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Eleven Offshore Banks On The US Radar: What Happens Next To Swiss-Based Private Banking?

Politics / Credit Crisis 2012 Feb 13, 2012 - 01:55 AM GMT

By: DK_Matai


Best Financial Markets Analysis Article1.  Credit Suisse (including Clariden Leu)

2.  HSBC Holdings

3.  Basler Kantonalbank

4.  Wegelin & Co

5.  Zuercher Kantonalbank

6.  Julius Baer Group

7.  Bank Leumi Le-Israel

8.  Bank Hapoalim

9.  Mizrahi-Tefahot Bank  

10.  Liechtensteinische Landesbank  

11.  Neue Zuercher Bank (NZB)

Swiss-based Private Banking Under Scrutiny

Swiss and Israeli Banks

Following the precedent set by the United States government’s settlement in 2009 with UBS, the largest Swiss bank, US authorities have offered eleven financial institutions in Switzerland and Israel a settlement agreement in which the US government’s investigations in those financial institutions -- for aiding tax evasion -- and potential prosecution would be dropped.  For some, such as the oldest private bank in Switzerland -- Wegelin -- this is now too late. [Reference: What Really Happened To The Oldest Bank in Switzerland? Wegelin: Death Throes of Swiss Banking Secrecy & Asymmetric Risk to Swiss Banks, ATCA 5000 Briefing, February 1st, 2012]  

Terms of US Government Agreement

The terms of the US government agreement would be similar to the UBS settlement in 2009 and would require each of the eleven Swiss and Israeli financial institutions to share client data regarding US citizens and, most likely, pay a hefty fine.  American officials are also concerned that these 11 banks appear to have accepted hidden money from American clients who fled UBS in the wake of its scrutiny.  Further, assertions were made by Swiss officials at the time that offshore tax evasion would not be tolerated under the cloak of Swiss banking secrecy rules.  However, the question arises whether those assurances have been breached.  The scrutiny comes during a wide-ranging campaign by the US Department of Justice (DoJ) to force nearly a dozen Swiss banks now under scrutiny to pay billions of dollars in fines collectively and to admit to criminal wrongdoing.  The late F Scott Fitzgerald is quoted as saying: “Switzerland is a country where very few things begin, but many things end.”

Handing Over Client Data

The US Internal Revenue Service (IRS) reported that eight Swiss banks, including Credit Suisse, Julius Baer, and Basler Kantonalbank turned over US client data on taxpayers suspected of tax evasion on January 30th, 2012. This does not put an end to the negotiations between the US and Swiss governments.  Three more banks are still expected to turn over client data and a total of 11 banks are expected to pay heavy fines.  Based on the settlement in 2009 with UBS it appears that the Swiss and Israeli banks would need to turn over, at the very least, the following:

1. Correspondence between the Swiss and Israeli banks and US clients (which includes notes made during telephone conversations and meetings);

2. Internal memoranda relating to US clients; 

3. Correspondence between the Swiss and Israeli Banks and third parties concerning US clients; and

4. Documents related to funds transferred to third parties on behalf of US clients. 

Global Pursuit

The known countries involved in the US government's far-reaching investigations include:

1. Switzerland

2. Liechtenstein

3. Israel

4. India

5. Singapore

6. Hong Kong

The risk of criminal and/or substantial civil penalties grows greater as the US Internal Revenue Service (IRS) and Department of Justice (DoJ) complete more bank-investigations and as foreign banks continue to co-operate with US government officials.

Israeli Connection

The US pursuit of offshore tax evaders includes Israel, where US authorities are scrutinising three of Israel's largest banks -- Bank Leumi Le-Israel, Bank Hapoalim and Mizrahi-Tefahot Bank -- over suspicions their Swiss outposts helped American clients evade taxes.  The banks are under scrutiny by the US DoJ's criminal tax division.  The shift to Israel from Switzerland -- for years the main focus of the DoJ's campaign against offshore private banking secrecy-- signals the broadening of a landmark probe by the agency that began in 2007 with UBS.  The shift also opens up a potential sore spot in the historically close relationship between the US and Israel, a key diplomatic and military ally in the Middle East that is the biggest recipient of US aid.  Tracing non-compliant funds from Swiss banks to Israeli banks is indicative of the expanding global scrutiny and effectiveness of the US tax investigations.  The scrutiny of the three Swiss branches of the Israeli banks has gained significant momentum but is yet to reach the level of Credit Suisse or of HSBC Holdings -- a major European bank -- and Basler Kantonalbank, a Swiss cantonal bank.

