It has been more than a year since the Department of Justice developed its Swiss Bank Program, but even with the passage of time, financial institutions from Switzerland are still lining up to participate. Today, the Justice Department announced that three more Swiss banks have agreed to the terms of the Swiss Bank Program and will immediately begin handing over sensitive information about U.S. taxpayers to the DOJ and the IRS. With new banks agreeing to participate in the Swiss Bank Program nearly every week, taxpayers in the United States with undeclared foreign bank accounts become more and more vulnerable to devastating monetary penalties and lengthy federal prison sentences.

According to a Department of Justice press release, Mercantil Bank (Schweiz) AG, Banque Cantonale Neuchâteloise, and Nidwaldner Kantonalbank have agreed to the terms of the Swiss Bank Program, the wildly popular deferred prosecution agreement developed by the Department of Justice. Under the terms of the program, each of the banks agree to:

  • Provide a complete disclosure of their cross-border activities;
  • Disclose detailed information associated with any account of which an American is a beneficiary or has signature authority;
  • Provide information in response to treaty requests;
  • Pay any penalties that are appropriate; and
  • Agree to close the accounts of any Americans who do not come into tax compliance in the United States.

Banks that agree to the above terms receive the DOJ’s word that they will not be criminally prosecuted for any activity related to assisting Americans in the hiding of their money overseas. The addition of the three banks to the program expands the number of participating banks to 32. Considering that each of the banks that have entered the program have information on hundreds, if not thousands, of American-held accounts, the banks that sheer amount of information that is flowing into the offices of the IRS and DOJ is staggering.

The Swiss Bank Program isn’t just used to identify the Swiss banks that will not be prosecuted for their activity in return for their cooperation, the list of participants also assists the Department of Justice and IRS make a determination as to whether the conduct of taxpayers that failed to report foreign accounts was willful or not. When a financial institution comes to terms with the Department of Justice under the Swiss Bank Program, their name is added to the list of Foreign Financial Institutions or Facilitators. Banks whose names are listed are identified by the U.S. government as having assisted Americans hide their monies overseas by either setting up a bank account for them, knowing that they would be using it to keep monies secret or by offering services to help further a taxpayer’s tax evasion activities.

The three new Swiss Bank Program participants assisted Americans set up accounts in Switzerland, establish conduit entities in other countries to avoid unwanted IRS attention, and provided various other services to customers with the promise that the accounts would remain out of the sights of the U.S. government. For their roles in the illegal activity, the three financial institutions agreed to pay a combined $3.14 million in penalties.

Knowing that the foreign banks that enter into the program are required to pay a large penalty may lead Americans to believe that only the financial institutions are at risk. But in reality, the information that the Swiss Bank Program participants are passing along to the DOJ and the IRS could result in repercussions that are far more harmful.

When a taxpayer is found to have failed to declare a foreign bank account, the IRS will make a determination as to whether the conduct of the taxpayer was willful or not. If the taxpayer is found to have unintentionally acted, he or she will face a penalty of 27.5 percent (under the terms of the OVDP). But if a taxpayer is determined to have willfully acted, a penalty of 50% of the highest balance of the foreign account will be assessed. Although the exact definition of “willful” is not particularly clear, one fact is: if a U.S. taxpayer banked at one of the banks that is named on the list of Foreign Financial Institutions or Facilitators, they will be deemed to have acted willfully, regardless of any other factors.

U.S. residents that have signature authority or a beneficial interest in a foreign bank account that has gone undeclared, there is a government program that can keep you out of prison. The Offshore Voluntary Disclosure Program (OVDP) allows taxpayers who come forward with details of their foreign bank account the ability to avoid criminal prosecution. In addition to providing documentation outlining a taxpayer’s tax and financial affairs, the taxpayer is also required to pay any back taxes, interest, and penalties associated with the account. The only catch of the program: the government cannot already be looking into your tax affairs prior to your application to the OVDP. This presents a literal race to the finish – get to an experienced tax attorney as soon as possible and discuss your options before the government decides for you.

The tax and accounting professionals at the Tax Law Offices of David W. Klasing have years of experience helping taxpayers make important decisions with regard to their undeclared foreign bank accounts. It is only a matter of time until every bank account around the globe is available to the IRS and DOJ for inspection. By the time a taxpayer learns that the IRS has discovered his or her account, it will likely be too late to abrogate the risk of a criminal prosecution that could result in a federal prison sentence. Contact the Tax Law Offices of David W. Klasing today for a reduced-rate consultation.