On August 29, 2013 the U.S. Department of Justice and the Swiss Federal Department of Finance announced the “Program for Non-Prosecution or Non-Target Letters for Swiss Banks” (hereinafter the “Program”).  The Program was launched to end the long-running dispute between the two countries regarding evasion of tax obligations of U.S. related accounts held in Swiss banks.

In accordance with the Program, Swiss banks were categorized into four categories.  Each category  is defined by the degree of exposure a bank has to its cross-border business for “U.S. Related Accounts,” a term defined by the Program.  Category I banks have the highest degree of exposure to tax-related offenses while Category IV banks have little or no exposure to such offenses.

The Tax Division of the DOJ has already authorized formal criminal investigations against those banks in Category I, therefore those banks are excluded from participating in the Program.  However, today, December 31, 2013, marks the deadline by which the next most exposed category of banks, Category II,  must submit letters expressing their intent to participate in the Program.

Category II banks are those banks which “have reason to believe [they] have committed tax-related offenses under Titles 18 [criminal] or 26 [tax] . . . or monetary transactions offenses under 5314 or 5322, Title 31 [Treasury] . . . in connection with undeclared U.S. Related Accounts held by the Swiss [b]ank.”  U.S. Related Accounts means accounts which “exceeded $50,000 in value at any time . . . and as to which indicia exist that a U.S. [p]erson or [e]ntity has or had a financial or beneficial interest in, ownership of, or signature authority (whether direct or indirect) or other authority . . . over the account.”

Before the DOJ will enter into a non-prosecution agreement with a Category II bank, that bank will  have to “provide information including: [a] how the cross-border business for U.S. Related Accounts was structured, operated, and supervised . . . [b] the name and function of the individuals who structured, operated, or supervised the cross-border business for U.S. Related Accounts . . . [d] an in-person presentation and documentation, properly translated, supporting the disclosure of the above information, as well as cooperation and assistance with further explanation of information and materials so presented.”

Given the above, U.S. persons and entities who may have not already disclosed their foreign accounts to the IRS or properly reported their monetary transactions have legitimate reason to worry.  Of particular concern are dual citizens or U.S. citizens who reside overseas and who may have undeclared accounts with Swiss banks or who have deposited undisclosed foreign income in such accounts.  Also impacted will be those U.S. persons who have Swiss accounts and regularly send remittances to family members in sanctioned nations such as Iran, Syria, Sudan, or Cuba.   Offenses for willfully violating tax laws or monetary transactions laws include significant terms of imprisonment and large criminal fines, including up to 50% of the account balance for each year of non-compliance.

As of December 27, 2013, the following Swiss banks have indicated that they will participate in the Program as Category II banks: EFG International; Banque Privee Edmond de Rothschild; St. Galler Kantonalbank; Banque cantonale de Geneve; Berner Kantonalbank; Banque Cantonale Vaudoise; Graubuendner Kantonalbank; Banque cantonale du Jura; Zuger Kantonalbank; Luzerner Kantonalbank; Valiant; Linth Bank; Coop Bank; Walliser Kantonalbank; Hypothekarbank Lenzburg; Union Bancaire Privee (UBP); Rothschild Bank; Lombard Odier

This post is authored by Ferrari & Associates, P.C., a law firm specializing in federal criminal defense matters. Feel free to contact us at (202) 280-6370 or info@ferrariassociatespc.com.