DOJ’s Latest Offshore Tax Case Shows Expatriates Who Renounce U.S. Citizenship Not Immune From Prosecution

An individual residing in Switzerland since 2007, who apparently renounced his U.S. citizenship four years ago, was convicted today in federal court of one count of filing a false U.S. income tax return. According to a Justice Department press release, Albert Cambata opened a bank account at an unnamed Swiss bank in 2006 in the name of a Hong Kong company, with the assistance of a Swiss banker and a Swiss attorney. Later that year, Mr. Cambata received $12 million from a company based in Belize, which funds in turn originated from a company in Panama.

On his 2007 and 2008 federal income tax returns, Mr. Cambata failed to report interest income earned on his Swiss bank account in the amounts of $77,298 and $206,408, respectively. In April 2008, Mr. Cambata had his Swiss attorney request that 5 million Euros be wired from his Swiss account to a different account controlled by Mr. Cambata located at the Monaco branch of a different Swiss bank. In June 2008, Mr. Cambata closed his original Swiss bank account and moved the funds to an account he controlled at the Singapore branch of a third Swiss bank.

In 2012, Mr. Cambata went to the U.S. Embassy in Bratislava, Slovakia, to renounce his U.S. citizenship. At that time, he notified the U.S. Department of State that he had become a naturalized citizen of St. Kitts and Nevis.

Sentencing is scheduled for April 15, 2016. As part of his plea agreement, Mr. Cambata agreed to pay $84,849 in restitution.

Several interesting conclusions can be drawn from this latest conviction in the U.S. government’s extensive and ongoing crackdown on offshore tax evasion. First, the information that DOJ used to pursue Mr. Cambata and his extensive trail of money transfers likely came from either banks participating in the Swiss Bank Program or Category 1 Swiss banks which have reached resolutions with the U.S. government (like UBS and Credit Suisse), or perhaps both. All three of Mr. Cambata’s accounts – in Switzerland, Monaco, and Singapore – were held at branches of Swiss banks, and although those banks are not identified by name in the DOJ press release, they are likely cooperating with the U.S. government in same fashion. In addition, the funds at issue originated from companies based in Belize and Panama, countries which are squarely in the sights of the Tax Division’s ongoing investigations. In 2015, a federal court authorized issuance of “John Doe” summonses seeking information regarding accounts held at certain Belize banks as well as companies that assisted in the creation of Belizean international business corporations. Today’s conviction presumably was the product of information shared with the U.S. by Swiss banks and through the “John Doe” summons process.

Second, the guilty plea of Mr. Cambata has several interesting features. He only pleaded guilty to filing false tax returns for 2007 and 2008, and it is unclear why his plea did not include subsequent years given that, according to the press release, he moved his funds to a third Swiss bank account in June 2008. It is possible that Mr. Cambata properly reported his foreign accounts beginning in tax year 2009 and thereafter. In February 2009, the U.S. government announced its landmark agreement with Swiss banking giant UBS, and the significant publicly generated by that announcement may have prompted Mr. Cambata (like many others) to properly file U.S. returns and FBARs starting in that year and thereafter. In addition, the tax years of conviction (2007 and 2008) would normally be closed due to operation of the six-year criminal statute of limitations for tax crimes, but that statute does not run when the defendant is “outside the United States.” According to the press release, Mr. Cambata resided outside the United States – in Switzerland – since 2007. The amount of unreported income, and the “tax loss,” are also of note in this case. Mr. Cambata in his guilty plea agreed to pay restitution to the U.S. Treasury in the amount of $84,849. In a criminal tax case, the restitution amount normally corresponds to the “tax loss,” which is the key factor for sentencing purposes. Assuming that the tax loss is $84,849, with appropriate adjustments for “sophisticated means” typically required in offshore tax cases and for pleading guilty, Mr. Cambata is likely facing a sentence of between 12 to 18 months in prison. The tax loss in this is not overwhelming compared to other offshore criminal tax cases brought by the Justice Department, but given the other features present here – the defendant residing outside the United States; use of a complex web of multiple accounts, entities, and countries – the government obviously felt that this was a case worth prosecuting.

