The DOJ’s Program for Swiss Banks, announced August 29, 2013, is rippling through the worldwide financial community. The Program offers Swiss banks the opportunity to resolve their criminal and civil exposure with the DOJ’s Tax Division for any role they may have played in helping American clients hide money in Switzerland. As Swiss banks consider their options, the prospect that a number of them will go into the Program and make the requisite disclosures is impacting U.S. taxpayers who held accounts there, investment advisors and even financial institutions in other countries.
If a bank participates in the DOJ Program, it may have to pay a substantial penalty based on the size of the account and when the account was opened, unless the bank can persuade its customer to enter the IRS’s Offshore Voluntary Disclosure Program ("OVDP”). "We are hearing from numerous U.S. clients who are being pressed to enter the OVDP so their banks can reduce their penalty exposure,” said Mark D. Allison, a Member of Caplin & Drysdale and the senior tax lawyer in the firm’s New York office. Under the OVDP’s rules, once the U.S. government learns that a taxpayer may have had an unreported foreign account, the taxpayer will not qualify for a voluntary disclosure and may face criminal prosecution. Allison added, "Because the DOJ Program will almost certainly lead to the disclosure of these customers’ names, they should strongly consider initiating an OVDP disclosure before they are too late.”
It is not just account holders who are considering their options. Banks that participate in the DOJ Program will be required to identify third parties, such as investment advisors, lawyers, and bank employees who may have helped Americans shield their accounts from the IRS. These advisors and others are well aware of indictments and even arrests arising from the ongoing DOJ investigations. "These third parties are not eligible for the DOJ Program, but they may have opportunities to minimize their exposure to the Justice Department, and they should consult with U.S. counsel to determine the right course of action,” said Mark E. Matthews, a former senior DOJ and IRS official, and a Member of Caplin’s Washington, DC office.
For banks in countries outside Switzerland, their vulnerability arises if they accepted "leaver” accounts from U.S. taxpayers, i.e., funds from Americans fleeing the prospect of enhanced disclosure in Switzerland. Such accounts migrated to jurisdictions such as Singapore, Hong Kong, Luxembourg, Israel and other countries. "When a Swiss bank turns over its data, if a U.S. account holder closed an account and transferred money outside Switzerland, the last entry in the records will show the name of the bank that took them in,” said Cono R. Namorato, Caplin’s senior criminal tax lawyer and a former DOJ official. "We fully expect the Justice Department to ‘follow the money’ and to pursue inquiries where it believes that non-Swiss banks attempted to provide a continuing secret haven for Americans.” The cycle would begin anew, also creating exposure for other U.S. account holders at these institutions.
Caplin’s President, Scott D. Michel, expects "well over 100 Swiss banks to come forward under the DOJ Program and make extensive disclosures about their American clients and everyone else who was involved with these accounts.” These disclosures are likely to prompt other investigations, not just of American taxpayers or Swiss investment advisors, but even banks in other countries. Michel added, "The five-year long war on unreported foreign accounts shows no sign of slowing, and anyone at risk from any of these coming inquiries should consider their options before the time to resolve matters with the IRS and DOJ runs out.”
This article first appeared in lexology.com.