by Brian Mahany
Swiss authorities have turned over the names of thousands of Swiss bank employees to IRS officials. If the IRS believes that these bankers helped U.S. taxpayers evade taxes, they could be arrested if they leave Switzerland.
The United States does not have the ability to extradite people from Switzerland on most tax charges but does have robust extradition treaties with many other countries. The advent of post 9/11 security measures and electronic passport data makes it possible for the feds to arrest people in many countries that surround Switzerland. That means if a Swiss banker travels to Paris for the weekend, he or she could be arrested and extradited to the U.S. to face tax and conspiracy charges.
Since many Americans have foreign nominee accounts (bank and brokerage accounts in a phony name or in the name of an offshore corporation or International Business Company), Justice officials have been targeting the bankers, accountants and lawyers who helped people open the accounts. When indicted and arrested, most bankers “sing like a canary” and turn over information in exchange for a lighter sentence.
Until now, the problem was arresting these bankers after their indictment. Most are smart enough not to visit the U.S. but extradition treaties and dramatically increased cooperation among many of the developed countries make it difficult for bankers to leave Switzerland without fear of arrest.
Things have become so bad that according to one published report, two teens were detained for 6 hours by Homeland Security and questioned about their father who is a Swiss banker. The teens were questioned when flying to the U.S. to visit grandparents. That same article quoted a Geneva attorney who is advising his present and former banking clients not to leave Switzerland.
Opening a Swiss or other foreign account is legal of course. The crime is failing to report that account to the IRS annually on a Report of Foreign Bank and Financial Accounts also known as an FBAR. Bankers and professionals that assist clients in hiding foreign accounts can also be arrested and criminally charged.
Bankers that have previously helped U.S. taxpayers stash money have no easy way out. Account holders, however, can take advantage of a special amnesty program for unreported foreign accounts. Under the current Offshore Voluntary Disclosure Program (also called OVDI or OVDP), taxpayers can file missing FBARs, amend old returns, pay a reduced civil penalty and avoid prison. The catch, however, is that you have to enter the program before you are caught or before your name is disclosed to the IRS. If they get your name or find you first, all bets are off.
The amnesty penalties are steep (27.5% of the highest account balance during the last 8 years for most taxpayers) but the monetary penalties for those who caught are even more onerous. $100,000 per year OR 50% of the high account balance for each year the account was unreported.
Many of our clients are dual nationals or foreign born Americans. We also see many Americans who retire overseas. For these folks, most simply didn’t know of the annual FBAR requirement. If you can demonstrate that your failure to file FBARs was not intentional, the penalties could be $10,000 or even a warning letter. That means OVDI is not the best option for every taxpayer.
The rules are quite complex. If you have an unreported foreign account, give us a call. We can help you decide what the best course of action is. All inquiries are protected by the attorney client privilege and kept in strict confidence. For more information, contact attorney Bethany Kroes at or by telephone at (414) 223-0464.
Mahany & Ertl – America’s Tax Lawyers. Offices in Milwaukee, Wisconsin; Detroit, Michigan; Portland, Maine: Minneapolis, Minnesota & coming soon, San Francisco, California (tax only). Services worldwide.