Federal Authorities Crack Down on Swiss Banks

3299212003_0abee55561_nA federal judge recently gave the government permission to search for data from five Wall Street banks about a group of American clients suspected of hiding assets at an unrelated bank in the Caribbean. According to the NY Times, Judge Richard M. Berman of the United States District Court in Manhattan told the banks Citigroup, Bank of New York Mellon, JPMorgan Chase, HSBC and Bank of America to produce details about American clients who may be evading taxes through the Bank of N.T. Butterfield Son.

Federal authorities indicted Swiss bank Wegelin Company last year for enabling tax invasion by wealthy Americans. A separate civil forfeiture complaint related to the indictment allowed U.S. authorities to seize over $16 million from Wegelin’s correspondent bank, UBS of Stamford, Connecticut. A tax lawyer quoted in the NY Times article explained that nearly every Swiss bank has a U.S. correspondent account for processing U.S. dollar transactions, which provide a road map of leads and information pointing to possible U.S. account holders. The same attorney says we can expect more John Doe summonses in the New York banking community as the IRS continues to chase the unreported foreign accounts as well as the Swiss banks now under investigation.

Chukwuemeka Osadebe, an engineering CEO has worked in the banking and petroleum sectors and leads a crop of seasoned engineers and technicians. He shares his thoughts. “Over the generations, the Swiss banks have been blamed for regulatory failures of national governments,” says Osadebe. While not justifying impropriety, it is apparent that what we have in recent times is the hounding of receptive institutions of fraudulent finances, while the originating banking institutions are barely scorched because that will be admission of national regulatory shortcomings.

The Swiss Bank will lose the funds either in penalties, fines or otherwise transfers. The home banks will devise other ways, albeit more sinister, to service their fraudulent customers; for that’s how their bills are paid. Then we shall be discussing this again at the turn of the decade. What to do – strengthen national internal controls and co-operate at the level of the UN on international transfers.

Mark Pleas, an Eastern Europe Banking and Deposits Consultant, discusses the changes.“The two New York court orders will have no direct ramifications because the US IRS has been issuing such dragnet John Doe summonses to banks for at least five years for the banks’ own accounts abroad, and since January 2013 (the Wegelin case) for the banks’ correspondent accounts. But the two court orders are a further indication that the era of banking secrecy is over for US citizens and resident aliens who hold accounts, and fast coming to an end for others. Aside from the extraterritorial reach of the EU’s 2003 Savings Directive and the US’s 2010 FATCA, the last several years have seen a rapid proliferation of bilateral Tax Information Exchange Agreements (TIEAs) worldwide. But while governments are ever more willing to share information on foreigners’ income and assets with foreign governments – often automatically – they are not willing to send information on their own citizens abroad. For example when it became clear that transaction data from SWIFT’s main data center in the Netherlands that were mirrored at its data center in Manassas, Virginia, were exposed to the possibility of US subpoena, SWIFT announced that it would remove its European transaction data from the Manassas site, and now keeps it at an underground data center that went into operation earlier this year near Zürich, Switzerland.”

When asked how US citizens will be affected, Pleas says, “The most strongly affected are US persons, as the IRS taxes their income worldwide, and the US government has the clout to force bankers worldwide to become unpaid agents of the IRS in collecting withholding taxes and in forwarding information on income and assets. A strengthening of international regulations and inspections (FATF, UNODC) regarding anti-money laundering and counter-terrorist financing (AML/CFT), and the implementation of anti-money laundering regimes that is imposed on smaller countries by the IMF as a condition for assistance, mean that it is becoming almost impossible to find an offshore “tax haven” anywhere in the world that will accept a poorly identified bank deposit without reporting it immediately to the international network of Financial Intelligence Units (FIUs), and a bank that will accept anonymous or poorly identified account holders. And even if an offshore private banker might promise complete secrecy the customer can never be sure, as the system is now full of silent alarms that trigger the automatic reporting of information internationally, and the banker, if he is aware of the reporting, is forbidden to reveal it to the customer.”

In terms of US citizens considering “hiding their tracks” prior to the new rules, Pleas explains, “If the US person with an account abroad is thinking of hiding his tracks before FATCA enters into effect in 2014 it may already be too late: these two New York court orders, and others approving John Doe summonses since 2008, are highly retroactive, requiring the banks to turn over records on account holders back to the beginning of 2005 or earlier. Finally, if the US person feels himself safe because the account is not in his own name but in that of a shell company, he may be in for a rude surprise on that front too: these summonses, repeating US law, require the banks to turn over information not just on account holders, but also on US taxpayers who “directly or indirectly had interests in or signature or other authority (including authority to withdraw funds; trade or give instructions or receive account statements, confirmations, or other information, advice or solicitations) with respect to any financial accounts…” Without a doubt the noose is tightening on US taxpayers’ bank accounts abroad, and in response there may be a shift away from bank accounts and towards trusts, securities, precious metals, and real estate.”

Pleas finishes by saying, “The situation for taxpayers or account holders in other nations is less grim, as their governments generally lack the power to enforce exhaustive information sharing on assets and income worldwide. Nevertheless each government is trying to gather whatever data it can in order to extract more in taxes out of those within its reach, and where the information at its disposal is not as complete as what the US obtains this lack may be made up for by more draconian criminal penalties.”

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