Justice, Bank J. Safra Sarasin AG (Safra Sarasin), Coutts & Co Ltd (Coutts), Gonet & Cie (Gonet), Banque Cantonal du Valais (BC Valais) and Banque Cantonale Vaudoise (BC Vaudoise) have signed agreements that make them the newest entrants into the Swiss Bank Program, an initiative that was implemented in mid-2013. Under the terms of the Swiss Bank Program, financial institutions in Switzerland have the opportunity to avoid criminal prosecution by fully cooperating with the U.S. government. Under the terms of the program, Swiss participants are required to:

  • 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 requirements above, participating Swiss banks must assist and fully cooperate in any United States-based civil or criminal litigation with regard to Swiss banking. In return, the U.S. government has agreed to not levy criminal charges against the Swiss bank, itself. Thus, it is possible that a participating Swiss bank may be required to cooperate with the government in proceedings against the financial entity’s officers or employees.

Each bank that entered the Swiss Bank Program provided traditional Swiss banking services to American clients. Some of those services included maintaining accounts for Americans in secret, using code-names for accounts or interposing sham entities as nominees between the Swiss bank account and the American taxpayer. Furthermore, Swiss bank executives frequently travelled between Switzerland and the United States to meet and do business with clients. Under the terms of the agreement, the five banks will pay a collective penalty of over $215 million. Penalties are based on the amount of U.S. taxpayer money under control of each bank and any steps that the banks may have taken to mitigate their illegal conduct.

Federal law requires taxpayers to identify ownership interests or signature authority in foreign accounts with a balance of over $10,000 in any given year. When the IRS determines that a taxpayer has violated their obligation to declare a foreign bank account under the Foreign Bank Account Reporting (FBAR) laws, a determination will be made with regard to the willfulness of the inaction. If the Service believes that the failure to file was willful, the case will be sent to the Criminal Investigations Division and then on to the Department of Justice. Willful failure to file under the FBAR laws can result in several years in a federal prison for each year that a foreign bank account went undisclosed. Furthermore, the failure to declare a foreign bank account can result in financially crippling back taxes, interest, and back taxes.

When a Swiss bank agrees to participate in the Swiss Bank Program, they are agreeing to send U.S. account-holder information to the IRS and Department of Justice. Once that information is received, the Criminal Investigations Division will get in touch with any taxpayer who’s information has been received but has not yet complied with the FBAR laws. It is in a taxpayer’s best interest to be proactive about their undeclared account, as opposed to being reactive. Consulting with an experienced tax attorney could be beneficial to a U.S. taxpayer who is not in compliance with FBAR laws.

One potential course of action that could be taken to mitigate some of the negative repercussions of being discovered with an undeclared foreign bank account is participation in the Offshore Voluntary Disclosure Program (OVDP). Under the terms of the program, taxpayers who agree to come forward, disclose the specifics of their foreign account, and pay any back-taxes, interest and penalties, can enjoy a non-prosecution agreement from the Department of Justice. For many, the OVDP has proven to be a way to sleep soundly, knowing that federal prison isn’t in their future.

Contact an Experienced International Tax Attorney

There are many avenues that a taxpayer can take when faced with potential criminal tax issues. That being said, only an experienced tax attorney can effectively assist and advise a taxpayer in their time of need. The OVDP is the answer for many non-compliant taxpayers but is not for everyone. The potential missteps involved in navigating the treacherous waters of tax compliance alone are not worth the risk when your physical and financial freedoms are at stake. Contact the experienced tax and accounting professionals at the Tax Law Offices of David W. Klasing today for a reduced-rate consultation.