Third, this case should serve as a warning to expatriates that renouncing U.S. citizenship does not confer immunity from criminal prosecution. The rules for renouncing U.S. citizenship are complicated – both from a State Department and IRS perspective – and even those who carefully comply with those rules are not absolved from criminal conduct occurring prior to that time, as Mr. Cambata’s case demonstrates.  This is especially important as the number of U.S. citizens renouncing their citizenship is reaching record levels.

Finally, from a general deterrence perspective, this case serves as a broad warning to taxpayers with undisclosed foreign bank accounts and unreported income like Mr. Cambata – particularly those who are expatriates – that the risk of inaction is grave. For nearly eight full years, the DOJ and IRS have waged a public campaign to crack down on offshore tax evasion, and during that entire time the IRS has offered various voluntary disclosure programs to incentivize non-compliant taxpayers to come forward voluntarily and self-correct their tax issues. Individuals with undisclosed foreign bank accounts who remain on the sidelines at this late stage are very much at risk of discovery (like Mr. Cambata) and will face harsh consequences for failing to take advantage of the various voluntary disclosure options long available to them. Indeed, today’s DOJ press release includes the government’s now-typical language warning non-compliant taxpayers of the dire consequences they face if they fail to take immediate action:

“U.S. taxpayers have been given ample opportunity to come forward, disclose their secret foreign accounts, and come into compliance,” said Acting Assistant Attorney General Ciraolo. “Those individuals and entities who rolled the dice in the hope of remaining anonymous are facing the consequences. The Tax Division remains committed to investigating and prosecuting individual taxpayers with undeclared foreign financial accounts, as well as the financial institutions, bankers, financial advisors and other professionals who facilitate the concealment of income and assets offshore. And as today’s guilty plea clearly indicates, the department’s reach is well beyond Switzerland.”

“IRS Criminal Investigation will continue to pursue those who do not pay the taxes they owe to the United States,” said Special Agent in Charge Thomas Jankowski of the Internal Revenue Service-Criminal Investigation, Washington, D.C. Field Office. “Today’s plea is a reminder that we are committed to following the money trail across the globe and will not be deterred by the use of sophisticated international financial transactions that hide the real ownership of income taxable by the United States.”

 

DOJ Tax Division Chief Outlines Enforcement Priorities for 2016

DOJ logoIn speech delivered on January 29, 2016, at the American Bar Association’s Tax Section Midyear Meeting, Acting Assistant Attorney General Caroline D. Ciraolo of the Justice Department’s Tax Division recapped her agency’s successes during 2015, and outlined its priorities for 2016. A number of key details regarding the government’s criminal and civil tax enforcement agenda were disclosed during the speech, as follows:

