USDOJ Swiss Bank Program

August 29, 2017Law360

An unusual feature of this latest bank resolution is what the Justice Department characterizes as Prime Partners’ “voluntary and extraordinary cooperation” with the U.S. government. In early 2009, Prime Partners voluntarily implemented a series of remedial measures to stop assisting U.S. taxpayers in evading federal income taxes, before the initiation of any investigation by the U.S. government. The timing of these corrective actions is particularly notable, as the Justice Department announced its landmark deferred prosecution agreement with UBS AG, the largest bank in Switzerland, in February 2009, and the Internal Revenue Service unveiled its Offshore Voluntary Disclosure Program approximately 30 days later. In the midst of the announcement of the UBS resolution, many other Swiss banks were advising their U.S. clients to transfer their account holdings to other, smaller Swiss banks in order to avoid detection by U.S. authorities, thereby creating a class of U.S. taxpayers now labeled by authorities as “leavers.” In stark contrast, it appears that Prime Partners embarked on a different course of conduct, implementing corrective action to avoid further violations of U.S. law.

The Justice Department appears to have taken great care to describe publicly the extent of Prime Partners’ extensive cooperation, which included the following:

  • Prime Partners’ voluntary production of approximately 175 client files for noncompliant U.S. taxpayers, which included the identities of those U.S. taxpayers;
  • Prime Partners’ willingness to continue to cooperate to the extent permitted by applicable law; and
  • Prime Partners’ representation — based on an investigation by outside counsel, the results of which have been reviewed by the Justice Department — that the misconduct under investigation did not, and does not, extend beyond that described in a statement of facts accompanying the non-prosecution agreement.

Another notable aspect of this case is that while Prime Partners is a Swiss institution, it did not take advantage of the popular yet now-closed “Swiss Bank Program,” which essentially offered amnesty to any Swiss financial institution willing to come forward and make full disclosure of its cross-border activities involving U.S. citizens. Nearly 80 Swiss institutions enrolled in the Swiss Bank Program and successfully resolved their potential exposure under U.S. tax laws by paying steep financial penalties and agreeing to fully cooperate with the U.S. government’s ongoing investigations of offshore tax evasion. Instead of enrolling in the Swiss Bank Program, Prime Partners appears to have conducted an internal investigation, voluntarily disclosed its misconduct to the Justice Department, cooperated with the subsequent government investigation, and attempted to negotiate the best possible deal it could. Prime Partners may have been prompted to undertake such action based upon what the Justice Department has publicly stated is 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.”

The Justice Department’s announcement that it agreed to a nonprosecution agreement with Prime Partners is no doubt a signal to other financial institutions (both Swiss and non-Swiss) that the voluntary disclosure “window” remains open (notwithstanding the termination of the Swiss Bank Program), and that institutions voluntarily disclosing their wrongdoing and demonstrating substantial cooperation — like that of Prime Partners — will be treated leniently.

Indeed, in a press release announcing the resolution Acting Manhattan U.S. Attorney Joon H. Kim stated that “[t]he resolution of this matter through a non-prosecution agreement, along with forfeiture and restitution, reflects the extraordinary cooperation provided by Prime Partners to our investigation. It should serve as proof that cooperation has tangible benefits.” In the same vein, Acting Deputy Assistant Attorney General Stuart M. Goldberg said that “[i]n our ongoing investigations, we will continue to draw on information from a variety of sources and to provide substantial credit to those around the globe who provide full and timely cooperation regarding the identity of U.S. tax cheats and the phony trusts and shell companies they seek to hide behind.” At the same time, the Justice Department will undoubtedly seek to punish — to the fullest extent possible under U.S. laws — financial institutions that have aided and abetted tax evasion by their U.S. customers and that fail to come forward voluntarily and cooperatively.

Finally, the Justice Department’s resolution with Prime Partners stands as yet another stern warning to taxpayers with undisclosed foreign accounts that they must take corrective action immediately or face harsh consequences. In the press release, Acting Deputy Assistant Attorney General Stuart M. Goldberg said “[t]he message is clear to those using foreign bank accounts to engage in schemes to evade U.S. taxes – you can no longer assume your ‘secret’ accounts will remain concealed, no matter where they are located. In our ongoing investigations, we will continue to draw on information from a variety of sources and to provide substantial credit to those around the globe who provide full and timely cooperation regarding the identity of U.S. tax cheats and the phony trusts and shell companies they seek to hide behind.” The Internal Revenue Service’s Offshore Voluntary Disclosure Program remains available to taxpayers with undisclosed foreign assets, although the penalty for account holders at Prime Partners will now increase from 27.5 percent to 50 percent.