Offshore Voluntary Disclosure Program (OVDP)

On January 9th, 2012, the US Internal Revenue Service (IRS) re-opened its Offshore Voluntary Disclosure Program (OVDP) to encourage US taxpayers with undisclosed offshore accounts to come into compliance. The 2012 Amnesty Program is in response to continuing interest from US taxpayers after the 2009 and 2011 programs ended, making this program the third in the past three years.  With the renewal of a third Voluntary Disclosure Program it seems clear that the IRS is dedicated to providing taxpayers with opportunities to come forward, which is something that US taxpayers with undisclosed offshore accounts are being urged strongly to consider in light of the recent developments.  In parallel, the DoJ's tax division continues its aggressive mission to obtain bank record information on US citizen's offshore accounts around the world. As they describe it, the "top litigation priority is the concerted civil and criminal effort to combat the serious problem of non-compliance with our tax laws by US taxpayers using secret offshore bank accounts."

End of Banking Secrecy

Past Swiss guarantees of statutory bank secrecy dating back to 1934 are now long gone in the wake of the UBS tax evasion scandal, surrendered under pressure from threatened and existing US indictments of multiple Swiss bankers, lawsuits against UBS and Credit Suisse and a list of other Swiss banks, all now targets of the US IRS and DoJ.  The Swiss agreed in 2009 to meet tax information exchange standards to avoid being blacklisted as a tax haven by the Organisation for Economic Co-operation and Development (OECD). 


The US Internal Revenue Service (IRS) and the US Department of Justice’s (DoJ) tax division have made it clear that they are intent on taking the secret out of secret bank accounts and will prosecute anyone involved:  tax payer, banker or professional advisor such as legal attorney.  The risk of the IRS discovering a taxpayer’s undisclosed offshore accounts has increased manifold with far reaching bank investigations.  The consequences for failure to comply with the proper disclosure and filing requirements may lead to audits, severe financial penalties, and in some cases, criminal prosecution. The US government is committed to bringing all US taxpayers with undisclosed offshore accounts into compliance regardless of the consequences for the off-shore banking industry.  The European and Asian governments may follow suit in the footsteps of the US tax authorities.  Given that some of the financial institutions that constitute the list of 11 banks on the radar of US authorities are also on the list of Systemically Important Financial Institutions (SIFIs), it remains to be seen how this saga plays out and what its consequences might be for global banking.

Key Question

What are the unintended consequences of the US tax investigations in regard to the eleven banks and the interlinked systemic risk?

What are your thoughts, observations and views? We are hosting an Expert roundtable on this issue at ATCA 24/7 on Yammer.

By DK Matai

Asymmetric Threats Contingency Alliance (ATCA) & The Philanthropia

We welcome your participation in this Socratic dialogue. Please access by clicking here.

ATCA: The Asymmetric Threats Contingency Alliance is a philanthropic expert initiative founded in 2001 to resolve complex global challenges through collective Socratic dialogue and joint executive action to build a wisdom based global economy. Adhering to the doctrine of non-violence, ATCA addresses asymmetric threats and social opportunities arising from climate chaos and the environment; radical poverty and microfinance; geo-politics and energy; organised crime & extremism; advanced technologies -- bio, info, nano, robo & AI; demographic skews and resource shortages; pandemics; financial systems and systemic risk; as well as transhumanism and ethics. Present membership of ATCA is by invitation only and has over 5,000 distinguished members from over 120 countries: including 1,000 Parliamentarians; 1,500 Chairmen and CEOs of corporations; 1,000 Heads of NGOs; 750 Directors at Academic Centres of Excellence; 500 Inventors and Original thinkers; as well as 250 Editors-in-Chief of major media.

The Philanthropia, founded in 2005, brings together over 1,000 leading individual and private philanthropists, family offices, foundations, private banks, non-governmental organisations and specialist advisors to address complex global challenges such as countering climate chaos, reducing radical poverty and developing global leadership for the younger generation through the appliance of science and technology, leveraging acumen and finance, as well as encouraging collaboration with a strong commitment to ethics. Philanthropia emphasises multi-faith spiritual values: introspection, healthy living and ecology. Philanthropia Targets: Countering climate chaos and carbon neutrality; Eliminating radical poverty -- through micro-credit schemes, empowerment of women and more responsible capitalism; Leadership for the Younger Generation; and Corporate and social responsibility.

© 2012 Copyright DK Matai - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

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