The proposed civil settlement, put forward in recent months by Swiss authorities to the US Internal Revenue Service, would cover all banks in Switzerland, numbering about 355, sources briefed on the matter said. It could reach $10 billion or more, said a source briefed on the matter.
The deal would include some 11 banks now under criminal investigation — among them Credit Suisse AG and HSBC Holdings PLC — by the US Justice Department, which suspects them of having enabled wealthy Americans to hide billions of dollars in assets in offshore accounts. Some experts view the deal as a long shot, in the face of an unprecedented crackdown by US authorities.
Switzerland, which has watched the Justice Department indict scores of Swiss bankers and their American clients, is eager to resolve the matter once and for all, especially following a letter in August from a senior US law enforcement official threatening even tougher action.
The proposal has been met with skepticism from the Justice Department, which wants to exclude those 11 or so banks from a civil settlement, sources briefed on the matter said. Instead, these sources said, the agency wants to negotiate separate deals with these banks, possibly deferred-prosecution or non-prosecution agreements. It remains to be seen how the IRS and Justice would resolve any differences.
Michael Ambuehl, Switzerland’s state secretary for the Finance Ministry and the country’s chief negotiator on international tax matters, was due to leave Washington on Thursday after days of talks with IRS officials on the matter. Asked Thursday in Bern about the talks, Mario Tuor, a spokesman for Ambuehl, said that “the negotiations are ongoing” but declined to provide details.
Anthony Burke, an IRS spokesman, declined on Thursday to comment.
The IRS, which referred the names of the 11 banks to the Justice Department, is conducting a civil investigation of scores of other Swiss banks among the 355. Under US legal procedures, a civil settlement with banks over their American customers’ unpaid taxes is generally the legal province of the IRS.
Credit Suisse AG, Switzerland’s second-largest bank, last July received a target letter from the Justice Department notifying it that it was formally under advanced criminal investigation. Others under investigation include HSBC Holdings PLC and smaller Swiss private banks and cantonal banks, including Basler Kantonalbank, Wegelin and Julius Baer.
One tax expert not involved in the talks cast doubt on any notion that a civil settlement would prompt the Justice Department to drop its criminal cases against the 11 banks. “It is difficult to imagine that the Justice Department, having done what had previously been impossible, that is, made strong criminal cases against Swiss banks violating US law, will just walk away,” said Robert Katzberg, a white-collar criminal defense lawyer in New York with American clients of Swiss banks.
The proposal has strings attached. The Swiss want to pay a large monetary fine without being required to turn over any client names or client data, a move that would breach a Swiss tradition of bank secrecy stemming from the Middle Ages.
But the Justice Department is opposed to any deal that involves only money and does not include a handover of client names and data, sources briefed on the matter said. It also wants a deal in which by 2013, no Swiss banks hold undeclared offshore accounts for Americans, though it is unclear how such a watershed in Swiss financial secrecy would be achieved or monitored.
There are some signs that the IRS may in fact be unwilling to craft a deal without a requirement for a turnover of names. Case in point: in September, the agency began mailing an unusual, one-page questionnaire to American taxpayers who entered its voluntary disclosure programs in recent years.
The questionnaire, a copy of which was obtained by Reuters, asks taxpayers to answer “yes” or “no” to 10 questions regarding their undeclared offshore accounts. Questions include “did a representative of the foreign financial institution visit you in the United States regarding the offshore account or asset?” To see it, go to http://r.reuters.com/nac84s.
The IRS questionnaire could be a warm-up to a broad request, known as a John Doe summons, to Swiss banks to disclose client data, sources briefed on the matter said.
In August, James Cole, the deputy attorney general and the second-highest ranking law enforcement official in the United States, wrote to Swiss officials in an unusual, three-page letter dated Aug. 31 that the IRS and Justice Department intended to serve a John Doe summons on 11 Swiss banks if the banks did not turn over broad statistical data, not including client names, on their accounts. At least some banks turned over the data, according to sources briefed on the matter.
A fresh summons would mirror one served on Swiss bank giant UBS AG in 2008 that sought to force the bank to turn over 52,000 names of American clients. That summons was dropped only in 2010, more than a year after UBS averted indictment and reached a $780 million deferred-prosecution agreement with the Justice Department over charges it sold tax evasion services to rich Americans. UBS ultimately turned over 4,450 client names.
The Swiss are pushing for a civil settlement by year’s end, but any potential deal would likely not take place until next spring, according to sources briefed on the matter.
Switzerland, a noted tax haven that is the global capital of offshore private banking, holds 27 percent, or $2 trillion, of the world’s offshore wealth, according to a 2010 study by the Boston Consulting Group.
US officials say Swiss banks and their American clients have yet to declare the bulk of the hidden wealth, and point to two recent IRS disclosure programs that brought in only $2.7 billion from 30,000 American taxpayers with accounts in 140 countries.
“It’s a fraction of the total still out there,” said one US government official briefed on the matter, adding that perhaps one quarter of the $2 trillion, or $500 billion, could be undeclared money held by American taxpayers.
