The United States Department of Justice Tax Division and the I.R.S. have been ramping up an intense crackdown on offshore tax evasion, and while new budget cuts have vastly reduced I.R.S. resources, the cutbacks are having no effect on I.R.S. enforcement initiatives in this area.
At present, the U.S. government’s reach has extended far beyond Switzerland, where the Department of Justice is pursuing criminal investigations against a dozen Swiss banks and is engaged in a settlement program with an additional 100 banks that will enable the banks to avoid criminal prosecution. Jurisdictions of note include India, Liechtenstein, Luxemburg, Barbados, Hong Kong, Singapore, and Israel (where Bank Leumi recently entered into a Deferred Prosecution Agreement with the Department of Justice, paid a penalty of $270 billion, and agreed to identify numerous U.S. account holders to the I.R.S.). In addition, the U.S. government is pursuing investigations in various jurisdictions that have not yet been made public.
As alluded to above, there are fourteen active federal grand jury investigations involving foreign banking institutions, and the Department of Justice has begun an amnesty program through which Swiss banks may disclose their roles in aiding tax evasion. BSI SA became the first participant in this program, agreeing to pay a $211 million penalty and turn over U.S. account holders’ identities in order to escape criminal charges. Further, F.A.T.C.A. legislation now operational mandates that a foreign financial institution identify and reveal American depositors – both individuals and entities – to the I.R.S. or suffer a 30% withholding on U.S. source withholdable and pass-through payments, including gain proceeds, in the event of non-participation. Taken together, the foregoing will result in the eventual disclosure of several thousand taxpayer identities to the I.R.S.