The Justice Department recently announced that it has reached final resolutions under the Swiss Bank Program. The Program allowed cooperating Swiss banks to resolve their potential U.S. criminal liabilities and to cooperate in DOJ’s ongoing investigations into the use of foreign bank accounts by U.S. taxpayers to commit tax evasion.
The announcement marked the completion of the examination of Category 3 and 4 banks in the Swiss Bank Program. The Program established four categories of Swiss financial institutions. Category 1 banks included Swiss banks already under investigation when the Program was announced—such “Category 1” banks were therefore not eligible to participate. Category 2 was reserved for those banks that advised DOJ 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. Such qualifying and cooperating banks were eligible for non-prosecution agreements with DOJ. The final Category 2 non-prosecution agreement was finalized in January of 2016, marking a total of 80 such agreements with Category 2 Banks under the program.
The most recent announcement deals with Category 3 and 4 banks. Category 3 banks were those that established, with the assistance of an independent internal investigation of their cross-border business, that they did not commit tax or monetary transaction-related offenses and have an effective compliance program in place. Among other things, Category 3 banks were required to provide information about their cross-border business, and to close accounts of accountholders who fail to come into compliance with U.S. reporting obligations. Under the Program, compliant Category 3 banks received a non-target letter.
Category 4 of the Program was reserved for Swiss banks that were able to demonstrate that they met certain criteria for deemed-compliance under the Foreign Account Tax Compliance Act (FATCA). Category 4 banks were also eligible for a non-target letter. However, ultimately there were no Category 4 banks under the program.
Again, the announcement marks the completion of the final resolution under the Swiss Bank Program. And DOJ and IRS officials, commenting on the resolutions, indicated that the government will be actively mining and building on the information it has received to continue—if not ramp up—its investigations into unreported or improperly reported foreign assets.
As DOJ announced, “[t]he completion of the resolutions with the banks that participated in the Swiss Bank Program is a landmark achievement in the Department’s ongoing efforts to combat offshore tax evasion.” According to Principal Deputy Assistant Attorney General Caroline D. Ciraolo, “[the Department of Justice is] now in the legacy phase of the Program, in which the participating banks are cooperating, and will continue to cooperate, in all related civil and criminal proceedings and investigations. The Tax Division, working closely with its colleagues throughout the Department and its partners within the Internal Revenue Service (IRS), will continue to hold financial institutions, professionals, and individual U.S. taxpayers accountable for their respective roles in concealing foreign accounts and assets, and evading U.S. tax obligations.”
IRS Large Business & International Division (LB&I) Commissioner Douglas O’Donnell further warned that the IRS is “evaluating incoming information to detect accountholders who have evaded reporting overseas assets and income, and we are using this information to further untangle the web of financial institutions and intermediaries helping with this evasion. We have expanded our investigations to other regions of the world, and we will continue to apply these techniques to help protect honest taxpayers.”
Expect to see continued enforcement under the government’s foreign tax compliance initiatives, meaning more audit, investigations and prosecutions to come.