The U.S. started its crackdown when it raked in $780 in a settlement with UBS. Swiss pleas: Banks warn U.S. clients

Swiss banks are quietly warning wealthy U.S. clients with secret accounts to come clean with the tax man in the next two weeks — or risk jail time, according to several letters obtained by POLITICO.

The letters come ahead of a New Year’s Eve deadline the U.S. government set for about 300 Swiss banks to take deals protecting them from prosecution. In exchange for confessing and shelling out mountains of Americans’ account information, they’ll get immunity. It is a new twist to the traditional bank-client relationship.


“The banks have every incentive right now to shove their American clients into compliance in order to reduce the penalties,” said tax attorney Jeff Neiman, who prosecuted Swiss banking giant UBS for the U.S. government.

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The effort is part of a U.S. crackdown on American tax evaders and the banks that help them, which ramped up when Swiss banking giant UBS admitted as much with a $780 million settlement in 2009. The Justice Department is currently probing 14 major Swiss financial institutions — including Credit Suisse, Julius Baer and the Swiss arm of HSBC — for shielding U.S. tax cheats.

The government gave a larger set of Swiss banks until Dec. 31 to sign up for non-prosecution deals, after paying a penalty of up to 50 percent of the secret assets.

POLITICO has seen three letters from Swiss banks to U.S. clients, two that were redacted, urging them to fess up.

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“Your account information may be subject to a treaty request from the United States to the Swiss Federal Tax Administration, which may result in your account information being turned over to the DOJ or IRS,” warned one by Cornèr Bank, sent to an American client and obtained by POLITICO. “A disclosure … can be used by US authorities for law enforcement actions, including … criminal proceedings.”

Switzerland’s oldest private bank, Wegelin & Co., went belly up because of the Justice investigation.

Lawyers said they had seen as many as a dozen letters from a recent batch, including correspondence from Rahn & Bodmer Co. and Royal Bank of Canada (Suisse). Neither bank responded to requests for comment.

The pressure is leading Swiss banks not yet under investigation to consider the non-prosecution deals.

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And many of their clients are heeding the banks’ warnings to turn themselves in, according to lawyers for these wealthy individuals.

“There is a new wave right now because of this program aimed at Swiss banks coming in and identifying clients and identifying accounts,” said Caplin & Drysdale’s Scott Michel, who is getting three to four such inquiries each day — about the same number he usually received every couple of weeks for the past year.

Another strand of the tax crackdown story is taking place in Florida, where a UBS executive sought by prosecutors for nearly five years — recently caught in Italy — came before a U.S. judge on Monday.

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The former No. 3 at UBS, Raoul Weil, is charged with helping thousands of Americans dodge taxes during his time at the bank.

Weil, who proclaims his innocence, was extradited to the U.S. days ago. The judge freed him on about $10 million in bail, with a hearing set for Jan. 7.

Like the bank program, the IRS for years has urged Americans with offshore accounts to come clean on their own, pay back-taxes and penalties and avoid criminal proceedings.

A simple rule applies: Call them before they call you.

Once the IRS has your information, the dodgers are barred from the forgiveness program and could face jail time.

The smaller banks are important because after the UBS crackdown, many of the bigger banks would not take U.S. client money. So tax cheats simply moved their money to the little guys, thinking their stashes were safe.

“Depositors in Switzerland thought that since the smaller banks don’t have branches and assets in the United States, they would be immune from IRS pressure and regulation,” said Bryan Skarlatos of Kostelanetz & Fink.

They thought wrong.

Although the Justice Department has promised not to prosecute more Swiss banks before Dec. 31, all bets are off in the new year after the non-prosecution deadline, they warn.

Tax cheat confessions are a win for Swiss banks, too. The Justice program will allow them to deduct from their penalties — $1 for $1 — any money paid back from American clients who turn themselves in.

“Initially, [thousands] came forward and spilled their guts about their banks and banking adviser,” Neiman said, referring to the 33,000 who came clean in the first years of the IRS amnesty program. “Armed with that information, the Justice Department has gone to the Swiss banks and said, ‘Gotcha!’ And the banks, trying to save themselves, are pushing their remaining clients into the light.”

The bank disclosure program won’t force banks to hand over client names right away. At first, it merely requires them to release general account information, including how much money is being shielded from taxation.

But because of a Swiss-U.S. treaty, the U.S. will eventually be able to request the names of account holders and see every account transaction since mid-2008, including where the money is going.

Voluntary disclosures by Americans with Swiss accounts peaked in 2009 just after the UBS prosecution, when the IRS opened the first temporary amnesty program. Americans with foreign accounts crammed law offices, making frantic phone calls to join up to the final hour before the deadline, lawyers said.

Disclosures peaked again around the deadline of a 2011 program — though this batch of confessors came from around the world, well beyond Switzerland.

In early 2012, the IRS announced it would keep the amnesty program open indefinitely. As a result, lawyers said the sense of urgency diminished, as did the number of confessors.

Until now.

“The letters have really driven people in,” said Skarlatos. “It probably went from a slow one-each-week to about one a day starting in October, and it’s been picking up with intensity.”

Max Riederer von Paar, a partner at Rubin, Winston, Diercks, Harris & Cooke who works in the U.S. and Switzerland, said he’s seen more than a 25 percent uptick in inquiries over the past few months.

Meanwhile, the clock is ticking. Although the program is open for now, the IRS can change the terms at any time.

“It’s sort of like a horse race: If you’re at a bank that you think will turn over your name, you need to come forward before your name gets to the IRS first,” said Deborah Jacobs, a New York-based tax lawyer.