IRS Close to Uncovering Secret Accounts

US citizens using Swiss bank accounts illegally have a last chance to receive partial amnesty

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The US government and Swiss banks are close to reaching an agreement that may end their reputation for bank secrecy. (I first wrote about this in IRS on the Prowl back in April.) A partial amnesty program that began in 2009 prompted 14,700 US citizens to voluntarily turn themselves in and report income on accounts held in Swiss banks. The US has continued to pursue criminal probes of 11 financial institutions operating in Switzerland. It is estimated that 5,000 to 10,000 accounts may contain unreported income of US citizens.

The agreement hopes to end the criminal investigations and maintain the secrecy of the banks account holders. Some sources believe that Swiss Banks may be willing to avoid further disclosure by paying fines estimated to be in the billions. Swiss banks reached agreements earlier this year with Germany and Britain that included paying fines in order to keep the identity of clients secret.

UBS AG, the largest Swiss bank, reached a settlement to avoid prosecution back in 2009. It paid a fine of $780 million and disclosed information on 4,700 accounts. The deal with UBS may set the precedent for settlement with the 11 banks now being probed. The problem is that Swiss laws bar most disclosure of client data. However, a 1996 tax treaty with the US doesn’t protect account secrecy if the owner is engaged in “tax fraud or the like.” Now negotiators have to determine how this treaty applies to the current situation.

The outcome of this investigation will have a huge impact on the banking industry in Switzerland. However, the impact will pale compared to US citizens who hold assets in these accounts that haven’t come forth under the amnesty program. If the Swiss agree to disclose account information, the IRS will receive a ton of new data on secret accounts. The IRS would have the information it needs to pursue criminal investigations against the account owners.

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