  • Offshore tax enforcement remains among the Tax Division’s top priorities.  Since 2008, DOJ has publicly charged more than 100 accountholders and nearly 50 individuals who have aided and assisted U.S. taxpayers in concealing foreign accounts and evading their U.S. tax obligations.  The government has also reached final criminal resolutions with six foreign financial institutions, including UBS and Credit Suisse, the two largest bank in Switzerland.
  • The Tax Division recently concluded the Swiss Bank Program, with 80 banks reaching resolutions and paying over $1.3 billion in penalties.
  • More than 54,000 individual taxpayers have made voluntary disclosures to the IRS regarding undisclosed offshore assets, paying over $8 billion in taxes, penalties, and interest.
  • The Tax Division continues to pursue investigations of banks outside of Switzerland, including in countries such as Belize, the British Virgin Islands, the Cayman Islands, the Cook Islands, India, Israel, Liechtenstein, Luxembourg, the Marshall Islands and Panama.
  • The Tax Division encourages “outreach by practitioners” and “encourage[s] financial institutions and individuals who have engaged in criminal conduct to contact the department to discuss their options.”
  • In addition to criminal enforcement, the Tax Division is using civil enforcement tools to pursue those who continue to conceal foreign accounts and assets and evade their U.S. tax obligations.  DOJ will continue to work with the IRS with respect to the examination and assessment of penalties for violations of the FBAR reporting requirements, file suits to collect outstanding FBAR penalties and defend against complaints for refund of FBAR penalties paid.
  • The Tax Division will continue to work closely with the IRS in its efforts to obtain foreign account records.  Using the “Required Records Doctrine,” DOJ has successfully challenged motions to quash grand jury subpoenas in criminal cases and obtained orders enforcing summonses in civil cases.  “At this point, the message is clear: taxpayers are required to maintain foreign records and produce them upon request.”
  • The DOJ will continue to make of “John Doe” summonses where the IRS is aware of possible violations of the internal revenue laws by individuals whose identities are unknown. In addition, the Tax Division will use Bank of Nova Scotia summonses and grand jury subpoenas, which seek to compel a domestic financial institution to produce records located in a foreign country.
  • The Tax Division is willing to assist treaty partners in their own tax enforcement efforts, as evidenced by a recent case, Dileng v. Commissioner.  In that case, the taxpayer had unpaid tax liabilities in excess of $2.5 million in Denmark. Under the U.S.-Denmark Tax Treaty, the Danish taxing authority submitted a collection assistance request and a revenue claim to the IRS, requesting that the IRS assist in collecting Mr. Dileng’s Danish liabilities.  Mr. Dileng filed suit, seeking to enjoin collection efforts by the IRS. The district court dismissed that suit, finding that an accepted revenue claim must be treated like a U.S. tax assessment for collection purposes within the United States, even though Mr. Dileng is prohibited from challenging those liabilities in U.S. courts.
  • In 2016, we can expect additional civil enforcement actions and ongoing and new criminal investigations and prosecutions.  Taxpayers participating in the OVDP or Streamlined programs may be contacted and interviewed by the IRS/DOJ as part of their ongoing cooperation.  Taxpayers who filed returns and FBARs pursuant to the streamlined filing procedures or the Delinquent International Information Return or FBAR submission procedures should be “very concerned if they falsely claimed to have engaged in non-willful conduct or acted with reasonable cause.”
  • “[F]inancial institutions and individuals who have facilitated the concealment of offshore accounts and the evasion of U.S. tax obligations would be well advised to anticipate an investigation and consider voluntarily disclosing any criminal activity to the department before they become the subject of an investigation.”
  • In the past year, the Tax Division has hired more than 80 new attorneys.  Currently, the Tax Division has more than 200 civil trial attorneys, more than 100 prosecutors and approximately 50 appellate attorneys. The Tax Division has established an international training series to ensure that its attorneys are familiar with the relevant issues and available tools in offshore enforcement and are working very closely with the IRS to identify those U.S. taxpayers failing to comply with their tax obligations.
  • “Those who underestimate the ability of the United States to pursue offshore tax evasion do so at their own peril.”

The text of the Acting Assistant Attorney General’s speech is set forth below.

Thank you for that kind introduction.  Let me begin by saying how nice it is to return to the American Bar Association (ABA) Tax Section meetings.  I’d like to focus my remarks this afternoon on the Justice Department Tax Division’s offshore enforcement efforts.  As you know, it has been a very busy year for the Tax Division, and I’m happy to report on our accomplishments and discuss what lays ahead in 2016.

First, a bit of history for those of you who may not have spent your summer in Switzerland or encouraging countless numbers of clients to participate in the Internal Revenue Service (IRS) offshore voluntary disclosure programs.  Offshore tax enforcement has been and remains among the department’s top priorities.  Since 2008, the department has publicly charged more than 100 accountholders and nearly 50 individuals who have aided and assisted U.S. taxpayers in concealing foreign accounts and evading their U.S. tax obligations.  We also reached final criminal resolutions with six foreign financial institutions, including Credit Suisse, which pleaded guilty in May 2014 and agreed to pay $2.6 billion for its role in assisting U.S. taxpayers to evade their U.S. reporting and tax obligations.

