American expats, are your Swiss banks asking you to file US tax returns?

By Expat News

It appears that Swiss banks have turned the other cheek, so to speak. For decades they have supported secrecy in the banking industry. Now they are preaching to their American clients the benefits of transparency. Is this simply coincidence as they try to get around the possibility of paying the billions of dollars in fines they face for helping those American clients evade taxes?

Swiss banks preach for US tax compliance from American expats.

Some of Swiss banks could go bankrupt if they are forced to pay the penalties they are facing. And so as the deadlines near, they are they calling 1000s of their American clients asking them to disclose any offshore accounts they may have and not reported to the IRS. Attorneys that are associated with either the banks or the clients have said the banks are asking their customers to prove that all taxes they owe have been paid. The Swiss banking ombudsman has said that some of the Swiss banks have partially blocked accounts in an attempt to force compliance.

The American government is in their final stretch of the biggest crackdown on offshore tax evasion. If banks can’t prove that their clients have paid their taxes on money held there, under the amnesty program, it is assumed by the government that they didn’t and large fines are issued. As such, Swiss banks and others that hold accounts of American clients are trying to minimize any possible fines they may face. The oldest bank in Switzerland, Weglin & Company, was indicted in 2013 and has since closed their doors.

Washington lawyer, Jim Mastracchio was quoted as saying “Until they have a signed and sealed deal, they’re doing whatever they can to minimize the penalty.” Mastracchio, who serves as an independent examiner at BakerHostetler, went on to say “Some of the larger banks underestimated the time and energy required to identify and notify clients.”

Did Swiss banks use false Identities?

The American government reached a deal with BSI SA on March 30, making them the first Swiss bank to do so. They agreed to pay over $200 million for more than 3,000 accounts that held almost $3 billion in 2008. BSI agreed to admit to the use of false identities for clients and coded language to assist their clients in dodging taxes.

The American government is focused on wrapping up all the pending cases this year according to Caroline Ciraolo, the acting Assistant U.S. Attorney General. In 2013 when the program was first introduced, it was expected to be completed much sooner. September 2014 was the deadline that investigators set for the banks to hand to the Justice Department their client lists in lieu of less penalties.

The offshore tax evasion assault by the American government has dispensed a hefty blow to the bank secrecy. That secrecy has been the helping hand in making Switzerland the largest center around the world for offshore deposits, managing over $2 trillion for non-resident clients.

In preparation of coming to a settlement with the American government, some banks are putting pressure on their American clients to waive their rights under Swiss law of secrecy. According to Bloomberg, there are agreements prepared and letters drafted already by the banks.

It is law in Switzerland that banks can not reveal names of their client’s without the client’s consent even though American authorities have a treaty with Switzerland allowing them to request those names. That agreement between the two countries states that the Swiss government is only required to oblige with very targeted requests. The American government is helped by the Justice Department program by making demands of Swiss authorities.

These tactics have been used by several banks, like threats to reveal client names or actually blocking account funds according to Bonnard Sawson in Geneva, Thierry Boitelle. Boitelle advised both American taxpayers and Swiss private banks that are involved in the program. Boitelle has said, “We have seen banks making withholdings on U.S. client accounts. They’re holding back 25 to 30 percent of the funds to compensate for potential fines.”

There have been several complaints about frozen accounts received by Switzerland’s banking ombudsman. Banks attribute such actions to doubt over whether a client controls an account or are they making cash withdrawals instead of using wire transfers according to ombudsman Rolf Wuest.

Approximately a third of the 280 Swiss banks are in the program, which include Cie. Lombard, Odier SCA and Union Bancaire as well as Rothschild Bank AG of Zurich Pirvee, Geneva’s oldest bank. Spiro Latsis, a Greek billionaire who controls Deutsche Bank AG and EFG International AG is included as well.

A Rothschild Bank spokesman says the bank has made efforts to get clients to become tax compliant. Deutsche Bank, EFG, Lombard Odier and UBP have declined to comment on what measures they have taken.

Are the lists of American expats released?

Banks are required to pay 20 percent of any undeclared account’s value as of August 1, 2008 according to the program. For any account opened between August 1, 2008 and February 2009, the amount required is 30 percent and for any account opened after February 2009 the amount goes up to 50 percent. Banks are not automatically made aware of their customer’s tax status for their account and have to contact their clients to get brought up-to-date.

In 2009, Switzerland’s biggest lender, UBS Group AG, avoided prosecution when they paid over $700 million and voluntarily turned over their account data. Last year, Credit Suisse Group AG, a main banking subsidiary and the No.2 bank for Switzerland pleaded guilty and paid over $2.5 billion. As many as twelve or more banks are under investigation as well and are not eligible for the amnesty.

Lawyers have declined to release names from client lists, stating they are confidential. On those lists it is believed there are billionaires, doctors, jewelers and widows. According to court records, since 2008, over 100 people have been convicted of tax crimes in America. Martin Dunki, a Swiss banker has said that one client with almost $300 million in assets was indicted in November.

Over the next several weeks, after BSI, it is expected for more settlements to be concluded and recur weekly. An analyst for MainFirst Bank AG in Zurich, Tomasz Grzelak said this will allow companies to put this matter behind them.

Milan Patel, an attorney with Anaford AG in Zurick was quoted as saying “They’re ready to sign an agreement so the final big issue is tackling the size of the fine. The larger banks are going to take a long time to resolve matters as the penalties are going to be huge.”

It is time for Americans expats to become compliant.