At least 60 Swiss banks agreed to sign up for a tax declaration programme allowing them to come clean about American tax-dodging clients as the end-of-the-year deadline by the United States Department of Justice is running out.
The bigger Swiss banks had originally sparked the DoJ crackdown by knowingly or recklessly harbouring untaxed assets. But smaller regional institutions, which make up one in four of all Swiss banks, may also face considerable penalties, despite shouldering a far lesser burden of guilt.
Under the terms of the Swiss-US tax deal, signed in August, the US authorities asked the 300-plus banks in Switzerland to arrange themselves into four categories depending on whether they have any tax evaders on their books.
The categories range from group one for banks that are already under active investigation for suspected tax evasion offences, to group four for mostly regional institutions with very limited exposure to foreign clients.
The larger players including UBS, Credit Suisse, Julius Baer, Pictet and the Zurich and Basel cantonal banks as well as some Swiss subsidiaries of foreign banks, are part of the first group admitting their guilt. The currently about one dozen members of the first group are also the most likely to have the financial means to absorb the administrative and legal costs resulting.
Pleading guilty
For some Swiss banks the programme has come too late. UBS is not participating because it already reached a settlement with the US authorities in 2009. Meanwhile, banks Wegelin and Frey have gone out of business after incurring the DoJ’s wrath.
By joining the Swiss-US deal banks can reduce their criminal liability to a civil offence and pay a financial penalty. Given the level of uncertainty, it was a difficult choice to make for most of the banks.
Several banks have chosen to play safe and plead guilty in the scheme brokered by the two countries‘ governments because they could not say definitively that all their US clients paid their taxes – although they never actively sought US clients.
The majority of cantonal banks and some private banks, such as Edmond de Rothschild or Lombard Odier, have opted for group two, which means that they know or suspect that they have committed tax evasion offences in the US. By coming clean before the end of the year, these just over 30 banks would avoid criminal prosecution but would be subject to big fines.
About two dozen regional banks that primarily focus on mortgages and usually do not manage assets for any foreign clients, said they are either in groups three or four. A handful of locally active banks are not participating in the programme at all.