Today the Justice Department’s Tax Division announced that it has reached final resolutions with the remaining “Category 3 and 4” Swiss banks who had enrolled in the Swiss Bank Program. Originally unveiled in August 2013, the Swiss Bank Program provided a path for Swiss banks to resolve potential criminal liabilities in the United States, and to cooperate in the Justice Department’s ongoing investigations of the use of foreign bank accounts to commit tax evasion. The Swiss Bank Program also provided a mechanism for those Swiss banks that were not engaged in wrongful acts but nonetheless wanted a resolution of their status. Banks already under criminal investigation related to their Swiss-banking activities and all individuals were expressly excluded from the Swiss Bank Program.

The Swiss Bank Program established four categories of Swiss financial institutions, as follows:

Category 1 included Swiss banks already under investigation when the program was announced, and therefore, were not eligible to participate.  Banks in this category include UBS AG, Credit Suisse AG, Wegelin & Co., Zurcher Kantonalbank, among others.

Category 2 was reserved for those banks that advised the department by Dec. 31, 2013, that they had reason to believe that they had committed tax-related criminal offenses in connection with undeclared U.S. related accounts. In exchange for a non-prosecution agreement, the Category 2 banks made a complete disclosure of their cross-border activities, provided detailed information on accounts in which U.S. taxpayers have a direct or indirect interest, are cooperating in treaty requests for account information, are providing detailed information as to other banks that transferred funds into hidden accounts or that accepted funds when those secret accounts were closed, and must cooperate in any related criminal and civil proceedings for the life of those proceedings. The banks were also required to pay appropriate penalties.

Category 3 was designed for banks that established, with the assistance of an independent internal investigation of their cross-border business, that they did not commit tax or monetary transaction-related offenses and have an effective compliance program in place. Category 3 banks were required to provide the Department with an independent written report that identified witnesses interviewed and a summary of each witness’s statements, files reviewed, factual findings, and conclusions. In addition, the Category 3 banks were required to appear before the Department and respond to any questions related to the report or their cross-border business, and to close accounts of accountholders who fail to come into compliance with U.S. reporting obligations. Upon satisfying these requirements, Category 3 banks received a non-target letter pursuant to the terms of the Program.

Category 4 of the Program was reserved for Swiss banks that were able to demonstrate that they met certain criteria for deemed-compliance under the Foreign Account Tax Compliance Act (FATCA). Category 4 banks also were eligible for a non-target letter.

Between March 2015 and January 2016, the Justice Department executed non-prosecution agreements with 80 Category 2 banks and collected more than $1.36 billion in penalties. The Justice Department also signed a non-prosecution agreement with Finacor, a Swiss asset management firm, reflecting what the government described as its “willingness to reach fair and appropriate resolutions with entities that come forward in a timely manner, disclose all relevant information regarding their illegal activities and cooperate fully and completely, including naming the individuals engaged in criminal conduct.”

Today’s announcement revealed that between July and December 2016, four banks and one bank cooperative satisfied the requirements of Category 3, making them eligible for Non-Target Letters. No banks qualified under Category 4 of the program. The Justice Department did not announce the names of any of the qualifying Category 3 banks, nor did it release the names of the banks which failed to qualify as Category 4 institutions. Earlier this year, Swiss bank Thurgauer Kantonalbank announced that it had received a non-target letter from the Justice Department, thus qualifying as a Category 3 institution.  And just last week, Vontobel announced that it had reached a resolution with the Justice Department as a Category 3 bank.

The Swiss Bank Program has been an unqualified success for the U.S. government’s aggressive campaign to crack down on offshore tax evasion. Never before had the Justice Department offered what is essentially a tax evasion “amnesty” program to an entire country’s financial industry, leading some critics to initially question whether any Swiss banks would come forward. Those critics have been resoundingly proven wrong, given the overwhelming demonstration of interest in the program by Swiss banks and the significant amount of information that the program has generated for the Justice Department and Internal Revenue Service.

Today’s announcement does not, however, mark the conclusion of the Swiss Bank Program. Instead, the program is now in what the Justice Department calls its “legacy phase,” pursuant to which all participating Swiss banks are cooperating with ongoing civil and criminal investigations in the United States. The Swiss Bank Program is undoubtedly affording U.S. prosecutors and IRS agents a wealth of leads that they will use to “follow the money” around the globe and continue to seek to hold financial institutions, advisors, and account holders liable if they engage in evasion of U.S. tax laws. In this regard, Principal Deputy Assistant Attorney General Caroline D. Ciraolo issued the following statement today:

“The completion of the resolutions with the banks that participated in the Swiss Bank Program is a landmark achievement in the Department’s ongoing efforts to combat offshore tax evasion. We are now in the legacy phase of the Program, in which the participating banks are cooperating, and will continue to cooperate, in all related civil and criminal proceedings and investigations. The Tax Division, working closely with its colleagues throughout the Department and its partners within the Internal Revenue Service (IRS), will continue to hold financial institutions, professionals, and individual U.S. taxpayers accountable for their respective roles in concealing foreign accounts and assets, and evading U.S. tax obligations.”

IRS Large Business & International Division Commissioner Douglas O’Donnell further explained how the IRS is mining all of the data it is receiving from the Swiss Bank Program and other sources to further ongoing and new investigations:

“Offshore compliance remains an important area of tax administration. We are evaluating incoming information to detect accountholders who have evaded reporting overseas assets and income, and we are using this information to further untangle the web of financial institutions and intermediaries helping with this evasion. We have expanded our investigations to other regions of the world, and we will continue to apply these techniques to help protect honest taxpayers.”

Today’s announcement is replete with statements from other high-ranking government officials touting the success of the Swiss Bank Program, including Attorney General Loretta E. Lynch:

“The Swiss Bank Program has been and continues to be a vital part of the Justice Department’s efforts to aggressively pursue tax evasion. This groundbreaking initiative has uncovered those who help facilitate evasion schemes and those who hide funds in secret offshore accounts; improved our ability to return tax dollars to the United States; and allowed us to pursue investigations into banks and individuals. I want to thank the Swiss government for their cooperation in this effort, and I look forward to continuing our work together to eradicate fraud and corruption.”

Principal Deputy Associate Attorney General Bill Baer echoed those sentiments:

“Working with the Swiss government, we have made financial institutions reform the way they do business. We are moving toward an era of global financial transparency, and those seeking to violate our nation’s tax laws, or the laws of our treaty partners, will find that the days of hiding funds abroad are over.”

Taxpayers who have still not “come clean” and declared their offshore assets may still take advantage of various IRS voluntary disclosure programs, such as the Offshore Voluntary Disclosure Program or the Streamlined Filing Compliance Procedures, but time is of the essence. Noncompliant taxpayers should consider taking immediate action because these programs may not be available if the U.S. government receives information about their offshore assets before they start the voluntary disclosure process. Please feel free to contact a member of Fox Rothschild’s tax controversy and litigation practice to discuss voluntary disclosure options.