Eleven Offshore Banks On The US Radar: What Happens Next To Swiss-Based Private Banking?

London, UK - 12th February 2012, 19:10 GMT

Dear ATCA Open & Philanthropia Friends

[Please note that the views presented by individual contributors are not necessarily representative of the views of ATCA, which is neutral. ATCA conducts collective Socratic dialogue on global opportunities and threats.]

1. Credit Suisse (including Clariden Leu)

2. HSBC Holdings

3. Basler Kantonalbank

4. Wegelin & Co

5. Zuercher Kantonalbank

6. Julius Baer Group

7. Bank Leumi Le-Israel

8. Bank Hapoalim

9. Mizrahi-Tefahot Bank

10. Liechtensteinische Landesbank

11. Neue Zuercher Bank (NZB)

Swiss-based Private Banking Under Scrutiny

Swiss and Israeli Banks

Following the precedent set by the United States government’s settlement in 2009 with UBS, the largest Swiss bank, US authorities have offered eleven financial institutions in Switzerland and Israel a settlement agreement in which the US government’s investigations in those financial institutions -- for aiding tax evasion -- and potential prosecution would be dropped. For some, such as the oldest private bank in Switzerland -- Wegelin -- this is now too late. [Reference: What Really Happened To The Oldest Bank in Switzerland? Wegelin: Death Throes of Swiss Banking Secrecy & Asymmetric Risk to Swiss Banks, ATCA 5000 Briefing, February 1st, 2012]

Terms of US Government Agreement

The terms of the US government agreement would be similar to the UBS settlement in 2009 and would require each of the eleven Swiss and Israeli financial institutions to share client data regarding US citizens and, most likely, pay a hefty fine. American officials are also concerned that these 11 banks appear to have accepted hidden money from American clients who fled UBS in the wake of its scrutiny. Further, assertions were made by Swiss officials at the time that offshore tax evasion would not be tolerated under the cloak of Swiss banking secrecy rules. However, the question arises whether those assurances have been breached. The scrutiny comes during a wide-ranging campaign by the US Department of Justice (DoJ) to force nearly a dozen Swiss banks now under scrutiny to pay billions of dollars in fines collectively and to admit to criminal wrongdoing. The late F Scott Fitzgerald is quoted as saying: “Switzerland is a country where very few things begin, but many things end.”

Handing Over Client Data

The US Internal Revenue Service (IRS) reported that eight Swiss banks, including Credit Suisse, Julius Baer, and Basler Kantonalbank turned over US client data on taxpayers suspected of tax evasion on January 30th, 2012. This does not put an end to the negotiations between the US and Swiss governments. Three more banks are still expected to turn over client data and a total of 11 banks are expected to pay heavy fines. Based on the settlement in 2009 with UBS it appears that the Swiss and Israeli banks would need to turn over, at the very least, the following:

1. Correspondence between the Swiss and Israeli banks and US clients (which includes notes made during telephone conversations and meetings);
2. Internal memoranda relating to US clients;
3. Correspondence between the Swiss and Israeli Banks and third parties concerning US clients; and
4. Documents related to funds transferred to third parties on behalf of US clients.

Global Pursuit

The known countries involved in the US government's far-reaching investigations include:

1. Switzerland
2. Liechtenstein
3. Israel
4. India
5. Singapore
6. Hong Kong

The risk of criminal and/or substantial civil penalties grows greater as the US Internal Revenue Service (IRS) and Department of Justice (DoJ) complete more bank-investigations and as foreign banks continue to co-operate with US government officials.

Israeli Connection

The US pursuit of offshore tax evaders includes Israel, where US authorities are scrutinising three of Israel's largest banks -- Bank Leumi Le-Israel, Bank Hapoalim and Mizrahi-Tefahot Bank -- over suspicions their Swiss outposts helped American clients evade taxes. The banks are under scrutiny by the US DoJ's criminal tax division. The shift to Israel from Switzerland -- for years the main focus of the DoJ's campaign against offshore private banking secrecy-- signals the broadening of a landmark probe by the agency that began in 2007 with UBS. The shift also opens up a potential sore spot in the historically close relationship between the US and Israel, a key diplomatic and military ally in the Middle East that is the biggest recipient of US aid. Tracing non-compliant funds from Swiss banks to Israeli banks is indicative of the expanding global scrutiny and effectiveness of the US tax investigations. The scrutiny of the three Swiss branches of the Israeli banks has gained significant momentum but is yet to reach the level of Credit Suisse or of HSBC Holdings -- a major European bank -- and Basler Kantonalbank, a Swiss cantonal bank.

Offshore Voluntary Disclosure Program (OVDP)

On January 9th, 2012, the US Internal Revenue Service (IRS) re-opened its Offshore Voluntary Disclosure Program (OVDP) to encourage US taxpayers with undisclosed offshore accounts to come into compliance. The 2012 Amnesty Program is in response to continuing interest from US taxpayers after the 2009 and 2011 programs ended, making this program the third in the past three years. With the renewal of a third Voluntary Disclosure Program it seems clear that the IRS is dedicated to providing taxpayers with opportunities to come forward, which is something that US taxpayers with undisclosed offshore accounts are being urged strongly to consider in light of the recent developments. In parallel, the DoJ's tax division continues its aggressive mission to obtain bank record information on US citizen's offshore accounts around the world. As they describe it, the "top litigation priority is the concerted civil and criminal effort to combat the serious problem of non-compliance with our tax laws by US taxpayers using secret offshore bank accounts."

End of Banking Secrecy

Past Swiss guarantees of statutory bank secrecy dating back to 1934 are now long gone in the wake of the UBS tax evasion scandal, surrendered under pressure from threatened and existing US indictments of multiple Swiss bankers, lawsuits against UBS and Credit Suisse and a list of other Swiss banks, all now targets of the US IRS and DoJ. The Swiss agreed in 2009 to meet tax information exchange standards to avoid being blacklisted as a tax haven by the Organisation for Economic Co-operation and Development (OECD).


The US Internal Revenue Service (IRS) and the US Department of Justice’s (DoJ) tax division have made it clear that they are intent on taking the secret out of secret bank accounts and will prosecute anyone involved: tax payer, banker or professional advisor such as legal attorney. The risk of the IRS discovering a taxpayer’s undisclosed offshore accounts has increased manifold with far reaching bank investigations. The consequences for failure to comply with the proper disclosure and filing requirements may lead to audits, severe financial penalties, and in some cases, criminal prosecution. The US government is committed to bringing all US taxpayers with undisclosed offshore accounts into compliance regardless of the consequences for the off-shore banking industry. The European and Asian governments may follow suit in the footsteps of the US tax authorities. Given that some of the financial institutions that constitute the list of 11 banks on the radar of US authorities are also on the list of Systemically Important Financial Institutions (SIFIs), it remains to be seen how this saga plays out and what its consequences might be for global banking.

Key Question

What are the unintended consequences of the US tax investigations in regard to the eleven banks and the interlinked systemic risk?


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