This is a companion to the earlier post I wrote suggesting why Swiss banks should NOT join the OVDP program for Swiss banks. In this post I argue that individuals shouldn’t join OVDP for people. At the moment that means that nobody should join OVDP.
I have written a number of posts about the OVDP program for Swiss banks. The banks should stay away from it. But what does it mean for Americans in Switzerland? The answer is that they are being asked to prove that they are U.S. tax compliant. Remember that proof has nothing to do with proof.
Two months ago, Wegelin pleaded guilty, even though it had “little to gain” by doing so, it said in court documents. Wegelin said it was seeking “closure.” An attorney for Wegelin declined to comment.
Legal experts said the U.S.’s tactics may offer a blueprint for future actions against foreign banks. Assistant U.S. Attorney Daniel Levy wrote in a sentencing memo that the prosecution of Wegelin would send “a strong message to those who would believe that, without a physical presence in the U.S., they cannot be reached by U.S. law enforcement.”
“Americans who still have these undeclared accounts need to realize the world is shrinking,” Jeffrey Neiman, a former assistant U.S. attorney, said in an interview. He prosecuted UBS, UBSN.VX -0.31% the Swiss bank, for offenses similar to Wegelin’s.
But the legal theories the U.S. used in prosecuting Wegelin haven’t been tested under these specific circumstances. Had Wegelin gone to trial, legal experts said, it could have argued that it had no criminal intent because it didn’t believe it was responsible for adhering to U.S. laws. In Thursday’s court filing, Wegelin said it went to great lengths to attempt to comply with U.S. laws and that it didn’t know it would be punished for “what it was legally entitled to do under Swiss law.” It added: “Swiss banking privacy and its potential for concealing tax evasion by U.S. persons has never been a secret.”
As the first of two deadlines passes for Swiss banks to sign up to a United States tax declaration programme, experts have warned that the associated legal costs of complying with the treaty could “kill” some smaller banks.
Big banks, which sparked the US crackdown by knowingly or recklessly harbouring untaxed assets, have the financial clout to absorb costs and fines. But regional institutions, making up one in four of all Swiss banks, may face a harsher ultimate penalty, despite shouldering a far lesser burden of guilt than larger rivals.
In August, Switzerland agreed to US demands that force banks to come clean about their US clients. Under the terms of the deal, any bank found to have a single tax evader on their books is automatically catapulted into the same liability category as larger rivals.
The Swiss financial regulator has requested banks to come forward by December 9 if they intend to sign on to the US tax deal. By the end of the year they need to have informed the US authorities.
While eventual fines may be lower than more culpable peers, the administrative and legal costs of dealing with the US authorities could run into millions of francs.