The Department of Justice last week announced that it has reached final resolutions with banks that have met the requirements of the Swiss Bank Program, which provided a path for Swiss banks to resolve potential criminal liabilities in the United States, and to cooperate in ongoing investigations of the use of foreign bank accounts to commit tax evasion.
The Swiss Bank Program also provided a path for 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 Program. “The Swiss Bank Program has been and continues to be a vital part of the Justice Department’s efforts to aggressively pursue tax evasion,” Attorney General Loretta Lynch said in a statement.
Principal Deputy Assistant Attorney General Caroline Ciraolo commented that the Justice Department is 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 Program established four categories of Swiss financial institutions:
Category 1: Swiss banks already under investigation when the Program was announced, and therefore, not eligible to participate.
Category 2: Swiss 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 (NPA), 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: Swiss 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, 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: Swiss banks that were able to demonstrate that they met certain criteria for deemed-compliance under the Foreign Account Tax Compliance Act. Category 4 banks also were eligible for a non-target letter.
Between March 2015 and January 2016, the Department executed NPAs with 80 Category 2 banks and collected more than $1.36 billion in penalties.
The Department also reached an NPA with Finacor, a Swiss asset management firm. In a statement, Ciraolo said the agreement “reflects the Department’s 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.”
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.
“Offshore compliance remains an important area of tax administration,” said IRS Large Business & International Division (LB&I) Commissioner Douglas O’Donnell. “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,” O’Donnell added, “and we will continue to apply these techniques to help protect honest taxpayers.”