Although the new year typically brings resolutions that aim to change a past habit or behavior, the Department of Justice has no such desire to change. Without skipping a beat, the DOJ has announced that yet another bank has been accepted into the Swiss Bank Program. While the federal government rejoices and the Swiss bank breathes a sigh of relief, Americans with undeclared foreign bank accounts have found themselves shaking in their boots. With another bank joining the DOJ’s program, more U.S. Account information will be freely flowing into the hands of the IRS and other law enforcement agencies in Washington.
According to a press release by the Department of Justice, Union Bancaire Privée, UBP SA (UBP), and the United States have formally agreed and UBP will become the newest entrant into the Swiss Bank Program. The program, which was created in mid-2013, allows financial institutions in Switzerland to come forward to cooperate with the federal government in order to avoid criminal prosecutions. In order to participate in the program, the foreign financial institution must agree 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 above terms, foreign banks participating in the program agree to actively cooperate in any civil or criminal proceeding against anyone, including account owners that used to or continue to be serviced by the foreign bank. Finally, foreign banks that enter the Swiss Bank Program must develop and identify internal controls that it will implement to ensure that Americans will not be able to maintain secret accounts within the financial institution.
UBP and its subsidiaries has, for the last several decades, provided traditional Swiss banking services to its clients, focusing on wealth management. The Department of Justice stated that since 2008, UBP had 200 individual bankers that were responsible for at least one U.S. account. The bankers referenced above were known as “relationship managers” and are the individuals who interfaced with American clients. Several relationship managers gave American clients advice on how to keep their foreign accounts hidden from the United States and other taxing agencies. When the U.S. began cracking down on the use of undeclared foreign bank accounts to hide money overseas, relationship managers would encourage U.S. clients to use shell corporations to maintain a legal ownership in account funds but allowing the U.S. client to maintain a beneficial ownership interest. This was particularly the case when UBP entered into a Qualified Intermediary agreement (QI Agreement) with the IRS in 2001. Under that agreement, UBP agreed that they would require taxpayers to certify their residency status and obligation to pay taxes in the United States. Proper implementation of the QI Agreement would involve UBP sending documentation and withholding to ensure that U.S. residents were properly paying U.S. tax. But instead, UBP relationship managers assisted clients set up shell corporations in foreign jurisdictions to hide the true residency status of the account holder.
U.S. federal law requires American residents to pay taxes on their worldwide income. In order to ensure that the IRS is collecting the proper amount of tax from its residents, another federal law requires any U.S. resident with an interest or signature authority over a foreign bank account with a balance of $10,000 or more to disclose the existence of such account annually. The willful failure to comply with Foreign Bank Account Reporting (FBAR) laws can result in a lengthy federal prison sentence as well as financially-crippling fines and penalties.
The UBP entrance into the Swiss Bank Program is not only dangerous for residents with undeclared foreign bank accounts because of UBP’s new obligation to effectively rat out its clients, but also because of the implications that simply having an undeclared bank account at UBP can have for a taxpayer under investigation for FBAR violations.
When the federal government is investigating a taxpayer for failing to disclose the existence of a foreign bank account, investigators look for evidence that the taxpayer’s noncompliance was willful. Although the federal government has not defined the term “willful” for the purposes of criminal prosecution, they have said that if a taxpayer has an account at an institution that has been identified as assisting U.S. clients maintain account secrecy, they will be deemed to have willfully violated FBAR laws and will therefore be a prime candidate for criminal prosecution. UBP and all of the other banks that have joined the Swiss Bank Program are a part of the IRS list of Foreign Financial Institutions or Facilitators and will be used by prosecutors to prove a willful intent.
If you have or have had a foreign bank account in the past that hasn’t been declared to the federal government, you are running the risk of being prosecuted for FBAR violations. Luckily, the IRS has established the Offshore Voluntary Disclosure Program (OVDP), that allows taxpayers to come forward and disclose the existence of their foreign bank account, pay back-taxes and interest, and a penalty in order to eliminate the threat of a criminal prosecution by the federal government. Although the OVDP may not be for everyone, an experienced tax attorney can look at your particularized facts and circumstances and determine what your best course of action may be.
Contact an Experienced Tax Attorney Today
The tax and accounting professionals at the Tax Law Offices of David W. Klasing have extensive experience representing taxpayers in several different situations, including navigating the OVDP. There are many tax preparers and accountants that claim to have the skillset to help a taxpayer in any situation, but an accountant who is also an attorney is an invaluable asset, as they are the only tax professionals who have been trained in the areas of constitutional law and criminal procedure. The stakes are far too high to go up against the IRS or the Department of Justice alone. Contact the Tax Law Offices of David W. Klasing today for a reduced rate consultation.
