Switzerland and the United States reached a watershed deal on Thursday to punish Swiss banks that helped wealthy Americans stash money in hidden offshore accounts, closing the door on an era of bank secrecy and tax evasion.
The formal agreement, which was announced on Thursday by the Justice Department in Washington and will be presented by Swiss authorities on Friday, outlined formulas for Swiss banks to pay up to billions of dollars in fines and to disclose details of American account holders, a joint statement said.
The deal calls for stiff measures that lift the veil of Swiss secrecy. Banks will be required to hand over details on accounts in which American taxpayers have a direct or indirect interest; turn over account information through treaty channels between the two sides; inform on other banks that transferred money into secret accounts or that accepted money when secret accounts were closed; disclose all cross-border activities; and close the accounts of Americans evading taxes.
Significantly, the deal does not cover 14 Swiss banks and Swiss branches of international banks that are under criminal investigation by the United States authorities, including Credit Suisse, Julius Baer and several cantonal, or regional, banks. Instead, it effectively covers the rest of the Swiss banking industry, home to a tradition of bank confidentiality and laws that have not considered tax evasion a crime. Switzerland is home to more than $2 trillion in overseas deposits.
“This program will significantly enhance the Justice Department’s ongoing efforts to aggressively pursue those who attempt to evade the law by hiding their assets outside of the United States,†Attorney General Eric Holder said in a statement.
He added that the program, outlined over 11 pages, “is intended to enable every Swiss bank that is not already under criminal investigation to find a path to resolution.â€
The agreement said that Swiss banks that follow the program will not be prosecuted and instead will be eligible to enter nonprosecution agreements that do not involve guilty pleas or criminal penalties.
Mr. Holder’s statement suggested that some unidentified Swiss banks were not cooperating and thus could face indictment. The agreement, he said, “creates significant risks for individuals and banks that continue to fail to cooperate, including for those Swiss banks that facilitated U.S. tax evasion but fail to cooperate now, for all U.S. taxpayers who think that they can continue to hide income and assets in offshore banks, and for those advisers and others who facilitated these crimes.â€
The agreement will also turn up the heat on American clients who have not already entered voluntary disclosure programs with the Internal Revenue Service.
Banks that enabled tax evasion after the United States authorities began a broad investigation about 2008 will face more severe punishment. Banks that held accounts as of Aug. 1, 2008, will pay a fine equal to 20 percent of the dollar value of all nondisclosed accounts. The fine increases to 30 percent for secret accounts opened after that date but before March 2009, and to 50 percent for accounts opened after that.
American officials were angered that some Swiss banks accepted clients who were fleeing UBS, the largest Swiss bank, about 2009, when it averted indictment by reaching a $780 million deferred prosecution agreement with United States officials.
The Justice Department has not put a final tally on the total amount that Swiss banks will pay in fines under the deal, an American government official said, in part because it does not yet know the number. Both sides signed the final deal after the Swiss Federal Council on Wednesday instructed the country’s finance officials to put the finishing touches on the agreement.
Switzerland has been locked in thorny negotiations with Washington over the tax-evasion issue since 2009. Scores of Swiss bankers, lawyers and American taxpayers have been indicted in recent years, and last year the United States government indicted Wegelin & Company, the oldest Swiss bank, putting it out of business. Negotiations took a turn for the worse in recent years amid conflicts between Justice Department officials and Michael Ambuehl, the former top Swiss negotiator who stepped down last May.
A previous attempt by the Swiss government to arrange a deal failed in June, when Parliament balked, reflecting concerns about privacy and complaints that the agreement was being negotiated in secret. Legislators then called on Eveline Widmer-Schlumpf, the Swiss finance minister and president of the Federal Council, to work out an agreement with Washington.
William Sharp, a tax lawyer representing American clients of Swiss banks, said that the agreement represented “an end to the five-year declared war by the Justice Department and the Internal Revenue Service on Swiss bank secrecy, with the Swiss by and large preserving its premiere private banking brand.†He added that the dispute leading to the deal had dented trade and travel between the two countries and chilled Swiss investment in the United States.
A stumbling block may still exist. The deal calls for both sides to use information exchange channels outlined in existing treaties to disclose details of Americans. But the United States has not yet ratified a 2009 treaty protocol that would ease that disclosure, with Senator Rand Paul, Republican of Kentucky, blocking approval, arguing that it would give the I.R.S. too much power and violate Americans’ right to privacy.