On Aug. 29, 2013, the department announced the Swiss Bank Program, which provided a path for Swiss banks to resolve potential criminal liabilities in the United States.  Banks already under criminal investigation related to their Swiss-banking activities, identified as Category 1 banks, and all individuals were expressly excluded from the program.

Under the program, Swiss banks about which we had little or no information came forward and self-identified as having helped U.S. taxpayers to hide foreign accounts and evade their U.S. tax obligations.  In exchange for a non-prosecution agreement, these institutions, identified as Category 2 banks, made a complete disclosure of their cross-border activities, provided detailed information on accounts in which U.S. taxpayers have a direct or indirect interest, are cooperating in treaty requests for account information, are providing detailed information as to other banks that transferred funds into secret accounts or that accepted funds when secret accounts were closed and must cooperate in any related criminal and civil proceedings for the life of those proceedings.  Additionally, the Category 2 banks have paid appropriate penalties, which were mitigated with proof that the U.S. taxpayer declared the account, the account was reported by the bank or the U.S. taxpayer came into a voluntary disclosure program at the bank’s urging.

On March 30, 2015, the department signed the first non-prosecution agreement with BSI SA and announced its goal to complete the Category 2 bank agreements by year end.  I’m very proud to announce that earlier this week, the department signed the final Category 2 bank non-prosecution agreement with HSZH, imposing a penalty in excess of $49 million.  For those who are counting, in the last 10 months, the department executed 78 agreements with 80 banks and imposed more than $1.3 billion in Swiss Bank Program penalties.

The department also signed a non-prosecution agreement with Finacor, a Swiss asset management firm, reflecting the department’s willingness to reach fair and appropriate resolutions with entities that come forward in a timely manner, disclose all relevant information regarding their illegal activities and cooperate fully and completely, including naming the individuals engaged in criminal conduct.

The conclusion of the Category 2 agreements is a significant milestone in our continuing effort to shut down offshore tax evasion.  Swiss banks have revealed the names of thousands of U.S. accountholders, a substantial number of whom have voluntarily disclosed their accounts to the IRS, and are providing information for treaty requests to obtain the names and account records of those individuals who have refused to waive Swiss bank secrecy.  The program has driven thousands of taxpayers into the IRS voluntary disclosure programs.  In October 2015, the IRS reported more than 54,000 voluntary offshore disclosures and the collection of more than $8 billion in taxes, penalties and interest.  These figures have substantially increased since the program was announced in August 2013, due in part to the pressure applied by the Swiss banks on their accountholders to come into compliance.

Critical to the success of the program, in addition to the unwavering support of the department’s leadership, was the substantial assistance of IRS-Criminal Investigation and the Large Business & International Division.  Special agents, revenue agents and analysts have been dedicated to the program for two years, working side by side with the Tax Division’s civil trial attorneys, prosecutors and support staff to carefully review and consider the tremendous volume of information produced by the Category 2 banks.  I cannot begin to tell you how proud I am of those involved in this program and the rest of the Tax Division, which stepped up to the plate to handle more work and larger dockets, while their colleagues continued this pursuit.

While I am pleased that we have completed the agreements with the Category 2 banks, it is important to note that our work is far from done, and we do not rest on our laurels.  Tax Division attorneys and IRS personnel are reviewing the information received from Swiss banks that, under Category 3 and Category 4 of the program, maintain that they did not commit any violations of U.S. law, but seek a non-target letter after providing information required by the program.  We are also reviewing the information provided by the Category 2 banks, responses to our treaty requests and information from whistleblowers and cooperators to pursue criminal investigations and work with our colleagues at the IRS on civil enforcement efforts.

Outside the program, we continue to pursue pending Category 1 bank investigations.  We are looking well beyond Switzerland, to jurisdictions that many of you have added to your passports – for example: Belize, the British Virgin Islands, the Cayman Islands, the Cook Islands, India, Israel, Liechtenstein, Luxembourg, the Marshall Islands and Panama, just to name a few.  We encourage this outreach by practitioners and encourage financial institutions and individuals who have engaged in criminal conduct to contact the department to discuss their options.

