After months of wrangling, the US and Swiss governments have signed an agreement by which each Swiss bank that is not already under American investigation can evaluate the help that it has given US tax-evaders in the last few years, pick a category of guilt for itself, and recommend a fine for itself. If it does not, its American business is forfeit. Almost all Swiss banks will soon start reporting account information straight to the US Internal Revenue Service.

The US authorities want Swiss banks to pay fines and hand over information if they suspect US citizens are using secret bank accounts to avoid paying tax. In June, the Swiss parliament rejected legislation that would have enabled the Alpine state’s banks to hand over account data to the US as part of a deal to draw a line under a long-running dispute with the country over tax. It did, however, urge the country’s cabinet to find legal ways of resolving the US dispute. The joint statement was signed by [tag|Manuel Sager|]Manuel Sager[/tag], the Swiss ambassador in Washington, and [tag|James Cole|]James Cole[/tag], Deputy Attorney General in the US Department of Justice.

As readers will remember, [tag|UBS|]UBS[/tag] had some troubles with the US that ended with its successful prosecution and a massive disgorgement of civil and criminal settlement money on account of the help it gave to US tax-evaders. Afterwards, there was trouble between the US and other Swiss banks with US clients with untaxed assets in their accounts. After that, several banks came under investigation in the US, including [tag|Wegelin|]Wegelin[/tag], the oldest private bank in Switzerland, which consequently went out of business early this year. As one banker told Offshore Red: “Banks in Switzerland are vulnerable to those investigations because they threaten every Swiss bank with extinction. The US has been trying to obtain information on clients but this clashes with Swiss law. You can’t just ring up from the US and ask ‘what’s in this man’s account?’”

[tag|Sindy Schmiegel Werner|]Sindy Schmiegel Werner[/tag] of the Swiss Bankers’ Association told Offshore Red: “There are several levels of fines that have to be paid. Each bank has to analyse its US business itself and then write a report and send it off to the US. It must say how many US clients were served. It must include lots of details but not the names of clients.

“So, one element is the handover of information and the other element is the fines. Four categories have been established. The bank in question must evaluate itself and then say “I’m in group 2. I have to pay such-and-such a fine.” The bank itself must determine its own fine.

“The DoJ published a unilateral programme last Friday. It has two elements: (a) fines and (b) information. Each bank in Switzerland, depending on the nature of its business, has to determine the category to which it belongs. They can’t lie because the information has to contain information about transactions with other banks. The DoJ will therefore be able to cross-reference everything and if the bank is lying it will find out.

“There does not have to be any new legislation to make this happen. The DoJ’s policy is unilateral. Swiss law forbids its banks to pass information on to the Americans if that is against Swiss interests. So, the Swiss Federal Council can grant allowances to the banks in Switzerland. 

A permission for this specific case is to be granted to each bank. The granting process is underway but will take time.” 

Category 1: This “regroups” - i.e. contains – all the banks that are already under investigation by US authorities. The banks in this category can have nothing to do with the programme. They are settling fines with the DoJ independently. 

Category 2: This contains banks that most probably have helped Americans break US law. They will have to pay fines and hand over information about their accounts. They are also seeking non-prosecution agreements. They must assess themselves for fines. 

Category 3: US clients are invovled but in this category US law has not been broken, or at least the banks in this catetory are banks that have determined that they have not helped anyone break it. The IRS will decide whether they are right in the fullness of time. 

Category 4: These are banks that only cater for local clients. They are “deemed compliant,” in the language of FATCA. 

Swiss banks in category 1 that are not eligible include [tag|Credit Suisse|]Credit Suisse[/tag], [tag|Julius Baer|]Julius Baer[/tag], [tag|pictet|]Pictet[/tag], [tag|Frey|]Frey[/tag], [tag|Zurcher Kantonalbank|]Zurcher Kantonalbank[/tag], [tag|Basel Kantonalbank|]Basel Kantonalbank[/tag], the Swiss unit of [tag|HSBC|]HSBC[/tag] and the Swiss units of three Israeli banks, namely [tag|Bank Hapoalim|]Bank Hapoalim[/tag], [tag|Bank Leumi|]Bank Leumi[/tag] and [tag|Mizrahi-Tefahot Bank|]Mizrahi-Tefahot Bank[/tag]. 

[tag|Withers|]Withers[/tag], the global law firm, is warning US taxpayers with any remaining Swiss accounts that they ought to move fast. [tag|Michael Parets|]Michael Parets[/tag], a partner who works at the firm’s office in Zurich, said: “Following the agreement of the new disclosure deal, US taxpayers will need to act with some urgency if they have any undisclosed accounts that are, or were previously, held in Switzerland. US taxpayers disclosed to US authorities under this new programme are very likely to have the IRS-sanctioned compliance procedures – such as the Offshore Voluntary Disclosure Program and the more recent streamlined disclosure procedure – closed off to them, which may result in much higher penalties and even exposure to criminal prosecution. 

“Banks that decide to participate in the US programme will have to ask the Federal Council for individual authorisation in accordance with Article 271 of the Criminal Code. However, this authorisation does not apply to client data, which can be provided only within the scope of administrative assistance based on the double taxation agreement of 1996 and the protocol of 23 September 2009, once the latter enters into force. Banks must comply with applicable Swiss law within the scope of their cooperation with the US authorities, particularly concerning data protection and employment law provisions. These principles have been expressly set out in the Federal Council’s model authorisation.”

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