In the last few weeks several Swiss banks have agreed to cooperate with the U.S. Department of Justice and IRS over unreported foreign accounts. Swiss banks were given an ultimatum last year – cooperate or face criminal prosecution.
Most Swiss banks took the threats seriously. UBS entered a deferred prosecution agreement in 2009 and paid fines of $780 million. The charge? Helping wealthy Americans evade taxes and avoid FBAR filings.
Shortly thereafter, Switzerland’s oldest private bank, Wegelin & Co. pleaded guilty and paid similar large fines. Wegelin, however, couldn’t afford the fines and publicity and promptly closed its doors.
More recently Credit Suisse pleaded guilty to helping Americans avoid FBAR filings. The punishment? How about a whopping a $2.6 billion fine!
The remaining Swiss banks saw the handwriting on the wall and most are now cooperating with the IRS and Justice Department. Good news for the government but bad news for those taxpayers who still have not reported their offshore accounts.
If you have foreign financial accounts that exceed $10,000 in value, you must report them annually on Schedule B of the income tax return and on a Foreign Bank and Financial Accounts (FBAR) form.
Failure to file an FBAR can be a crime and almost always involves big penalties.
The most recent three banks to cooperate are Mercantil Bank (Schweiz) AG, Banque Cantonale Neuchateloise and Nidwaldner Kantonalbank.
Mercantil Bank (Schweiz) AG
In announcing the settlement, the Justice Department said Mercantil opened accounts for U.S. taxpayers and knew or should have known that many them were not properly reporting their accounts. In what has become a familiar theme, the bank offered to hold statements outside the United States and to help taxpayers set up sham entities to better conceal ownership of the accounts. Included in these sham entities were “Personal Investment Companies” and Panamanian holding cmpanies.
The IRS considers nominee entities to be a sham unless they have a valid business purpose.
Banque Cantonale Neuchateloise
Banque Cantonale Neuchateloise (BCN Bank) that traces its roots to the 1800’s. Like the other Swiss banks, the Justice Department says that BCN had to know that it was helping Americans evade taxes and avoid FBAR filings. For example, as other Swiss banks faced prosecution, BCN Bank apparently assisted Americans move their money to BCN to avoid detection.
Not only did that strategy fail, those taxpayers that tried to move money one step in ahead of the IRS face a much greater chance of prosecution.
Nidwaldner Kantonalbank (NK) is another well established Swiss bank with roots going back well intothe 19th century. To help clients avoid detection by the IRS, NKB allegedly allowed customers to open accounts in the names of Swiss relatives and use numbered accounts which are much more difficult to trace. The government says that NKB also deliberately waived W9 filing obligations for certain preferred clients.
In at least one instance, NKB allowed a customer to use an insurance wrapper to hold assets through an insurance policy in order to circumvent the FBAR filing and reporting rules.
In announcing the agreement, a Justice Department spokesperson said, “The days of safely hiding behind shell corporations and numbered bank accounts are over.”
There are a variety of amnesty and streamlined reporting options to help taxpayers come into compliance. Once a particular bank turns over names or agrees to cooperate, all bets are off.
It’s never too late to cooperate and file missing FBAR and other offshore reporting forms but the penalties increase dramatically for customers at Nidwalder (NKB), Mercantil and Banque Cantonale Neuchateloise (BCN).
Want to know more about your options and obligations? Give us a call. Our initial consultations are free, available worldwide and are protected by the attorney – client privilege. No accountant or expat tax service can make the latter claim.
For more information, contact attorney Beth Canfield at or by telephone at (414) 223-0464.
MahanyLaw – America’s Tax Lawyers