While much attention has been paid to our criminal enforcement efforts, we are also using civil enforcement tools to pursue those who continue to conceal foreign accounts and assets and evade their U.S. tax obligations.  For example, we will continue to work with our colleagues at the IRS with respect to the examination and assessment of penalties for violations of the Foreign Bank and Financial Account (FBAR) reporting requirements, file suits to collect outstanding FBAR penalties and defend against complaints for refund of FBAR penalties paid.

We are also working closely with the IRS in its efforts to obtain foreign account records.  Under the Required Records Doctrine, the department has successfully challenged motions to quash grand jury subpoenas in criminal cases and obtained orders enforcing summonses in civil cases.  At this point, the message is clear: taxpayers are required to maintain foreign records and produce them upon request.

Where the IRS is aware of possible violations of the internal revenue laws by individuals whose identities are unknown, the department has sought and will continue to seek orders authorizing the issuance of “John Doe” summonses.  For instance, this past September, the U.S. District Court for the Southern District of Florida authorized the issuance of summonses to Citibank and Bank of America to produce records identifying U.S. taxpayers with accounts at Belize Bank International Limited, Belize Bank Limited or their affiliates, including other foreign banks that used these two banks’ correspondent accounts to service U.S. clients.  The court also granted the IRS permission to seek records related to Citibank’s and Bank of America’s correspondent accounts for Belize Corporate Services and information related to its deposit accounts at Bank of America.  Belize Corporate Services is incorporated and based in Belize and offers, among other things, the purchase of “shelf” Belizean international business companies.

The government’s offshore enforcement arsenal also includes Bank of Nova Scotia summonses and grand jury subpoenas, which seek to compel a domestic financial institution to produce records located in a foreign country.  These summonses or grand jury subpoenas have been utilized and upheld by courts despite the fact that producing the records in the United States would cause the financial institution to violate the laws of a foreign country.  In appropriate circumstances the department will use – and enforce – such subpoenas and summonses.

We also stand ready to assist our treaty partners in their own tax enforcement efforts, as evidenced in Dileng v. Commissioner.  Mr. Dileng has unpaid tax liabilities in excess of $2.5 million in Denmark, which he has challenged in Danish courts.  Like many tax treaties, the U.S.-Denmark Tax Treaty contains a provision allowing a treaty partner to request that the counterpart assist in pursuing collection of domestic taxes in the counterpart jurisdiction.  Pursuant to a collection assistance provision in the U.S.-Denmark Tax Treaty, the Danish taxing authority submitted a collection assistance request and a revenue claim to the IRS, requesting that the IRS assist in collecting Mr. Dileng’s Danish liabilities.  Mr. Dileng filed suit, seeking to enjoin collection efforts by the IRS.

The U.S. District Court for the Northern District of Georgia dismissed the suit, finding that an accepted revenue claim must be treated like a U.S. tax assessment for collection purposes within the United States, even though Mr. Dileng is prohibited from challenging those liabilities in U.S. courts.  The court found that the Anti-Injunction Act and the tax exception to the Declaratory Judgment Act barred him from bringing his claim to stop the IRS from collecting and that the United States had not waived sovereign immunity for his suit.  The court further found that collection under the circumstances did not implicate Mr. Dileng’s due process rights because he is indeed challenging his tax liabilities in Danish courts.

The Dileng case, like similar orders obtained from seven federal courts in 2013 authorizing the IRS to serve John Doe summonses on certain U.S. banks and financial institutions seeking information about persons who used specific credit or debit cards in Norway, demonstrate that the IRS and the department take the United States’ treaty responsibilities seriously.  We will continue to use the collection assistance provisions in our tax treaties to ensure U.S. taxpayers abide by their tax obligations in the United States, and we will continue to do our best to uphold our reciprocal obligations to our treaty partners.

