US revives tax evasion crackdown on Swiss banks: What to expect and how to prepare

In a joint letter on 18 May 2023, US Senate Finance Committee Chairman Ron Wyden and Congressman Don Beyer, the former US ambassador to Switzerland, called on US Attorney General Merrick Garland “to crack down on Swiss banks that enable ongoing tax evasion by US citizens and hold accountable individual bankers involved in these criminal schemes.”

Swiss banks that want to stay on the right side of the law should heed the warning. To ensure compliance with US reporting obligations regarding the disclosure of cross-border activities and high-wealth clients, all non-US banks should closely revisit and seek to enhance their customer due diligence and disclosure policies and procedures, as well as rigorously police their employees’ practices through continuous ongoing monitoring and auditing.

Credit Suisse plea deal

By way of background, in May 2014, Credit Suisse admitted to helping US taxpayers file false tax returns and other documents with the Internal Revenue Service (IRS). For decades prior to and through 2009, Credit Suisse “knowingly and willfully aided and assisted thousands of US clients in opening and maintaining undeclared accounts and concealing their offshore assets and income from the IRS.”

Ultimately, Credit Suisse paid a $1.13 billion criminal fine to the DOJ. As part of its plea deal, the bank agreed to a number of provisions, including closing accounts of clients who are not in compliance with US reporting obligations, as required under the Swiss Bank Program. 

First announced by the DOJ in August 2013, the Swiss Bank Program encourages Swiss banks to cooperate with the DOJ’s investigations of offshore tax evasion in Switzerland. A key component of the program requires cooperating banks to provide information that will enable the United States to follow the money to other Swiss banks and to banks located in other countries. 

The Wyden investigation

In April 2021, Senator Wyden initiated an investigation into whether Credit Suisse violated its 2014 plea agreement with the DOJ by continuing to engage in cross-border tax evasion. The Senate Finance Committee published the findings of the so-called “Wyden Report” in March 2023. Among the findings were “voluminous records” detailing how senior bankers in Credit Suisse’s private banking division actively helped US businessman Dan Horsky conceal from the IRS $220 million in offshore accounts. In February 2017, Horsky was sentenced to seven months in prison and paid a $100 million civil penalty for his role in the tax evasion scheme.

A second key finding revealed that Credit Suisse failed to report a “previously unknown, ongoing and potentially criminal conspiracy” involving a failure to disclose $100 million in secret offshore accounts belonging to a family of dual US-Latin American nationals. The report also found that from November 2012 to February 2013, the family transferred tens of millions of dollars out of Credit Suisse to a group of banks in Switzerland, Israel, and Andorra. 

Several additional large client accounts continued to surface. Immediately prior to the publication of the Wyden report, Credit Suisse identified at least 23 additional large client accounts, each holding in excess of $20 million and potentially involving US persons.

A widening investigation

Following publication of the Wyden report, other Swiss banks have found themselves the target of similar investigations. In May of this year, Senator Wyden sent letters, seeking information surrounding the alleged transfer of funds from Credit Suisse in connection with the dual US-Latin American nationals. 

The banks have been asked to provide a “detailed description” of the extent to which employees knew the family members were US citizens, when they first became aware, and whether they ever reported the existence of these accounts to the IRS, DOJ, or other US government agency and, if so, “when, how, and to what US government entity the report was made.”

Among a range of questions, the banks have been asked to describe their “customer due diligence procedures, including in particular, any methods and practices in place to identify US or dual US citizen clients, or clients with a significant US nexus, and any special considerations made by the bank when transacting with such clients.” In this respect, other Swiss banks may want to use these letters as a framework in preparing for any potential US investigation into cross-border tax evasion.

Other banks participating in the Swiss Bank Program, may be found in violation of their NPAs with the DOJ if they failed to identify and report certain offshore accounts held by wealthy Americans. As Senator Wyden has warned, “Any potential role in helping US citizens evade taxes could represent major violations of those agreements.” 

Broader compliance lessons

The conclusions reached by the Wyden investigation as it relates to Credit Suisse could potentially reinvigorate additional investigations beyond the Senate Finance Committee. For example, Senator Wyden has urged the DOJ and IRS to expand their investigations into FATCA violations by other banks beyond those currently under investigation. 

“Many of the largest individual tax evasion schemes in US history involve Swiss banks,” the report stated. “DOJ and the IRS must step up investigations into the role of these banks and their employees in carrying out these schemes. Enforcement agencies should actively review whether banks like Credit Suisse that cut deals to avoid criminal prosecution are honouring the terms of their agreements.”

Just one week following publication of the Wyden Report, the IRS announced that it will be stepping up audits related to tax evasion schemes.

Compliance lessons

Our assessment of the implications for Swiss banks is as follows. Those with private wealth clients who are US persons, in particular, should be prepared in the event they become targets of these investigations by taking appropriate customer due diligence steps now to ensure compliance with relevant US disclosure requirements under FATCA.

Moreover, Swiss banks that have entered into prior plea agreements with the DOJ should be prepared to face a potential reexamination of their prior disclosures under the Swiss Bank Program. Thus, it is advisable that Swiss banks use the compliance requirements outlined in the Swiss Bank Program as a blueprint for complying with US disclosure requirements more generally. 

As a reminder, these requirements include:

• Complete disclosure of their cross-border activities;
• Detailed information on an account-by-account basis for accounts in which US taxpayers have a direct or indirect interest;
• Cooperation in treaty requests for account information;
• Detailed information as to other banks that transferred funds into secret accounts or that accepted funds when secret accounts were closed;
• Closure of accounts for those account holders who fail to comply with US reporting obligations.

The findings of the Wyden investigation show that, despite several previous enforcement actions and plea agreements reached in the past. Swiss banks continue to be exposed to legal and regulatory risk over their handling of private wealth accounts, and foreign governments, led by the United States, continue to zealously pursue wrongdoing. In fact, in September US authorities have already launched investigations into alleged compliance failings at Swiss banks over the separate issue of sanctions evasion with Russian clients Right now, both these trends look set to continue.

To discuss this article or any other risk and compliance, integrity due diligence, or investigative dispute, please get in touch with one of our experts in our Zurich, Switzerland office.