Reprinted with permission from Law360. (c) 2017 Portfolio Media. Further duplication without permission is prohibited. All rights reserved.

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The Justice Department revealed its latest offshore bank resolution by announcing that it had entered into a non-prosecution agreement with a Swiss asset management firm called Prime Partners. This means that Prime Partners will not be criminally prosecuted for participating in what the DOJ characterized as a conspiracy to defraud the Internal Revenue Service and evade federal income taxes in connection with services that it provided to U.S. accountholders between 2001 and 2010. According to a press release announcing the resolution, the non-prosecution agreement was based upon Prime Partners’ “extraordinary cooperation,” including its voluntary production of approximately 175 client files for non-compliant U.S. taxpayer-clients. The non-prosecution agreement further requires Prime Partners to forfeit $4.32 million to the United States, representing certain fees that it earned by assisting its U.S. taxpayer-clients in opening and maintaining these undeclared accounts, and to pay $680,000 in restitution to the IRS, representing the approximate unpaid taxes arising from the tax evasion by Prime Partners’ U.S. taxpayer-clients.

As part of the non-prosecution agreement, Prime Partners admitted that it knew certain U.S. taxpayers were maintaining undeclared foreign bank accounts with the assistance of Prime Partners in order to evade their U.S. tax obligations, in violation of U.S. law. Prime Partners acknowledged that it helped certain U.S. taxpayer-clients conceal from the IRS their beneficial ownership of undeclared assets maintained in foreign bank accounts by using well-known mechanisms employed by offshore banks to hide funds, such as:

  • creating sham entities, which had no business purpose, that served as the nominal account holders for the accounts;
  • advising U.S. taxpayer-clients not to retain their account statements, to call Prime Partners collect from pay phones, and to destroy any faxes they received from Prime Partners;
  • providing U.S. taxpayer-clients with prepaid debit cards, which were funded with money from the clients’ undeclared accounts; and
  • facilitating cash transfers in the United States between U.S. taxpayer-clients with undeclared accounts.

An unusual feature of this latest bank resolution is what the Justice Department characterizes as Prime Partners’ “voluntary and extraordinary cooperation” with the U.S. government. In early 2009, Prime Partners voluntarily implemented a series of remedial measures to stop assisting U.S. taxpayers in evading federal income taxes, before the initiation of any investigation by the U.S. government. The timing of these corrective actions is particularly notable, as the Justice Department announced its landmark deferred prosecution agreement with the largest bank in Switzerland, UBS AG, in February 2009, and the Internal Revenue Service unveiled its Offshore Voluntary Disclosure Program approximately 30 days later. In the midst of the announcement of the UBS resolution, many other Swiss banks were advising their U.S. clients to transfer their account holdings to other, smaller Swiss banks in order to avoid detection by U.S. authorities, thereby creating a class of U.S. taxpayers now characterized by authorities as “leavers.” In stark contrast, it appears that Prime Partners embarked on a different course of conduct, implementing corrective action to avoid further violations of U.S. law.

The Justice Department appears to have taken great care to describe publically the extent of Prime Partners’ extensive cooperation, which included the following:

  • Prime Partners’ voluntary production of approximately 175 client files for non-compliant U.S. taxpayers, which included the identities of those U.S. taxpayers;
  • Prime Partners’ willingness to continue to cooperate to the extent permitted by applicable law; and
  • Prime Partners’ representation – based on an investigation by outside counsel, the results of which have been reviewed by the Justice Department – that the misconduct under investigation did not, and does not, extend beyond that described in a statement of facts accompanying the non-prosecution agreement.

Another notable aspect of this case is that while Prime Partners is a Swiss institution, it did not take advantage of the popular yet now-closed “Swiss Bank Program,” which essentially offered amnesty to any Swiss financial institution willing to come forward and make full disclosure of its cross-border activities involving U.S. citizens. Nearly 80 Swiss institutions enrolled in the Swiss Bank Program and successfully resolved their potential exposure under U.S. tax laws by paying steep financial penalties and agreeing to fully cooperate with the U.S. government’s ongoing investigations of offshore tax evasion. Instead of enrolling in the Swiss Bank Program, Prime Partners appears to have conducted an internal investigation, voluntarily disclosed its misconduct to the Justice Department, cooperated with the subsequent government investigation, and attempted to negotiate the best possible deal it could. Prime Partners may have been prompted to undertake such action based upon what the Justice Department has publicly stated is 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.”

