Justice Department, Switzerland in Bank Settlement Talks / Deal Would Help Close International Flap Over Tax Evasion

Laura Saunders for the Wall St Journal writes: The U.S. and Swiss governments are nearing agreement on a comprehensive plan allowing Swiss banks to settle with U.S. authorities over accounts held by U.S. tax evaders. A deal is expected within days, according to officials from both countries.

The plan would create four tiers of banks and require some to pay fines and name names, according to a senior Department of Justice official. The U.S. could collect up to $1 billion or more in penalties from this program, the official said.

Credit Suisse is among about a dozen Swiss banks that are already cooperating with the U.S. Department of Justice probe into tax evasion.

A pact between Switzerland and the U.S. would likely move closer to an end an international dispute that has destabilized the massive banking sector of the world's largest offshore wealth center. It would also mark a victory for a U.S. legal effort once seen facing unsure odds as it assaulted Switzerland's decades-old bank-secrecy laws.

The U.S. official warned holders of undeclared offshore accounts to declare them immediately to the Internal Revenue Service, which has a limited amnesty program for such taxpayers.

U.S. officials' intense campaign against offshore tax evasion took shape after Swiss banking giant UBS AG UBS -0.56% admitted that it had helped U.S. taxpayers hide money abroad. In an unprecedented outcome, UBS paid $780 million and turned over the names of more than 4,000 U.S. taxpayers holding secret accounts to settle U.S. charges, ending decades of Swiss bank secrecy.
Since then, more than 120 U.S. taxpayers and advisers have been criminally charged in connection with undeclared offshore accounts, most of which were in Switzerland. The country's oldest bank, Wegelin & Co., closed after admitting to helping U.S. taxpayers hide $1.2 billion abroad, and 14 other Swiss banks are under criminal investigation by the U.S.

"This agreement will open the doors for Swiss banks to put the past behind them," said Jeffrey Neiman, who led the prosecution of UBS and is now private practice in Fort Lauderdale, Fla. "Given the choice between protecting their remaining U.S. clients and existing without the U.S. scrutiny, banks will run to the Justice Department to make deals."

U.S. officials have also pursued individual bankers and outside advisers. On Aug. 16, Edgar Paltzer, a high-level Swiss lawyer, pleaded guilty to helping U.S. taxpayers hide money abroad. Mr. Paltzer's lawyer said that client's cooperation with U.S. authorities would be "complete and without limitation."

The U.S.'s pursuit of undeclared offshore accounts is expected to continue. "When the UBS case was completed, officials said that this was the beginning, not the end, of offshore tax enforcement," said Mr. Neiman. "U.S. officials will be able to shift their focus to other offshore tax jurisdictions, such as Singapore, Hong Kong, Israel and countries in the Caribbean."

In the wake of the financial crisis, cash-strapped governments have pressured Switzerland to allow its banks to share information on their citizens who may have used accounts there to avoid paying taxes. Switzerland's strict banking-privacy laws make sharing such information difficult and sometimes illegal. Once Switzerland signs a deal with the U.S., Swiss banks will be able to share that information with the U.S. without violating Swiss law.

According to the senior U.S. official, the new plan is expected to create four categories of banks and cover a period from 2008 to 2014. In 2014, a U.S. law known as the Foreign Account Tax Compliance Act, or Facta, takes effect that requires turnovers of information on U.S. taxpayers by banks outside the U.S.

The first tier includes the 14 banks currently under criminal investigation by the U.S., which would not be eligible to take part in the U.S. program. The second includes institutions that will provide account holder information or pay fines, or both, in exchange for deferred prosecution agreements or nonprosecution agreements with the U.S.

The third tier consists of banks that can prove they did not help U.S. taxpayers hide assets abroad, and the fourth is comprised by local Swiss banks not covered by Fatca. No individuals or advisers would be covered by the program, said the U.S. official.
The new proposal is expected to allow a wide swath of the country's banks to deal with ramifications of any undeclared accounts held by Americans that they may have. It comes roughly two months after Switzerland's Parliament voted down a different plan for a sweeping settlement amid concerns the country's sovereignty was being violated.

Unlike a previous attempt at a wide-ranging bank settlement, the proposed deal doesn't require parliamentary approval, according to a finance department spokesman.

The Swiss Bankers Association welcomed the new proposal on Wednesday, saying it would allow the industry to put legal uncertainty behind it. The SBA had already accepted the plan during a board meeting on Monday. "The process will be painful for Swiss banks, but [the board] decided to back it because it allows for a final settlement," a spokeswoman said of the latest plan.