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Swiss banks nudge many toward voluntary disclosure, part 2

In part one of this post, we noted how, despite a deep historic commitment to account privacy, Swiss banks are now actually encouraging U.S. taxpayers with previously unreported accounts to consider disclosing those accounts to U.S. tax authorities.

Why have Swiss banks done such an abrupt about-face? In this part of the post, we will consider the motivation behind this unexpected reversal: Swiss banks that once sheltered offshore assets are now in many cases urging the disclosure of those assets.

For decades, the privacy of Swiss accounts was virtually inviolable. But the former wall of privacy now faces stepped-up IRS offshore enforcement efforts and a changed international regulatory landscape.

As we have discussed in other posts, part of this changed landscape involves the Foreign Account Tax Compliance Act (FATCA). But even before Congress passed FATCA in 2010, the offshore enforcement landscape had shifted – even in Switzerland.

Four years ago, the Swiss banking giant UBS paid a whopping $780 million fine to the IRS and agreed to give up the names of thousands of its U.S. customers who may have evaded taxes on offshore accounts.

As we discussed in our October 27 post, individual bankers are also now at personal risk of criminal prosecution.

Last August, U.S. and Swiss officials announced a deal by which Swiss banks could work out agreements with U.S. authorities to resolve allegations that the banks facilitated tax evasion by U.S. taxpayers.

The proposed deal is not a comprehensive one, in that it doesn’t include all Swiss banks. A number of large banks, such as Credit Suisse, are not included because they were already under investigation for facilitating tax evasion before the deal was worked out.

For banks that participate in the proposed deal, however, the incentives are clear. In exchange for encouraging their U.S. customers to confess a failure to disclose offshore assets, the banks may be able to avoid paying penalties for their role in sheltering those assets.

Even if their U.S. clients are still reluctant to disclose, Swiss banks have increasing incentives to give them a nudge. This is because the banks are facing possible criminal prosecution unless they give U.S. authorities information about their U.S. account holders.

Source: The Wall Street Journal, "More U.S. Taxpayers Admit to Secret Swiss Accounts," Laura Saunders, Nov. 1, 2013

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