If you ever wanted to achieve the level of wealth that allows you to hide a large amount of it within the iconic Swiss bank account, you are now officially out of luck. Feel free to target great wealth, but do not expect to be able to evade taxes by parking your assets offshore in Swiss banks.
Efforts to choke off offshore tax havens started in earnest in 2009 after the UBS Group admitted to holding accounts of American citizens who were attempting to avoid domestic taxes. The specific Swiss Bank Program was initiated in 2013 to focus on reclaiming taxes hidden on assets in Swiss banks. This effort recently culminated in a series of agreements with eighty Swiss banks to avoid criminal prosecution in U.S. courts.
In return, the Swiss banks agreed to pay a cumulative $1.37 billion in fines and cooperate with U.S. authorities by closing the accounts of tax-evading U.S. citizens and providing information on the mechanisms that banks used to help them. Other Swiss banks have missed the boat; they are already facing criminal charges and are thus excluded from the agreement.
According to the Bloomberg news agency, the penalties paid reflect about 2.7% of the approximately $50 billion in U.S. assets held within Swiss banks — not a trivial penalty amount, but one that allows the banks’ closure without crippling their operations. That $50 billion was distributed through more than 35,000 accounts during the time period from 2008 to 2013.
Switzerland cooperated with the effort because, in the words of State Secretariat for International Financial Matters spokesman Beat Werder, the tax issues were settled "in accordance with Switzerland's legal system of sovereignty." Translation: the main asset of a Swiss bank, the confidentiality of individual client data, is still maintained.
How does this help U.S. prosecutors if they cannot receive individual client data? By understanding the mechanisms used, they can match up other activity that correlates to tax-evasion mechanisms. For example, in some cases, bankers from Swiss facilities regularly traveled to the U.S. bringing cash amounts below $10,000 to keep from triggering reporting requirements on cash flow. Others provided assets in gold bars in a similar fashion. Prosecutors may not be able to access Swiss records, but based on any other evidence available, they can pursue a subpoena to acquire records on the U.S. side.
The agreements also give insight into more unique methods of hiding assets, such as the "insurance wrapper." In 23 of the agreements, banks outlined the practice of offering life insurance policies that disguised true ownership by holding a client's accounts under the insurer's name. Reduction or elimination of a paper trail was a primary goal under virtually all methods.
Impact will not be limited to Switzerland. The agreements shined light on multiple ties to other tax haven nations through the establishment of corporations or foundations/trusts. Popular offshore targets are Panama, named in 41 of the agreements; Lichtenstein, cited in 39 agreements; and the British Virgin Islands with 38 notations in agreements. What of the oft-mentioned Cayman Islands? They were noted 10 times in agreements, or the same number of times as Hong Kong. Perhaps Cayman Island tax havens generally do not require Swiss bank assistance.
The Justice Department will continue to follow these leads in order to bring all of the rightfully due tax revenues back into the U.S. government coffers. In the meantime, the very wealthy will have to seek other methods to avoid taxes. Here's an idea: try the legal options available.