So what can you expect in 2016?  Additional civil enforcement actions and ongoing and new criminal investigations and prosecutions.  Taxpayers who have participated in the IRS voluntary disclosure programs may be contacted and interviewed by the IRS and the department as part of their ongoing cooperation.  Taxpayers who filed returns and FBARs pursuant to the streamlined filing procedures or the Delinquent International Information Return or FBAR submission procedures should be very concerned if they falsely claimed to have engaged in non-willful conduct or acted with reasonable cause.  And financial institutions and individuals who have facilitated the concealment of offshore accounts and the evasion of U.S. tax obligations would be well advised to anticipate an investigation and consider voluntarily disclosing any criminal activity to the department before they become the subject of an investigation.

In the past year, the Tax Division has hired more than 80 new attorneys.  We currently have more than 200 civil trial attorneys, more than 100 prosecutors and approximately 50 appellate attorneys working hard in support of the Tax Division’s mission to enforce the nation’s tax laws fully, fairly and consistently, through both criminal and civil litigation.  We have established an international training series to ensure that our attorneys are familiar with the relevant issues and available tools in offshore enforcement and are working very closely with our partners at the IRS to identify those U.S. taxpayers failing to comply with their tax obligations.  Those who underestimate the ability of the United States to pursue offshore tax evasion do so at their own peril.

In closing, it’s an honor to serve as Acting Assistant Attorney General of the Tax Division, and it’s a great time to be involved in tax enforcement.  I anticipate a very busy 2016, and I’m looking forward to continuing to work with each of you to bring your clients into compliance.  Thank you again for your time, and I hope each of you enjoys the rest of the meeting.

 

Justice Department Announces Historic Conclusion of Swiss Bank Program for Category 2 Institutions

DOJ logoThe Justice Department achieved a historic milestone in its ground-breaking Swiss Bank Program with its announcement today of the final Category 2 bank resolution. The Justice Department executed its 80th and final agreement with HSZH Verwaltungs AG, which agreed to pay a civil penalty of more than $49 million. All told, the 80 Category 2 Swiss banks which resolved their criminal tax exposure with the U.S. government will pay more than $1.36 billion in penalties. Perhaps even more importantly, every Category 2 bank in the Swiss Bank Program is required to cooperate in any future related criminal or civil proceedings, thereby ensuring that the Justice Department will have the complete assistance from each bank as the U.S. government pursues leads throughout the world.

By all accounts, the Swiss Bank Program appears to have been an incredible success for the Justice Department (and IRS) in its efforts to combat offshore tax evasion. Never before had the U.S. government offered an amnesty program to the entire banking industry in a particular country, and at the time the program was unveiled in 2013, it was not clear that the program would be a success or that Swiss banks would be interested. But given the overwhelming demonstration of interest from Swiss banks, the substantial monetary penalties collected, and the wealth of information shared with the U.S., the program can fairly be declared a significant win for the U.S. government. Given the success of the Swiss Bank Program, it will be interesting to see whether the Justice Department offers a similar program to banks in other countries or regions.

Today’s press release included the following quote from the Attorney General thanking the Swiss government for its efforts in making the Swiss Bank Program so successful:

“The Department of Justice is committed to aggressively pursuing tax evasion, and the Swiss Bank Program has been a central component of that effort,” said Attorney General Loretta E. Lynch. “Through this initiative, we have uncovered those who help facilitate evasion schemes and those who hide funds in secret offshore accounts. We have improved our ability to return tax dollars to the United States. And we have pursued investigations into banks and individuals. I would like to thank the Swiss government for their cooperation in this effort, and I look forward to continuing our work together to root out fraud and corruption wherever it is found.”

Other Justice Department officials echoed the Attorney General’s sentiments, and noted that the Swiss Bank Program has provided the DOJ and IRS with a wealth of information that is being mined for leads that are being pursued civilly and criminally throughout the world:

“The department’s Swiss Bank Program has been a successful, innovative effort to get the financial institutions that facilitated fraud on the American tax system to come forward with information about their wrongdoing – and to ensure that they are held responsible for it,” said Acting Associate Attorney General Stuart F. Delery. “As we have seen over the last year, Swiss banks are paying an appropriate penalty for their misconduct, and the information and continuing cooperation we have required the banks to provide in order to participate in the program is allowing us to systematically attack offshore tax avoidance schemes.”