The Justice Department’s announcement that it agreed to a non-prosecution agreement with Prime Partners is no doubt a signal to other financial institutions that the voluntary disclosure “window” remains open (notwithstanding the termination of the Swiss Bank Program), and that institutions demonstrating substantial cooperation – like that of Prime Partners – will be treated leniently. Indeed, in a press release announcing the resolution Acting Manhattan U.S. Attorney Joon H. Kim stated that “[t]he resolution of this matter through a non-prosecution agreement, along with forfeiture and restitution, reflects the extraordinary cooperation provided by Prime Partners to our investigation. It should serve as proof that cooperation has tangible benefits.” In the same vein, Acting Deputy Assistant Attorney General Stuart M. Goldberg said that “[i]n our ongoing investigations, we will continue to draw on information from a variety of sources and to provide substantial credit to those around the globe who provide full and timely cooperation regarding the identity of U.S. tax cheats and the phony trusts and shell companies they seek to hide behind.” At the same time, the Justice Department will undoubtedly seek to punish – to the fullest extent possible under U.S. laws – financial institutions that have aided and abetted tax evasion by their U.S. customers and that fail to come forward voluntarily and cooperatively.

Finally, the Justice Department’s resolution with Prime Partners stands as yet another stern warning to taxpayers with undisclosed foreign accounts that they must take corrective action immediately or face harsh consequences.  In the press release, Acting Deputy Assistant Attorney General Stuart M. Goldberg said “[t]he message is clear to those using foreign bank accounts to engage in schemes to evade U.S. taxes – you can no longer assume your ‘secret’ accounts will remain concealed, no matter where they are located. In our ongoing investigations, we will continue to draw on information from a variety of sources and to provide substantial credit to those around the globe who provide full and timely cooperation regarding the identity of U.S. tax cheats and the phony trusts and shell companies they seek to hide behind.” The Internal Revenue Service’s Offshore Voluntary Disclosure Program remains available to taxpayers with undisclosed foreign assets, although the penalty for accountholders at Prime Partners will now increase from 27.5 percent to 50 percent.

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2000px-Seal_of_the_United_States_Department_of_Justice_svgOriginally published by the International Enforcement Law Reporter (Feb. 10, 2017)

By Matthew D. Lee[1]

On December 29, 2016, the Justice Department’s Tax Division announced that it had reached final resolutions with the remaining “Category 3 and 4” Swiss banks that had enrolled in the Swiss Bank Program.[2] Originally unveiled in August 2013, the Swiss Bank Program provided a path for Swiss banks to resolve their potential criminal exposure under U.S. tax laws, and to cooperate in the Justice Department’s ongoing investigations of the use of foreign bank accounts by U.S. taxpayers 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. Originally viewed with skepticism by some critics, the Swiss Bank Program ultimately proved to be an overwhelming success, with 80 “Category 2” banks resolving their potential liability under U.S. law and paying nearly $1.4 billion in penalties. As the program now enters its “legacy” phase, Justice Department prosecutors and Internal Revenue Agents are working closely with all banks in the program to pursue leads around the globe to further additional investigations of foreign financial institutions, professionals, and individual U.S. taxpayers for offshore tax evasion.

Background Regarding the Swiss Bank Program

The Swiss Bank Program, unveiled on August 29, 2013, provided a path for Swiss banks to resolve potential criminal liabilities in the United States. Swiss banks eligible to enter the program were required to advise the Justice Department no later than December 31, 2013, that they had reason to believe that they had committed tax-related criminal offenses in connection with undeclared U.S.-related accounts. Banks already under criminal investigation related to their Swiss-banking activities and all individuals were expressly excluded from the program.

Under the program’s terms, participating banks were required to: make a complete disclosure of their cross-border activities; provide detailed information on an account-by-account basis for accounts in which U.S. taxpayers have a direct or indirect interest; cooperate in treaty requests for account information; provide detailed information as to other banks that transferred funds into secret accounts or that accepted funds when secret accounts were closed; agree to close accounts of accountholders who fail to come into compliance with U.S. reporting obligations; and pay appropriate penalties.

Any Swiss bank meeting all of the above requirements was eligible for a non-prosecution agreement, ensuring that it would not be subject to criminal prosecution in the United States.

Categories of Swiss Banks

The Swiss Bank Program established four categories of Swiss financial institutions based upon their perceived liability for potential violations of U.S. laws. “Category 1” included Swiss banks already under investigation when the program was announced; such institutions were not eligible to participate in the program. Banks in this category included UBS AG, Credit Suisse AG, Wegelin & Co., and Zurcher Kantonalbank, among others.

