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by: Anthony Parent 2013-05-30
Swiss Bank Account Secrecy Laws have protected clients’ names and accounts for years; in effect allowing some clients to squirrel their finances away to avoid their own country’s tax laws. In 2009 the UBS case shed light on how one of Switzerland’s premier banks would knowingly assist its clients in schemes to avoid taxes. Even after the resolution of the UBS case the Swiss banking regime steadfastly retained its Swiss Bank Account Secrecy Laws; laws which, when broken, carried potentially serious consequences for the breaching party.
Most recently the Swiss government requested that Spain extradite one Herve Falciani, to face trial in Spain for his breach of Swiss bank account secrecy laws. Spain refused to grant the request because the Spanish court considered Swiss Bank Account Secrecy Laws, at least in Falciani’s circumstances, to run contrary to important EU public policy considerations.
It looks as if the tide is turning. The longstanding conflict between U.S. officials and Swiss bank account secrecy laws appears to have chipped away at Switzerland’s resolve to protect their clients’ identities at all costs. On Wednesday the Swiss government responded to the IRS’ urges and declared that it would allow the banks to disclose information on American clients with hidden accounts.
The Swiss Finance Minister, Ms. Widmer-Schlumpf, credited the U.S. for its recent decision, observing a decline in U.S. patience with the country’s banks, and the need to “restore stability” in international relations. There has also been talk that Swiss banks would be fined billions – the current estimate is the least amount that banks would end up paying in fines would be between $7 and $10 billion. Despite the government’s role in the matter, Ms. Widmer Schlumpf dismissed any reports suggesting the government would assist in paying that amount.
Americans with hidden offshore accounts in Swiss banks can no longer rely on Swiss bank account secrecy laws to veil shady conduct. The umbrella of Swiss-style bank secrecy was designed to protect anonymity and privacy, but not patently illegal activity. For Americans who have such accounts, the possibility of discovery and harsh penalties is greater than ever. In connection with these developments, lawyers have said that American clients of Swiss banks whose names are given to the IRS will likely face charges of criminal tax evasion.
In light of Switzerland’s plans of reform, Americans with hidden Swiss accounts should consider methods of compliance provided by the IRS. One of the most widely used methods is the Offshore Voluntary Disclosure Program, often abbreviated to OVDI or OVDP, a procedure that offers amnesty for such indiscretions. The OVDI/OVDP typically involves (1) a penalty cap of 27.5% of the highest aggregate value of all foreign bank accounts covered during the period of the voluntary disclosure (may argue for less), (2) the opportunity to avoid an audit, and (3) the opportunity to avoid potential jail-time.
Following 2009 with the conclusion of the UBS case, banks understood the risks and penalties associated with colluding in schemes to assist tax payers seeking to avoid detection. Last January a fine was levied on Wegelin, Switzerland’s oldest bank, for engaging in conduct akin to UBS’. The world is becoming a smaller place, and with greater cooperation among foreign nations, failing to report the existence of offshore accounts carries greater risk than ever before.
On a final note, the U.S. and Switzerland are likely to conclude a treaty for the enforcement of FATCA, a program designed to unearth tax evasion through imputing a reporting requirement on Switzerland’s banks. The treaty will water-down the shielding effect of Switzerland’s bank secrecy laws even further, making conscientious and safe decision-making with respect to your foreign financial accounts all the more important.
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