“The completion of the agreements under Category 2 of the Swiss Bank Program represents a substantial milestone in the department’s ongoing efforts to combat offshore tax evasion, and we remain committed to holding financial institutions, professionals and individual taxpayers accountable for their respective roles in concealing foreign accounts and assets, and evading U.S. tax obligations,” said Acting Assistant Attorney General Caroline D. Ciraolo of the Justice Department’s Tax Division. “Using the flood of information flowing from various sources, the department is investigating this criminal conduct, referring appropriate matters to the Internal Revenue Service for civil enforcement and pursuing leads in jurisdictions well beyond Switzerland. Individuals and entities engaged in offshore tax evasion are well advised to come forward now, because the window to get to us before we get to you is rapidly closing.”

Top officials from the Internal Revenue Service similarly commended today’s announcement, noting that more than 54,000 taxpayers have come forward to voluntarily disclose their previously-undisclosed offshore assets:

“Today’s resolution with HSZH Verwaltungs AG brings to a close this phase of DOJ’s Swiss Bank Program,” said acting Deputy Commissioner International David Horton of the IRS Large Business & International Division. “The comprehensive success of this program sends a powerful message to those who might think they can evade their tax obligations by going offshore. A whole sector of financial institutions, 80 banks in all, has been held accountable for aiding the use of secret accounts and circumventing U.S. law. In addition to the more than $1.3 billion in penalties from these resolutions, more than 54,000 taxpayers have come forward to the IRS to pay more than $8 billion in taxes, interest and penalties.”

“The bank agreement with HSZH announced today may bring an end to one phase of the Swiss Bank Program, but more importantly it brings us closer to our overall goal of compliance and accountability for financial institutions and U.S. taxpayers,” said Chief Richard Weber of IRS-Criminal Investigation. “The data received from each agreement on the accounts, schemes and linkages is extremely valuable in combating international tax evasion. I could not be more proud of the effort of our special agents who worked tirelessly to make this program a success in coordination with the Department of Justice.”

The Swiss Bank Program, which was announced on Aug. 29, 2013, provides a path for Swiss banks to resolve potential criminal liabilities in the United States. Swiss banks eligible to enter the program were required to advise the department by Dec. 31, 2013, that they had reason to believe that they had committed tax-related criminal offenses in connection with undeclared U.S.-related accounts. Banks already under criminal investigation related to their Swiss-banking activities and all individuals were expressly excluded from the program.

Under the program, banks are required to:

  • Make a complete disclosure of their cross-border activities;
  • Provide detailed information on an account-by-account basis for accounts in which U.S. taxpayers have a direct or indirect interest;
  • Cooperate in treaty requests for account information;
  • Provide detailed information as to other banks that transferred funds into secret accounts or that accepted funds when secret accounts were closed;
  • Agree to close accounts of accountholders who fail to come into compliance with U.S. reporting obligations; and
  • Pay appropriate penalties.

Swiss banks meeting all of the above requirements are eligible for a non-prosecution agreement.

Taxpayers who have still not “come clean” and declared their offshore assets may still take advantage of various IRS programs, such as the Offshore Voluntary Disclosure Program or the Streamlined Filing Compliance Procedures, but the price of admission has now increased if they had accounts at HSZH:

Most U.S. taxpayers who enter the IRS Offshore Voluntary Disclosure Program to resolve undeclared offshore accounts will pay a penalty equal to 27.5 percent of the high value of the accounts. On Aug. 4, 2014, the IRS increased the penalty to 50 percent if, at the time the taxpayer initiated their disclosure, either a foreign financial institution at which the taxpayer had an account or a facilitator who helped the taxpayer establish or maintain an offshore arrangement had been publicly identified as being under investigation, the recipient of a John Doe summons or cooperating with a government investigation, including the execution of a deferred prosecution agreement or non-prosecution agreement. With today’s announcement of this non-prosecution agreement, noncompliant U.S. accountholders at HSZH must now pay that 50 percent penalty to the IRS if they wish to enter the IRS Offshore Voluntary Disclosure Program.