“Category 2” was reserved for banks that advised the Justice Department by December 31, 2013, that they had reason to believe that they had committed tax-related criminal offenses in connection with undeclared U.S. related accounts. To obtain a non-prosecution agreement, Category 2 banks were required to make a complete disclosure of their cross-border activities, provide detailed information on accounts in which U.S. taxpayers have a direct or indirect interest, cooperate in treaty requests for account information, provide detailed information as to other banks that transferred funds into hidden accounts or that accepted funds when those secret accounts were closed, and cooperate in any related criminal and civil proceedings for the life of those proceedings. Category 2 banks were also required to pay financial penalties based upon the number of U.S.-related accounts they serviced.

“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 had an effective compliance program in place. Category 3 banks were required to provide the Justice Department with an independent written report that identified witnesses interviewed and a summary of each witness’s statements, files reviewed, and factual findings and conclusions. In addition, Category 3 banks were required to appear before the Justice Department and respond to any questions related to the report or their cross-border business, and to close accounts of accountholders who failed to come into compliance with U.S. reporting obligations. Upon satisfying these requirements, Category 3 banks were entitled to receive a non-target letter.

“Category 4” 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), a U.S. anti-tax evasion law enacted in 2010. Category 4 banks also were eligible for a non-target letter.

Category 1 Bank Resolutions

To date, a number of “Category 1” banks have reached resolutions of their potential criminal exposure under the U.S. tax laws with the Justice Department. The largest Swiss bank, UBS AG, entered into what was then considered a landmark deferred prosecution agreement in February 2009, agreeing to pay nearly $800 million, revamp its cross-border business, and hand over the identities of certain U.S. clients. The second largest Swiss bank, Credit Suisse, pleaded guilty in federal court to conspiracy to defraud the United States and paid $2.6 billion, the largest fine ever imposed in a criminal tax case. Other notable Category 1 banks which have reached resolutions with the U.S. include Wegelin Bank (Switzerland), Bank Leumi (Israel), and Bank Julius Baer (Switzerland). To date, a total of eight Category 1 financial institutions have resolved their criminal exposure under U.S. law, and several others remain under criminal investigation at this time.

Category 2 Resolutions

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 Justice Department described in a press release 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.”[3]

Category 3 and 4 Resolutions

The Justice Department’s announcement in late December 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.[4] The identities of the remaining Category 3 banks have not yet been made public.

Reflections on the Swiss Bank Program as it Enters “Legacy” Phase

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 given the historical secrecy that enveloped that sector. 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.

The Justice Department’s announcement of final resolutions with Category 3 and 4 banks does not, however, mark the conclusion of the Swiss Bank Program. Instead, the program is now enters what 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 in a continued effort to hold financial institutions, advisors, and account holders liable if they engage in evasion of U.S. tax laws. At the same time, the resolution of the Swiss Bank Program further ratchets up the pressure on non-compliant taxpayers, as the price of admission to the Offshore Voluntary Disclosure Program (OVDP) has dramatically increased for those who maintained secret accounts at any of the Swiss banks that have now resolved their potential liabilities with the U.S.

Given the tremendous success of the Swiss Bank Program, it remains to be seen whether the Justice Department will offer a similar program to banks in other countries or regions. Regardless of whether a formal program akin to the Swiss Bank Program is announced, financial institutions around the globe would be well-advised to take affirmative steps to attempt to resolve any potential exposure they may have under U.S. criminal laws. The Justice Department has long said that it would entertain voluntary disclosures of potential criminal activity from any bank, and that such self-corrective action – assuming it is timely and constitutes a full and complete disclosure – would be viewed favorably by the government officials in determining whether criminal prosecution is warranted.

[1]      Matthew D. Lee is a partner at Fox Rothschild LLP in Philadelphia and a member of his firm’s White-Collar Compliance and Defense practice group. A former U.S. Department of Justice trial attorney, Mr. Lee is the author of The Foreign Account Tax Compliance Act Answer Book 2016 (Practising Law Institute).

[2]     See Department of Justice Press Release, “Justice Department Reaches Final Resolutions Under Swiss Bank Program” (Dec. 29, 2016).

[3]     See Department of Justice Press Release, “Swiss Asset Management Firm Finacor SA Reaches Resolution with Justice Department” (Oct. 6, 2015).

