A Race To Disclose Secret Offshore Accounts: New Justice Department Program Pits Swiss Banks Against Their U.S. Accountholders

For The Defense

The Department of Justice has announced another program designed to identify United States taxpayers who have unreported foreign bank accounts. Continuing the unprecedented cooperation between U.S. and Switzerland to combat tax evasion, the two countries issued a joint statement earlier this fall announcing a new program entitled "Program for Non-Prosecution Agreements or Non-Target Letters for Swiss Banks." Available only to Swiss banks not currently under criminal investigation, this unique program is designed to provide Swiss banks a roadmap to resolving any potential criminal exposure under U.S. tax laws. Switzerland has encouraged its banks to "give serious consideration to their participation" in the program and announced last week that it had authorized a number of Swiss banks to cooperate with the U.S. under the program.

A Swiss bank that has reason to believe that it may have committed tax-related or monetary transaction offenses in connection with undeclared U.S. accounts may apply to the program. The bank then will be required to provide detailed information on all accounts held by U.S. taxpayers and pay substantial penalties based upon the amount held in the identified accounts. In exchange, the government will agree not to prosecute the participating bank. The result of this program will be to fully eliminate any ability of a U.S. taxpayer to conceal a Swiss bank account from the IRS.

Initial Disclosures Required for a Non-Prosecution Agreement

A Swiss bank interested in the program must send a letter to the Department of Justice by December 31, 2013, requesting entry into a non-prosecution agreement. In this letter, the bank must set forth its plan to comply with the program; identify an independent examiner (a qualified attorney or accountant) who will verify all account information ultimately disclosed to the U.S.; affirm that it will maintain all records and comply with treaty requests for records; and waive certain statute of limitations defenses. The bank then has 120 days from December 31 to meet the program's requirements, subject to one 60-day extension, for good cause shown.

Following the bank's initial letter expressing interest in the program, several disclosures are required. The bank must provide information regarding how it structured, operated, and supervised its cross-border business, including the name and function of the individuals responsible for that business; how account holders were attracted and serviced by the bank; and the total number of U.S. accounts and the maximum aggregate...