As reported yesterday by David Voreacos, Giles Broom, and Jeffrey Vogeli, 73 of the over 100 Swiss banks that enrolled in the Justice Department’s amnesty program for Swiss banks have written an 11-page letter requesting changes to the Justice Department’s proposed agreement that would serve to resolve any criminal liability relating to banking activity that facilitated offshore tax evasion. According to this report, the Justice Department is including terms in the agreement that were not included in the original program when it was announced in August 2013, with three new significant demands. First, the Justice Department is requiring all participating Swiss banks to “‘cooperate fully’ with ‘any other domestic or foreign law enforcement agency’ in any investigation.” Second, the Justice Department is requiring each participating Swiss bank to disclose information about any parent companies. Finally, the Justice Department is also requiring the Swiss banks to “share material with governments other than the U.S.” See Swiss Banks Ask U.S. to Amend Proposed Tax Amnesty Deals (Bloomberg Oct. 23, 2014); read the full article here.
The Swiss banks appear to be correct that these terms were not included in the program as announced in August 2013 and, further, go well beyond what was anticipated. The demand to cooperate “fully” in virtually any investigation conducted across the globe is extraordinarily broad, and there is likely no legal basis for the U.S. to demand that Swiss banks cooperate or provide information to any other foreign government.
The Justice Department is likely testing the limits of its carrot-and-stick approach – the formula for this program. Swiss banks that do not participate in the program are at risk of becoming the subject of a U.S. criminal investigation, which has already resulted in the closure of Switzerland’s oldest bank, Wegelin & Co., and the payment of a $2.6 billion fine by Credit Suisse Group AG, all within the last two years. While the penalties to be imposed by participating in the amnesty program are high, the risk of a result like that in Wegelin or Credit Suisse surely impacted the banks’ decisions to enroll in the program in the first place. Any bank choosing to opt out of the amnesty program at this point would risk a criminal investigation. Under these circumstances, it appears that the Swiss banks participating in the program have little bargaining power and are essentially at the mercy of the U.S. government.