U.S. Department of Justice Announces New Amnesty Program for Swiss Banks

Swiss Banks Now Have an Opportunity to Fess Up Just Like their American Clients, Marking Further Erosion of Offshore Bank Secrecy

If FATCA and its forward-looking reporting requirements regarding offshore bank accounts were not bad enough for long-held offshore bank secrecy, the U.S. government is now putting pressure on Swiss banks to provide the U.S. with historical account information regarding offshore financial accounts held by Americans, including information about Swiss accounts opened or closed by Americans as far back as 2008.

Since 2008, when UBS was indicted in U.S. federal court for aiding Americans in offshore tax evasion, Swiss banks have been under intense scrutiny from the U.S. Department of Justice (“DOJ”) and other U.S. authorities. During this time, the U.S. has intensified its enforcement actions in an effort to identify unreported Swiss bank accounts and crack down on Americans’ use of these undisclosed offshore bank accounts to evade U.S. income tax.

In connection with these accelerated enforcement actions, the Tax Division of the U.S. Department of Justice recently announced a new amnesty program for Swiss banks that believe they may have unlawfully aided Americans in evading U.S. income tax in the past. This new voluntary disclosure program for Swiss banks, referred to as the “Program for Non-Prosecution Agreements or Non-Target Letters for Swiss Banks” (the “NPA Program”), is intended as an opportunity for all Swiss banks not currently under DOJ investigation to resolve, in full, any and all potential criminal exposure the institution may have for prior violations of U.S. tax or monetary laws and regulations. The NPA Program for Swiss banks is similar to the ongoing 2012 Offshore Voluntary Disclosure Program for U.S. taxpayers (the “OVDP”) in that it allows for immunity from criminal prosecution in exchange for fixed, one-time (albeit harsh) penalties and detailed disclosure of offshore bank accounts. One program (the “OVDP”) is specifically for U.S. taxpayers while entrance into the other (the “NPA Program”) is limited to Swiss banks.

Entering the NPA Program will allow the Swiss bank to avoid criminal prosecution for its prior tax-related criminal conduct and move forward with a clean slate as it navigates its way through FATCA compliance and the new global regulatory scheme focused on transparent reporting of offshore banking transactions. However, these benefits come with a steep price as the penalties assessed under this program are harsh to say the least. For a Swiss bank opting into the NPA Program under Category 2 (meaning the bank has determined after an initial investigation that it may have committed tax-related offenses under U.S. law since August 1, 2008), the applicable penalty can range from 20% to 50% of the aggregate value of the unreported offshore account, depending on when the account was opened. Yes, that’s right – this exorbitant penalty is assessed against the Swiss bank for each unreported account held by a U.S. citizen or resident.

One key and often overlooked aspect of this new amnesty program for Swiss banks is the fact that the overly harsh penalties assessed under the program can be reduced if the account holder has entered the OVDP or does so prior to the Swiss bank’s election to enter the NPA Program. Given the harsh penalties assessed under the NPA Program and the opportunity to reduce said penalties, the participating Swiss bank has every incentive to encourage its U.S. account holders to enter the OVDP and stands to reap substantial financial benefits/savings if the account holder does so. In fact, it appears that standard practice at this time for Swiss banks entering the NPA Program is to forward a letter to their U.S. account holders and inform the account holder that the bank is entering the NPA Program. In this letter, the bank typically strongly encourages the account holder to apply for and enter the OVDP. If you have or had an unreported Swiss bank account, this notification letter from the Swiss bank should provide you with ample notice that your confidential Swiss banking relationship is about to be compromised/disclosed. Therefore, if you are contemplating entering the OVDP in connection with a previously-unreported Swiss bank account, you may be able to get your Swiss bank to reimburse you for some or all of the legal fees you incur in applying for and entering the OVDP.

While FATCA is essentially a “forward-looking” regulatory scheme (it will require foreign banks to disclose existing U.S.-related accounts starting in 2014) and focuses on cleansing future offshore banking transactions, the recently-announced NPA Program for Swiss banks is ‘backward-looking’ in nature as it seeks primarily historical account information from the participating financial institution. In particular, in exchange for immunity from criminal prosecution the participating Swiss bank must provide DOJ with information on all U.S.-related accounts that it has closed since August 1, 2008, including a list of jurisdictions and institutions to which funds from closed accounts have been transferred. Therefore, if in response to the recent crackdown on unreported Swiss bank accounts held by Americans you previously moved your funds from a Swiss bank to an institution in Singapore or some other jurisdiction perceived as still practicing traditional bank secrecy and thought you were safe, you might want to reassess your safety net. For, if said Swiss bank, where you previously held an account, elects to enter the NPA Program and you closed your Swiss account after August 1, 2008, your previous banking relationship with this Swiss bank will surely be disclosed to DOJ, leading to possible civil penalties and criminal prosecution.

If you are a U.S. citizen or U.S. resident (including green card holders) and have or had an undisclosed offshore bank account, you should seriously consider applying for acceptance into the OVDP and taking advantage of the criminal immunity and other protections offered under this program. If your offshore account happens to be based in Switzerland and is active or was closed since August 1, 2008, it is even more imperative that you enter the OVDP since there is a strong likelihood that your Swiss banking relationship will be disclosed to U.S. authorities in the near future. Give us a call and we will be happy to discuss with you the specific details and requirements of the OVDP and any other options you may have.


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