[4]     See https://www.tkb.ch/tkb/medien/medienmitteilungen.htm?go1CDIccbRxIYVr4qeDJyxIIAoxlk7CxJxlD (last visited Feb. 1, 2017).

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.

Effective today, 47 new names have been added to the Internal Revenue Service’s ever-expanding list of “Foreign Financial Institutions or Facilitators” which trigger a significantly higher penalty for participants in the Offshore Voluntary Disclosure Program (OVDP).  Under the current OVDP terms, individuals making a voluntary disclosure about offshore bank accounts and assets can avoid criminal prosecution by filing amended returns and FBARs and paying back taxes, interest, and penalties.  The standard penalty applicable to OVDP participants is 27.5 percent of the highest aggregate value of undisclosed offshore assets during the eight-year lookback period.  Taxpayers who maintained accounts, or were clients of, financial institutions or facilitators identified on the IRS list are subject to a substantially increased penalty calculated at 50 percent of the highest balance.

Since the OVDP terms were modified in 2014, the IRS has maintained a list of financial institutions and facilitators on its website that trigger the higher penalty.  Initially, that list was compromised of a handful of foreign banks (mostly Swiss) which were the subject of U.S. government scrutiny, such as UBS, Credit Suisse, HSBC India, and Bank Leumi, among others.  Over time that list grew steadily, as Swiss banks who participated in the DOJ’s Swiss Bank Program resolved their potential exposure for U.S. tax offenses and had their names added to the list.  Eventually, the names of 78 Swiss banks were added to the list, and taxpayers who had accounts at any of those institutions became subject to the 50 percent penalty.  Other banks were added to the list as a result of the issuance of “John Doe” summonses, including institutions in Belize and the Cayman Islands.

The 47 new names added to the list effective today consist of 40 individuals and 7 entities.  The new additions include some familiar and well-known names, including UBS whistleblower Bradley Birkenfeld and Swiss financial advisor Beda Singenberger.  A large number of Swiss bankers are among the newly-added individuals, including employees of UBS, Credit Suisse, Julius Baer, Wegelin, and smaller banks such as Zuercher Kantonalbank, Bank Frey, and Rahn & Bodner Banquiers.  The list also includes a number of professional advisors, such as attorneys and asset managers from Switzerland and Liechtenstein, and includes individuals who assisted U.S. taxpayers in moving funds out of larger Swiss banks like UBS and Credit Suisse into smaller financial institutions (the so-called “leavers” that are the subject of great interest by the IRS and Justice Department).  Today’s additions to the facilitator list are not limited to Switzerland, however; other countries implicated by the additions include the Cayman Islands, Turks & Caicos, and Belize.  The seven companies added to the list are from Belize and were utilized as part of securities and tax fraud schemes orchestrated by a Belize-based individual named Robert Bandfield who has pleaded guilty to money laundering conspiracy in federal court in Brooklyn.

With the addition of these 47 new names, the total number of financial institutions and facilitators for which the 50 percent penalty applies is 144.  The complete list can be found here.

Today’s action by the IRS confirms once again that U.S. taxpayers with undisclosed offshore accounts or assets should take immediate action.  For taxpayers who still have not voluntarily corrected past misdeeds with respect to offshore assets, the window of opportunity for voluntary disclosures remains open but time is of the essence.  Both the OVDP and the related “Streamlined Compliance Procedures” remain available to non-compliant taxpayers at this time, but only if the taxpayer initiates the voluntary disclosure process before the IRS receives information about a taxpayer’s non-compliance (such as through third-party disclosures mandated by FATCA or the Swiss Bank Program).  Once the IRS learns of a taxpayer’s non-compliance, voluntary disclosure options are generally off the table.  And, the IRS has said that it may terminate the OVDP and streamlined procedures at any time, without advance notice.  Non-compliant taxpayers with offshore assets who fail to take immediate action now do so at their peril.  This is especially so for taxpayers who had dealings with any of the institutions or individuals identified on the growing IRS facilitator list.

The Internal Revenue Service has achieved another milestone in its long-running campaign to crack down on offshore tax evasion, announcing that more than 100,000 taxpayers have voluntarily returned to compliance and paid more than $10 billion in back taxes, interest, and penalties. At the same time, the IRS warned non-compliant taxpayers that its international compliance efforts – both criminal and civil – will continue unabated.

