On March 19th, 2023, UBS Group announced it had agreed to buy its beleaguered rival Credit Suisse. However, mere days later a Senate Finance report has revealed that despite Credit Suisse’s 2014 plea agreement the bank continued to perpetuate a decades long secret offshore banking scheme up to and through its eventual collapse.
In 2014, Credit Suisse pleaded guilty to conspiracy to aid and assist U.S. taxpayers in filing false income tax returns and other documents with the Internal Revenue Service (“IRS”) and admitted that it had knowingly and willingly operated an illegal cross-border banking business designed to assist U.S. clients in concealing their offshore assets from the IRS.
Among other conditions, Credit Suisse’s 2014 plea agreement with the U.S. Department of Justice stipulated that the bank would disclose all undeclared accounts and maintain compliance with all reporting obligations under the Foreign Account Tax Compliance Act (“FATCA”). However, it now appears Credit Suisse’s evasive actions continued long after its 2014 plea agreement.
On March 28, 2023, after an over two-year investigation into Credit Suisse, the Senate Finance Committee released a 77-page report, revealing the bank’s ongoing participation in a conspiracy to assist thousands of wealthy U.S. taxpayers in hiding offshore accounts from the IRS. It goes without saying that this report, in conjunction with the recent turmoil in the international banking sector, raises additional questions regarding just how much money is held abroad in exotic locations and structures designed to obfuscate true ownership.
While it is perfectly legal to hold assets abroad, U.S. Persons (including citizens, residents, and green card holders) who do so are subject to a bevy of additional reporting and disclosure obligations and face hefty fines (often exceeding the value of the asset itself) and legal peril for the failure to properly disclose their non-U.S. income and interests.
Perhaps chief among the myriad of U.S. tax and reporting obligations is FinCen Form 114, “Foreign Bank Account Report”, or what is commonly referred to as the “FBAR”. The FBAR is required to be filed annually by U.S. Persons holding a financial interest in or signature authority over non-U.S. financial accounts which in the aggregate total more than $10,000 at any point during the year. The willful failure to comply with FBAR filing obligations carries with it a monetary penalty as high as the greater of $100,000 (indexed for inflation) or half the account value for each year the reporting is missed, not to mention the potential for criminal liability. The Senate report urges the IRS and Department of Justice to take steps to strengthen the detection and policing of offshore tax evasion efforts, in particular FBAR violations by high net-worth individuals.
Additional IRS and Department of Justice investigation efforts are expected, and Credit Suisse is far from the only bank identified in the senate report as a bad actor. Several additional banks were identified as targets for further investigation, including Union Bancaire Privee, UBP SA (UBP) and PKB Privatbank AG (PKB), Bank Leumi, and Andorra Banc Agrícol Reig, S.A. However, there are a number of advantageous options for U.S. persons to come into compliance with their U.S. tax and reporting obligations under favorable terms. In addition, the Senate report recommends the reinstatement of the previously closed Offshore Voluntary Disclosure Program (“OVDP”), a popular and successful U.S. international reporting amnesty program.
It is important for U.S. persons with foreign financial accounts to consult with their U.S. tax advisors so as to both be aware of and maintain compliance with their U.S. tax and reporting obligations. U.S. clients of Credit Suisse are well advised to initiate a double check of their filings with a specialist and, if any deficiencies are noted, to address them through the applicable IRS program.
For further information, please contact:
Shannon Retzke Smith, Partner, Withersworldwide