Aug 20 2009 Brett Wolf
The US Department of Justice and the Internal Revenue Service have released the details of the pact they hammered out with Swiss bank UBS AG and the Swiss government as part of America's crusade against offshore tax dodgers. The bank has agreed to hand over information on 4,450 accounts that the IRS strongly suspects of shielding undeclared assets belonging to Americans. Interestingly, the pact also leaves open the possibility that the IRS could demand information from other Swiss banks.
"The Swiss government has agreed to review and process additional requests for information from other banks regarding their account holders to the extent that such a request is based on a pattern of facts and circumstances equivalent to those of the UBS case," the DoJ noted when announcing the deal (PDF).
Wilmer "Buddy" Parker, a former federal prosecutor who is now a partner with the Atlanta law firm Maloy Jenkins Parker, told Complinet the deal "is likely to draw a number of other Swiss financial institutions into the IRS investigative web if any one of those institutions engaged in affirmative conduct in recruiting clients and in structuring transactions to conceal the true identity of the account holders."
"On the other hand, if a Swiss bank simply provided traditional banking services to American clients taking no efforts to assist in concealing the true identity of the account holders, then the IRS will probably not expend resources on investigating that bank," Parker said.
The names of the affected UBS account holders will first go to the Swiss Federal Tax Administration. The account holders will be notified before their information is released to the IRS and they will be able to appeal the decision before Switzerland's Federal Administrative Court. Of course, given that UBS' pact with the DoJ is Switzerland's last best hope of preserving some vestige of its vaunted bank secrecy, Swiss authorities are not likely to risk breaching the deal for any customer.
Under the agreement, the IRS will submit a treaty request to the Swiss government describing the specific accounts for which it is requesting information. The Swiss government will then direct UBS to initiate the above-mentioned procedures for turning over the information. The entire process is expected to take several months, ample time for American tax dodgers to come clean and avoid draconian penalties — and potential criminal prosecution — by participating in the IRS' "voluntary disclosure" program. Of course, as the DoJ noted, once the IRS has a person's account data, he or she will no longer be eligible to participate.
"The IRS will receive information on accounts of various amounts and types, including bank-only accounts, custody accounts in which securities or other investment assets were held and offshore company nominee accounts through which an individual indirectly held beneficial ownership in the accounts," the DoJ stated.
As Complinet readers know, in February 2009, UBS reached a deferred prosecution agreement with the DoJ in which the bank admitted helping US taxpayers hide wealth from the Internal Revenue Service and agreed to pay $780m in penalties. As part of that agreement, UBS provided the US government with the identities of, and account information for, hundreds of American customers.
The DoJ soon thereafter filed a lawsuit demanding that UBS share account information for 52,000 other Americans. The DoJ, UBS and the Swiss government recently entered talks aimed at avoiding further litigation. The deal outlined in this article is the product of those talks.
