Switzerland Eases Rules on Account Data Transfer for U.S. Clients of Swiss Banks

The government of Switzerland has agreed to ease existing rules on the transfer of information on secret Swiss bank accounts of U.S. clients in a further effort to diffuse tensions with the United States over funds hidden away in Swiss banks.

The Swiss government announced Nov. 16 that the Federal Council, the government's executive arm, adopted amendments to a June 1998 ordinance on the implementation of an existing 1996 U.S.-Swiss double taxation agreement. 

The amendments will allow U.S. requests for information on U.S. clients suspected of tax fraud to be made under the existing 1996 treaty based on “certain patterns of behavior” rather than requiring the identification of the U.S. taxpayer.

The decision follows the Nov. 8 admission by Swiss tax authorities that they had received a U.S. request for administrative assistance in suspected cases of tax fraud, based on the 1996 double tax agreement. A spokesman for Credit Suisse, Switzerland's second largest bank, confirmed the same day that the bank was ordered by Swiss tax authorities to hand over information with regard to accounts of domiciliary companies belonging to certain U.S. persons as beneficial owners. 

Walter Boss, a specialist on tax law with the Zurich-based law firm of Poledna Boss Kurer, said the timing of the announcement regarding the amended ordinance was “hardly a coincidence.”

The amendments will ensure that there is due process of law for each affected taxpayer to make use of his Swiss constitutional right to be heard and to present his case to the Swiss tax authorities before a decision to transfer account details is taken, Boss added.

A revised 2009 U.S.-Swiss double taxation treaty extending administrative assistance to suspected cases of tax evasion has not yet been ratified by the U.S. Senate and has yet to enter into force. Under the 1996 treaty, administrative assistance is limited to suspected cases of tax fraud.

Last August the Federal Council proposed additional provisions to the 2009 treaty clarifying how the cross-border assistance provisions under the revised treaty should be interpreted.

Specifically, the Federal Council said Switzerland was prepared to process requests for administrative assistance under the new treaty based on what the United States identifies as suspicious “behavioral patterns” of account holders without requiring U.S. authorities to first provide the names or personal data of the individuals suspected of tax evasion. Under the current version of the revised treaty, a request for administrative assistance must include the name and address of the suspect U.S. account holder or the name and address of the information holder.

Several Swiss Banks Under U.S. Investigation

That move came after Credit Suisse revealed July 15 it was under investigation by the U.S. Justice Department for its cross-border banking services on behalf of U.S. clients. The DOJ and IRS subsequently announced July 21 that three former Credit Suisse employees and the founder of a Swiss trust company had been charged with conspiring with other Swiss bankers to defraud the United States by helping U.S. customers stash $3 billion in Swiss accounts.

Several other Swiss banks, including the private banks Julius Baer and Wegelin as well as regional banks Zurcher Kantonalbank and Basler Kantonalbank, are also believed to be currently under investigation by the DOJ.

Switzerland's largest bank, UBS, agreed in 2009 to hand over details on more than 4,000 accounts held by U.S. taxpayers and pay a $780 million fine under the threat of having its operating license in the United States revoked. As part of the settlement, UBS acknowledged that the bank participated in a scheme to defraud the IRS by actively assisting or facilitating U.S. taxpayers in establishing accounts designed to conceal the taxpayers’ ownership of the accounts.

The proposed amendments to the 2009 treaty still require the approval of the Swiss parliament, which is expected to vote on the matter in December.

In contrast, the amended 1998 ordinance does not require parliamentary approval. The Swiss government announced the amended ordinance will enter into force on Nov. 30.

“The amendment to the ordinance governs the procedure for nameless requests in cases where the bank is unable to identify the affected persons at the request of the (Swiss) Federal Tax Administration and inform them about the U.S. administrative assistance request,” the Swiss government said in a statement.

The amendment “should ensure that the procedural rights of affected persons domiciled in the United States remain guaranteed even if administrative assistance requests are submitted based on certain patterns of behavior,” it added.

The government said that corresponding information would be published in Switzerland's official Federal Gazette. The announcement will also make reference to the obligation of targeted U.S. clients to provide the name of a person authorized in Switzerland to receive legal documents and orders on their behalf. The Swiss Federal Tax Administration “will be tasked with drawing attention in U.S. media to the publication in the Federal Gazette,” the government added.