In a press release touting its latest successes, the IRS announced that 55,800 taxpayers have utilized the Offshore Voluntary Disclosure Program (OVDP) to resolve their tax obligations. The IRS unveiled the OVDP in March 2009, following its landmark resolution with Swiss bank UBS AG, affording taxpayers with secret offshore bank accounts the opportunity to avoid criminal prosecution if they voluntarily filed amended tax returns and paid a hefty financial penalty.  The current version of the OVDP requires participants to file eight years of amended tax returns and pay a penalty calculated at 27.5 percent (or 50 percent, in certain cases) of the highest aggregate value of their undisclosed offshore assets.  Since 2009, taxpayers participating in the OVDP have paid the U.S. Treasury more than $9.9 billion in taxes, interest, and penalties, rendering the OVDP by far the most successful voluntary disclosure initiative ever offered by the IRS.

In June 2014, in response to widespread criticism that the OVDP’s “one size fits all” settlement terms did not adequately take into account the varying facts and circumstances of each individual case, the IRS announced an alternative voluntary disclosure option: the Streamlined Filing Compliance Procedures.  Like the OVDP, this program was designed to provide a vehicle for taxpayers with undisclosed offshore assets to return to compliance.  Unlike the OVDP, however, the streamlined program takes account of a taxpayer’s state of mind, and taxpayers who can demonstrate that their non-compliance was attributable to “non-willful” conduct – as opposed to intentional or deliberate behavior – can qualify for the streamlined program’s favorable settlement terms.  Taxpayers eligible for the streamlined procedures need only file three years of amended tax returns, six years of foreign bank account reporting forms (commonly known as FBARs).  Taxpayers residing in the U.S. are required to pay a financial penalty of five percent of the highest aggregate value of their undisclosed foreign assets.  Taxpayers residing outside of the U.S. do not have to pay any financial penalty.

Since their unveiling in the summer of 2014, the streamlined procedures have been enormously popular, as the latest IRS statistics confirm. Approximately 48,000 taxpayers have utilized the streamlined procedures to correct prior non-willful omissions and meet their federal tax obligations, paying approximately $450 million in taxes, interest, and penalties.  In its short two and one-half year existence so far, the streamlined program has had nearly as many participants as the OVDP, which has been in existence for nearly three times as long.  These statistics illustrate what many practitioners have long suspected:  many more non-compliant taxpayers are taking advantage of the streamlined procedures than the OVDP, even if they may not satisfy the “non-willful” criteria.

At the same time it was celebrating its latest voluntary disclosure benchmark achievement, the IRS warned non-compliant taxpayers that they should take immediate corrective action to avoid potentially harsh enforcement activity. “As we continue to receive more information on foreign accounts, people’s ability to avoid detection becomes harder and harder,” said IRS Commissioner John Koskinen.  “The IRS continues to urge those people with international tax issues to come forward to meet their tax obligations.”  The Justice Department’s Tax Division issued a similarly stern warning for taxpayers who falsely claimed their conduct was “non-willful” in order to qualify for the streamlined procedures.  Caroline D. Ciraolo, Principal Deputy Assistant Attorney General, stated in a speech on October 28 that taxpayers who “lied their way through a streamlined narrative” will be criminally prosecuted.  Ciraolo added that “[I]t’s our job to make sure that those people who chose the streamlined program chose appropriately.”

The risks for taxpayers with undisclosed offshore assets is at an all-time high now, as the IRS and the Justice Department now have access to an unprecedented amount of information and data regarding the offshore activities of U.S. taxpayers. As a result of the Foreign Account Tax Compliance Act (FATCA), and its network of bilateral treaties (known as inter-governmental agreements) between the U.S. and more than 100 partner countries, automatic annual reporting of foreign account data to the IRS has entered its second year.  In addition, account information continues to pour into the U.S. government as a result of the Justice Department’s ground-breaking Swiss Bank Program, pursuant to which 80 banks in Switzerland entered into resolutions to avoid criminal prosecution in the U.S. and agreed to hand over details about their U.S. customers to the Justice Department.

For taxpayers who still have not voluntarily corrected past misdeeds with respect to offshore assets, the window of opportunity for voluntary disclosures remains open but time is of the essence. Both the OVDP and the streamlined procedures remain available to non-compliant taxpayers at this time, but only if the taxpayer initiates the voluntary disclosure process before the IRS receives information about a taxpayer’s non-compliance (such as through third-party disclosures mandated by FATCA or the Swiss Bank Program).  Once the IRS learns of a taxpayer’s non-compliance, voluntary disclosure options are generally off the table.  And, the IRS has said that it may terminate the OVDP and streamlined procedures at any time, without advance notice.  Non-compliant taxpayers with offshore assets who fail to take immediate action now do so at their peril.