Swiss Banks are Pressuring Customers to Disclose

Swiss banks are pressuring current and former U.S. account holders to disclose undeclared assets to the Internal Revenue Service.

In some cases, the banks are freezing accounts unless clients can prove they have declared the account to the IRS—or that they are trying to enter the agency’s limited-amnesty program for U.S. taxpayers with secret accounts.

In addition, many Swiss banks are sending letters to current or former U.S. clients warning that information about their accounts will be soon turned over to the IRS. Taxpayers who don’t step forward to the IRS before the agency obtains information about them usually face higher penalties and are at risk for criminal prosecution. Many Swiss banks will be turning over details of accounts in existence as far back as August 2008.

Many advisors recommend that noncompliant U.S. taxpayers who have or had Swiss accounts move to declare them immediately.

The pressure is the latest result of an intense campaign by U.S. officials against offshore tax evasion that took shape after Swiss banking giant UBS admitted in 2009 that it helped U.S. taxpayers hide money abroad. UBS paid $780 million to the U.S. and turned over the names of more than 4,000 U.S. taxpayers with accounts to settle U.S. charges, effectively ending decades of Swiss bank secrecy.

In August, U.S. and Swiss officials announced a comprehensive program allowing many small and medium-size Swiss banks to settle with the U.S. It doesn’t apply to about a dozen larger banks still under active investigation by the Justice Department.

As of mid-December, more than half of Switzerland’s government-backed local banks said they will participate in the program, including ones in Bern, Geneva and Lucerne. Other banks that have said they will cooperate include Valiant Bank, Migros Bank, and PostFinance, which is backed by the Swiss postal system. A large portion of Switzerland’s roughly 300 banks are expected to take part in the U.S. program, but not all are expected to publicly disclose their participation.

Banks that do participate should be able to settle outstanding legal issues with the U.S. However, many will have to turn over account information on U.S. taxpayers and pay stiff penalties up to 50% of the balance of the accounts to obtain legal closure.

Swiss banks hope to reduce their own penalties by pressuring their clients to confess.

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