Photo courtesy of Gideon via Flickr.

After Centuries Of Silence, The US Is Forcing Swiss Bank Disclosure

Photo courtesy of Gideon via Flickr.

April 30 marks the last day for Swiss bank disclosure of U.S. citizens’ accounts, in a voluntary DoJ program aimed at crushing tax evasion in the country’s secretive banking sector.

The program, orchestrated by the U.S. Department of Justice (DoJ) along with the Swiss Department of Finance, encourages banks to voluntarily disclose U.S. taxpayer information, in return for immunity to prosecution.

More than 100 out of 300 Swiss banks joined the program by Dec. 31, 2013, after which they had 120 days to comply.

The information that will be disclosed on each account includes:

  • The identities of its holders
  • The maximum account value
  • The interest each relevant individual has in it
  • The identity of any professional managing it
  • Dates and destinations of every transfer, as well as whether a transfer was cash or electronic

Consequences for U.S. citizens

U.S. citizens who hold secret assets in a Swiss bank have been encouraged to disclose their accounts to the Internal Revenue Service (IRS), which would help them avoid prosecution based on this information.

They would still be subject to a penalty equal to 27.5% of their account value.

But if they don’t disclose their information on their own, and it’s revealed in the Swiss bank program, they will no longer be eligible for the IRS program and will likely face prosecution.

Consequences for banks

Similarly, banks participating in the DoJ’s program will pay penalties based on the accounts’ values, depending on whether they were set up before or after it became known that the DoJ was cracking down on U.S. tax evasion in Switzerland.

The penalty is 20% if the account is opened before Aug. 1, 2008, 30% if opened between that date and Feb 28., 2009, and 50% if it was opened afterwards.

Banks that are already under investigation for assisting U.S. tax evasion are excluded from participating in the program. The banks that did not join the program could also face prosecution if they are found to have assisted U.S. citizens in hiding assets from the IRS.

An end to bank secrecy?

The program was created to incentivize foreign banks to cooperate, rather than continue hiding from U.S. investigators.

It’s part of a larger crackdown that’s been ongoing since 2009, when the major Swiss bank UBS paid a $780 million settlement for helping more than 17,000 people hide billions of dollars from the IRS.

The crackdown was further aided by the passing of the creatively named FATCA – Foreign Account Tax Compliance Act – in 2010, which imposes penalties on foreign banks who don’t disclose the names of their American customers.

As a result, it’s become increasingly troublesome for foreign banks to have American clients – to the point where many Americans living abroad have had their accounts closed, not just in Switzerland but across the world, according to Time magazine.

But according to a report (pdf) to the Senate in February 2014, the prosecution of actual American tax evaders is going slowly – only 71 out of the 4,700 people revealed have been prosecuted so far as a result of UBS’ settlement.

Ole Skaar