By Asher Rubinstein, Esq.
Two additional Swiss banks, Bank Frey and Pictet & Cie, are now “officially” under investigation by the U.S. Department of Justice for aiding tax fraud by U.S. taxpayers with Swiss accounts. These two banks now join the list of banks around the world publicly known to be under IRS and DOJ investigation, which includes Credit Suisse, Julius Baer, Liechtensteinische Landesbank, Bank Leumi, Bank Hapoalim and HSBC.
The two new additions to the list are not a surprise. Banking secrecy once offered in Switzerland was not confined to big banks like UBS, but was available at banks of all sizes, including the local Cantonal banks and small private banks. Moreover, the offshore voluntary disclosure programs offered by the IRS in 2009, 2011 and 2012 resulted in over thirty thousand U.S. taxpayers coming forward and, in exchange for lower penalties and no criminal prosecution, revealing the banks, bankers, lawyers and other providers of under-the-tax-radar banking services. Thus, it was inevitable that the IRS and DOJ would get to Bank Frey and Pictet sooner or later.
What is surprising is that the list of foreign banks “officially” under IRS and DOJ scrutiny is fewer than two dozen. We believe that there are many, many more banks, around the world, being investigated, yet many investigations remain unpublicized. That will change with indictments, subpoenas and requests for information under the many Tax Information Exchange (TIE) treaties signed by the U.S. and foreign countries. With the exception of banking in a handful of countries such as North Korea and Zimbabwe (which we do not recommend), we believe that there is no foreign jurisdiction that is impervious to the reach of the IRS and DOJ.
There is still an opportunity for taxpayers with non-compliant foreign accounts to come into compliance, and the opportunity even exists for those with accounts at Bank Frey and Pictet. The most recent Offshore Voluntary Disclosure Program (OVDP) is still being offered by the IRS. However, there are two important points to note. First, the IRS can close the OVDP at any time. The IRS has not stated how long the OVDP will continue to be offered. Second, “the IRS may announce that certain taxpayer groups that have or had accounts at specific financial institutions will be ineligible due to U.S. government actions in connection with the specific financial institution.” (IRS OVDP FAQ 21). This means that the IRS could close the OVDP to U.S. taxpayers with unreported accounts at Bank Frey and Pictet, while leaving the program open to people with accounts at other offshore banks. According to one report, the Swiss Financial Market Supervisory Authority (FINMA), has already communicated with Pictet and Frey regarding transmission of banking information to U.S. investigators. Of course, once the IRS obtains foreign account information about a taxpayer, then that taxpayer’s OVDP application will be rejected. The OVDP window may not be open for long.
For additional background, please see our articles here.