Switzerland's tradition of bank secrecy dates back three centuries. In 1713, the canton of Geneva enacted an ordinance that prohibited bankers from divulging any information about their clients’ transactions. Since then, the Swiss have successfully rebuffed demands to end or restrict bank secrecy from adversaries ranging from Napoleon to Adolph Hitler.
But while Napoleon and the Nazis couldn't penetrate Swiss bank secrecy, the United States has been remarkably successful in doing so. On March 5, the Swiss Parliament ratified an amendment to the U.S.-Swiss tax treaty that gives U.S. investigators the right to demand information on groups of people, rather than individuals. This might not seem like a major change, but the implications greatly compromise Swiss bank secrecy rules. That's because the amendment requires Switzerland to hand over data on suspected tax evaders, even if U.S. authorities cannot identify these persons or companies. While the amendments only come into effect after ratification by the U.S. Senate, they are retroactive to 2009.
Under the amendment, Switzerland agrees to honor requests for information, including group requests, if U.S. authorities can demonstrate clear evidence of a suspected offense by a bank and can also detail a "pattern of behavior" possibly indicating tax evasion.
Sad as this development is, it comes as no surprise. Back in 2009, the United States threatened to criminally indict UBS, Switzerland's largest bank. It also demanded information on more than 52,000 accounts allegedly owned by U.S. persons. UBS settled the case by ditching all of its U.S. account-holders, paying a $780 million fine, agreeing to release information on more than 4,000 account-holders—and agreeing to re-negotiate the U.S.-Swiss tax treaty
The amendment's focus on both banks and depositors at those banks is deliberate. The U.S. Department of Justice has targeted 11 Swiss banks and financial entities for scrutiny in this regard. For non-compliant U.S. depositors of these banks, it's basically "game over." We don't yet know which banks have been targeted, but this list reportedly includes Credit Suisse, Julius Baer, the Basel Cantonal Bank, and Zurich Cantonal Bank. Not to mention Wegelin Bank, which the Justice department criminally indicted in February.
At these banks, and possibly others, the IRS won't have to name clients under investigation, but only ask for the names of unknown U.S. clients who have exhibited specific traits. For instance, the IRS could request a list of all U.S. clients who failed to complete IRS Form W-9. This form authorizes the bank to release information on income from the account to the IRS.
And that's just the beginning. Separately, the Justice Department is investigating more than 300 additional Swiss banks for potential tax violations in their private banking divisions.
The handwriting is definitely on the wall. Bank secrecy, at least with respect to governments, is dead in Switzerland. And it's dying in every other offshore jurisdiction that's agreed to, or will agree to, similar U.S. demands.
Not that the United States is the only country prodding Switzerland and other low-tax countries to tattle on their non-resident depositors. The United Kingdom, Australia, and Germany are among many other high-tax countries with similar initiatives underway.
The message is simple. If you live in a country that imposes tax on your worldwide income, or that taxes you on the basis of your citizenship, you can't hide your assets offshore.
If you're a U.S. citizen with unreported income or assets in Switzerland or elsewhere, you have no time to waste. Contact a qualified tax attorney immediately to begin the long—and often expensive—process of becoming compliant.
Are you fed up with your continuing obligations to the U.S. tax system? Or tired of having offshore accounts and business opportunities closed off because of your U.S. citizenship? You can end permanently your obligation to pay tax on your worldwide income through a process called expatriation. The Nestmann Group, Ltd. has assisted dozens of persons through this process. We can help you, too. Contact us today for a consultation to learn more.
Copyright © 2012 by Mark Nestmann
Are Swiss Banks Safe?
Switzerland is one of the most popular places for our private consulting clients to set up an offshore bank account. That’s not because we’re biased in favor of Switzerland, or against other countries. It’s just that, for wealthier US clients, Switzerland continues to roll out the red carpet. That’s just not true of many other places unless you have a local residency permit.
Given how much we talk about how to protect yourself against bank bail-ins, the main concern for many of our clients is to find a bank that is safe.
How did Swiss banks got their reputation as a place for safe and secure banking options? And do they still live up to it in today’s ever-changing financial landscape with ever more regulations and rules?
You can find more information here: Are Swiss Banks Safe?
