NEWARK, N.J. — Swiss banks seeking to avoid U.S. prosecution by disclosing how they helped Americans evade taxes asked the Justice Department in October to back off a dozen demands, including that they cooperate with other nations.
Lawyers representing 73 Swiss banks wrote on Oct. 21 to object to terms of a proposed non-prosecution agreement that spells out how banks can achieve amnesty through a disclosure program announced last year. The 11-page letter says the agreement “presents substantial obstacles” and suggests a wide range of changes to the model accord, including a requirement that banks “cooperate fully” with “any other domestic or foreign law enforcement agency” in any investigation.
“This requirement is not found in the program and, indeed, turns a program specifically focused on U.S. tax issues into a global cooperation agreement without any safeguards or guarantees of appropriate consideration of the banks’ cooperation,” according to the letter from 18 law firms obtained by Bloomberg News.
Banks seek certainty on no threats from the IRS
More than 100 firms, or about a third of Swiss banks, signed up for the program in December, seeking to end a six-year crackdown on the world’s largest offshore haven. The banks want certainty that they can put their past behind them without threats from the Internal Revenue Service. The letter protests that the model accord proposed by the Justice Department’s tax division doesn’t provide that assurance.
“Our clients are participating in this program to obtain finality as to their own exposure,” the law firms wrote. “We understand that the NPA does not bind the IRS formally, but it is important to our clients’ continuing participation through the conclusion of the NPA that we receive some form of assurance that the IRS will forebear from any further action.”
The banks also object to requirements that they disclose information on parent companies and that they share material with governments other than the United States. And they dispute the scope of provisions on breaches of the agreement.
“The model agreement goes quite far from the perspective of the banks,” said Philippe Zimmermann, who advises financial firms on compliance matters for Ernst & Young in Zurich. “The banks now have to find a way of negotiating with the Justice Department.”
US’s global crackdown
Switzerland is just one stop in the U.S. crackdown on offshore tax evasion. The Justice Department has also built criminal cases based on offshore accounts in India, Panama, the Cayman Islands, Hong Kong, Liechtenstein, Israel, and Bermuda. Switzerland is already under pressure from India to turn over bank data on tax dodgers, while France, Italy and Germany continue to try to recover back taxes from citizens who used Swiss bank secrecy to hide assets.
Firms that sought amnesty include small regional lenders such as Banque Cantonale de Geneve, Swiss private banks like Union Bancaire Privee and units of foreign firms such as Deutsche Bank, which said on Oct. 9 it was participating. About a dozen more Swiss banks including Julius Baer Group and Pictet & Cie. Group SCA, are already the subject of criminal probes and aren’t eligible to join the program.
Officials at the Frankfurt-based lender, UBP and BCGE declined to comment on their participation in the program.
The Justice Department has threatened to start formal criminal probes of banks with undeclared American assets that don’t participate in the program. An indictment could jeopardize their access to U.S. markets and stop them from making transactions in dollars. That leaves the firms little room to negotiate, said Milan Patel, a lawyer at Anaford in Zurich.
“If the larger banks lobby together over the points they deem unreasonable, the Justice Department may relax some elements of the model agreement,” said Patel, who represents companies and individuals embroiled in the program. “Otherwise, it is either accept it as it is, or withdraw from the program.”
The draft deal was sent Sept. 22, a week after the final deadline for handing over information, according to the letter. The Justice Department is working through documents that detail the amounts managed, business plans for cross-border services and the names of employees and external advisers who helped devise offshore structures to conceal money from the Internal Revenue Service.
The Justice Department is continuing discussions with Swiss banks and is “working through a number of issues in order to implement the requirements of the program,” Nicole Navas, a spokeswoman for the agency in Washington, said in an e-mail.
“The final word hasn’t been spoken,” Mark Branson, director of Switzerland’s financial regulator, said at a meeting of the Zurich Banking Association on Oct. 16. “In such a process there are always stages when big demands are made.” While the U.S. program is “expensive” and “onerous,” he said, “the alternative would probably be even worse.”
Banks are wary of dropping out because of the example of Wegelin & Co., the 270-year-old bank forced out of business by a U.S. indictment for helping Americans evade taxes that led to a guilty plea in 2013. The banks need to hold deposits and make transactions in dollars for clients from around the world, as well as to invest their assets in U.S. securities such as Treasuries and in equities traded in New York, and criminal charges would put that at risk.
“An indictment would be game over for Swiss banks if it ultimately prevented them from doing business in the U.S.,” said Xavier Oberson, a Geneva-based lawyer and academic.
Credit Suisse Group AG was fined $2.6 billion in May after its main subsidiary admitted helping Americans cheat the IRS. U.S. Attorney General Eric Holder said the bank failed to take basic steps to comply with tax laws, destroyed evidence, and conducted a “shamefully inadequate internal inquiry.”
The U.S. widened its investigation of Swiss wealth managers after UBS AG, the country’s largest bank, settled a criminal case in February 2009 by paying $780 million for helping thousands of Americans evade taxes. A day later, the U.S. sued UBS to force disclosure of as many as 52,000 American accounts. UBS agreed later to hand over about 4,500 accounts.
Raoul Weil, whose 24-year career at UBS culminated as head of wealth management, is on trial for tax conspiracy in Florida.
The Department of Justice has several teams of lawyers handling the negotiations, each working with about a half-dozen banks, a person with knowledge of the letter said. Their task is to review information provided by the banks, prepare admissions of wrongdoing and set penalties, a process that has been going on most of the year, according to the person, who asked not to be named as the matter is confidential.
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