About 100 “second-tier” Swiss banks will be able to avoid prosecution for their role in helping American account holders evade U.S. taxes under a deal announced Thursday between Switzerland’s government and the U.S. Justice Department (DOJ). The agreement lays out a tiered system of fines that the banks will pay determined by the seriousness and duration of their work hiding money from the American government, but banks currently under criminal investigation by U.S. authorities are not eligible.
Attorney General Eric Holder’s comments on the deal suggested that the effort is meant in part to encourage banks that are resisting investigations to cooperate instead. Holder warned that the deal “creates significant risks for individuals and banks that continue to fail to cooperate” by effectively walling off non-cooperative institutions from the safest resolution of tax evasion investigations. The Swiss Bankers Association said the fines under the deal, which range from 30 percent to 50 percent of the assets hidden by the banks, “are at the upper end of legally acceptable and economically bearable levels.” But if the alternative to such stiff fines is to face criminal indictment, banks will have significant incentive to comply. The country’s oldest bank, Wegelin & Co., went out of business entirely after a DOJ indictment earlier this year.
The agreement announced Thursday comes as the two countries cooperate under the Foreign Account Tax Compliance Act (FATCA), the U.S. law that requires countries to share information on American account holders in their banking systems. FATCA takes effect next year, and various countries have been busy hammering out the details, with the Cayman Islands agreeing to help the U.S. hunt down tax cheats. The joint statement by the DOJ and the Swiss Federal Department of Finance specifically notes that Thursday’s arrangement will apply regardless of when, how, and even if the Swiss-U.S. FATCA agreement is finalized. The combined force of DOJ investigations and FATCA negotiations has lead the notoriously secretive Swiss banking industry to shift to a more cooperative footing.
Tax evasion cost the IRS roughly $3 trillion from 2001-2010. Much of that lost revenue is believed to have been lost to bank accounts in Switzerland, the Cayman Islands, and other countries that have built reputations as tax havens.