July 7, 2014 11:55 am

Swiss banks threaten freeze on US accounts over tax evasion

By James Shotter in ZürichAuthor alerts

Several Swiss banks have threatened to freeze American clients’ accounts unless they prove they are, or take steps to become, tax compliant, as the country’s lenders hurry to resolve a tax evasion dispute with the US.

The moves – made by a number of banks, according to three people familiar with the situation who did not disclose the identity of the banks involved – come ahead of a deadline at the end of July for banks in a programme set up by the US Department of Justice last year to show which American clients conform to US tax requirements. However, the validity of the banks’ approach has split legal experts.

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“Swiss banks are trying to compel customers to do something that a customer is not contractually obliged to do and by blocking accounts, they are committing an act of coercion that is problematic under Swiss penal, contractual and regulatory laws,” says one lawyer.

Others disagree. “It’s legally defensible in situations where banks have been lied to by clients about their US status,” says another Swiss lawyer. “In other situations where the bank knew all along that the client was a US person, it’s more problematic.”

The US has been clamping down hard on banks it believes helped US citizens dodge their fiscal responsibilities. In 2009, UBS paid a $780m fine after admitting it helped thousands of clients evade taxes. And in May, US regulators forced Credit Suisse to pay a $2.6bn fine after the bank pleaded guilty to conspiring to help clients evade taxes. Around a dozen other banks, including Julius Baer and Zürcher Kantonalbank, have long been under investigation.

The DoJ programme was designed to allow the rest of the Swiss banking sector – which consists of some 300 banks – to atone for any past sins by handing over information about their activities with US clients and, in cases where clients had undeclared accounts, by paying stiff fines.

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More than 100 Swiss financial institutions have signed up to the programme. They had until the end of June to provide the US with information about the scale of their activities with US clients and how their cross-border business was run, as well as with information that will help the US government in its efforts to track down tax evaders.

Banks now have until the end of July to provide “mitigating” information – for example that certain accounts had been declared – or until September 15 to show that clients disclosed their accounts themselves – at the urging of their bank – through the US’s Offshore Voluntary Disclosure scheme.

The fines which banks in the programme will have to pay will be calculated based on the maximum dollar value of accounts deemed undeclared, once the mitigating information has been taken into account. Accounts opened before August 1, 2008 will attract a fine of 20 per cent of the assets involved. Fines will rise to 50 per cent for accounts opened after February 2009.