More Swiss Banks Agree to Disclose US Customers Accounts: Expect More Customer Letters to be Sent

As of yesterday, three Swiss banks have agreed to participate in a U.S. disclosure program aimed at lenders suspected of aiding tax evasion by Americans.  Many more expected and thousands of letters are being sent to US customers with Swiss accounts held over the past 5 years.

Valiant Holding, Berner Kantonalbank, and Vontobel Holding AG are the first Swiss banks to accept the harsh deal that will mean full disclosure of American accounts. The deal was not offered to the 14 Swiss banks that remain under the dark cloud of a U.S. investigation. The 14 include such giants as Credit Suisse, Julius Baer, and Pictet & Cie. Criminal indictments are possible for some of those 14.  In that sense, the more than 300 other Swiss banks are the lucky ones. Many of them are likely to rush to sign on before the December 31, 2013 U.S. deadline. They likely have little choice.

Swiss regulators have publicly signaled to banks that it may be better to pay penalties now than risk separate action by the Justice Department.  Banks that participate will disclose the amount of business they generate from U.S. clients and potentially pay fines on undeclared balances held by American customers. The program is part of a U.S. crackdown on tax evasion that has accelerated since the financial crisis began five years ago.

Swiss banks had until next week to tell the Swiss Financial Market Supervisory Authority, the country’s banking regulator, if they would participate. The first deadline for the banks to notify U.S. authorities of their intentions falls at the end of the month.

The program is a key element in a U.S. effort to sidestep Switzerland’s bank-secrecy laws. Banks won’t disclose customers’ names, but the U.S. will obtain other data it could potentially use to identify clients.

The program has met resistance from Switzerland’s financial sector, which has complained of the cost of complying, particularly for the country’s hundreds of small and medium-size banks.

Concerns have also been raised about the program’s lack of specific guidance and whether information given to U.S. officials could implicate Swiss bankers or advisers who may have been unaware they could be violating U.S. laws.

The program allows banks to register in categories based on the level of undeclared U.S. assets on their books. About a dozen banks already under investigation by the Justice Department make up category 1 and aren’t included in the voluntary disclosure program. These include Credit Suisse Group AG, Julius Baer Group AG and the Swiss branch of HSBC Holdings PLC. All three banks have said they are cooperating with the probes.

Valiant, a medium-size retail lender in central Switzerland, and Berner Kantonalbank, among the larger of Switzerland’s state-backed banks, said they would take part in category 2, which involves a scale of fines based on the amount of undeclared U.S. assets and when they were deposited. Banks applying under category 2 may be on the hook for fines, but may also receive nonprosecution agreements. They will have 120 days to make their disclosures from the time they tell the U.S. they plan to participate in the program but may be eligible for a single 60-day extension.

Valiant said less than 0.1% of its 400,000 clients are American, while Berner Kantonalbank said less than 0.2% of client assets come from people “domiciled” in the U.S.

Vontobel, a private-banking and asset-management specialist, said it would participate as a category 3 institution, one that declares it hasn’t helped Americans evade taxes. Vontobel said it had “future-proofed” its U.S. business by registering a unit for those clients with the U.S. Securities and Exchange Commission.

Category 3 banks don’t have to provide information to the Justice Department until July but could face repercussions if it is determined they should have filed some six months earlier as category 2 institutions.

Banks admitted to category 3 could receive a “nontarget letter” from the regulator, a legal confirmation that a lender isn’t under investigation.

Our law office has consulted with dozens of clients with Swiss accounts who have received letters from their banks regarding their compliance options.

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