About a third of Swiss banks have applied for amnesty from the U.S. for helping Americans cheat the Internal Revenue Service, the top U.S. federal tax prosecutor said.
The U.S. government gave more than 300 Swiss banks until Dec. 31 to seek non-prosecution agreements if they had “reason to believe” they helped Americans violate tax laws, and 106 submitted letters of intent, Assistant Attorney General Kathryn Keneally said today in a statement.
The program is the largest assault in a five-year U.S. Justice Department crackdown on offshore tax evasion. Keneally first announced the number of Swiss banks that applied on Jan. 25 at a conference in Phoenix. She didn’t name any banks seeking to take part in the U.S. effort, which isn’t open to 14 institutions already under criminal scrutiny, including Credit Suisse Group AG (CSGN) and HSBC Holdings Plc. (HSBA)
“Every Swiss bank that comes forward to cooperate under the program represents an opportunity to obtain valuable law enforcement information from a source that is new to the department’s investigations of offshore banking activities in Switzerland and throughout the world,” Keneally said.
Participants in the program must disclose how they helped Americans hide assets, hand over data on undeclared accounts and pay penalties. Keneally said the department is reviewing the letters to see if applicants qualify as Swiss banks. Some banks are still reviewing records, and some may withdraw, she said.
“Even with these caveats, it is clear that a significant number of banks have come forward,” she said in the statement, reflecting comments she made to the American Bar Association on Jan. 25.
Bryan Skarlatos, of Kostelanetz & Fink LLP in New York, who attended the ABA conference, said the number of banks that signed letters of intent was more than expected.
“It’s a result of the banks’ desire to have some certainty regarding their status with DOJ,” Skarlatos said. “I believe that DOJ is pleased with the response to the program so far.”
Banks in Switzerland, the largest cross-border financial center with $2.2 trillion of assets, closely examined accounts before seeking to join the disclosure program.
“The takeaway is the U.S. has been successful in getting Swiss banks to really start cooperating and enter into non-prosecution agreements,” said Martin Press, a tax attorney in Fort Lauderdale, Florida.
The Swiss government encouraged banks to join the program, announced Aug. 29. The Swiss Bankers Association criticized the program’s cost, pointing to questions such as who qualifies as a U.S. client and what assets are considered untaxed. The answers could determine how much a bank pays in penalties.
To gain non-prosecution deals, banks must pay 20 percent of the value of accounts not disclosed to the Internal Revenue Service on Aug. 1, 2008, 30 percent for such accounts opened between then and February 2009 and 50 percent for accounts opened afterward.
Of four categories, those under criminal investigation are known as Category 1 banks, while those seeking non-prosecution agreements are Category 2 banks. Later this year, banks applying as Category 3 can tell the government if they don’t have undeclared U.S. accounts and won’t pay fines. Category 4 banks are those with predominantly local clients.
At least 33 banks have announced that they will join the program in Category 2, including Cie. Lombard, Odier SCA, Geneva’s oldest bank, and BSI Group, the Swiss private bank owned by Italy’s Assicurazioni Generali SpA. (G)
Banks that said they will participate include: Union Bancaire Privee, the Geneva-based bank founded by Edgar de Picciotto in 1969; Edmond de Rothschild Group, owned by Baron Benjamin de Rothschild; and EFG International AG (EFGN), controlled by Greek billionaire Spiro Latsis and his family. Another 15 banks, mainly regional lenders, have declared they will opt for Category 3 or 4.
The program has provoked Swiss debate on whether the U.S. went too far in trying to pierce banking secrecy that protected American tax cheats for decades. The crackdown escalated after 2009, when the U.S. charged UBS AG (UBSN), the biggest Swiss bank, with helping Americans hide $20 billion in assets.
UBS avoided prosecution by admitting it fostered tax evasion and paying $780 million. It handed over 4,700 accounts. The U.S. prosecuted 100 taxpayers, bankers, lawyers and advisers for offshore tax crimes. At least 38,000 taxpayers avoided prosecution by paying back taxes and penalties and disclosing which offshore banks and advisers helped them hide assets.
Banks seeking non-prosecution agreements must disclose the total number of U.S. accounts since 2008, their highest dollar value, and the employees who managed them. The banks also must use independent examiners to certify findings.
Category 3 banks seek Justice Department letters saying they’re not a target of a criminal probe. In return, an independent examiner must confirm the bank broke no laws. Banks must apply from July 1 to Oct. 31.
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