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Banking clients can no longer rely upon the once sacrosanct shield of secrecy to protect them in the future.

A recent Reuters report revealed that Switzerland’s second largest Bank, Credit Suisse (hereinafter “CS”), has begun to notify an undisclosed number of its United States citizen clients of its intention to reveal their account data to the United States Internal Revenue Service (hereinafter “IRS”). The Reuters report is based upon an authenticated copy of CS’s formal letter of notification which was given to a Reuters representative.

This latest major breach of bank secrecy follows the initial major breach by UBS, Switzerland’s largest Bank. Under threat of the loss of its license to do business in the United States, UBS was literally coerced into revealing the names of hundreds and quite possibly thousands of its U.S. citizen clients to the IRS. When UBS’s legal representatives cited chapter and verse of the Swiss Banking Law prohibiting it from doing so, the Swiss Parliament simply changed the law.  

Given the facts and circumstances surrounding the CS case, this latest breach of bank secrecy is far more worrying than the precedent set by the UBS case. The actual handover of account details was triggered pursuant to the “administrative assistance” provisions of the Double Taxation Treaty between Switzerland and the U.S. Under these provisions, IRS submitted a formal request for what the treaty vaguely describes as “assistance” to the Swiss Federal Tax Administration (hereinafter “SFTA”). The said request demanded the formal disclosure of confidential information protected by the laws of Swiss banking secrecy with regard to accounts belonging to certain U.S. citizen persons.

The SFTA decided to comply with the IRS Treaty Request and proceeded to issue an administrative order directing Credit Suisse to submit “responsive account information” to the SFTA. The order for compliance is effective upon receipt by the bank and there is no right of appeal. Therefore, there can be no doubt that Credit Suisse will comply with the SFTA request. SFTA will, in turn, then provide the details to IRS. There can be absolutely no doubt that this is not an isolated case but a

precedent- setting case that paves the way for IRS to receive such information from each and every Swiss Bank.

The IRS request reportedly covers accounts maintained at any time over the period from  January 1, 2002 through  December 31, 2010. The Credit Suisse letter to its U.S. citizen account holders was signed by Michel Ruffieux and Stephan Gussman, both Managing Directors at Credit Suisse.

So far, no information with regard to the number of clients affected by the data transfer has been announced. However, analysts at Vontobel, a Swiss private bank, said the transfer of information by Credit Suisse to SFTA and IRS was “advancing faster than expected”.

Earlier this year, Credit Suisse received what is known in the industry as a “target letter” from the U.S. Department of Justice notifying it that it was the subject of a federal criminal investigation into its offshore private banking services. This demonstrates the zeal with which the U.S. authorities are pursuing the heretofore untouchable Swiss bank accounts.

 It is against this factual backdrop that Switzerland is negotiating a disclosure and information exchange deal with the U.S. that would include its entire banking industry of some 355 banks. Germany and the U.K. have recently signed tax disclosure pacts with the Alpine state. A Swiss Parliamentary Commission has recommended that its lawmakers back a proposal clarifying not whether but rather how the Alpine state would hand over such client data.

Banking is a key component of the Alpine state’s economy, accounting for about 13%

of GDP.

The United States has numerous tax treaties with other countries containing identical provisions for “assistance”, including one with the State of Israel. Given the developments discussed above, the informed observer can justifiably conclude that banking clients can no longer rely upon the once sacrosanct shield of secrecy to protect them in the future.

 

This article is for informational purposes only and is not a substitute for specific legal advice based on individual consultation.

Attorney Kahn has practiced law in Israel and the United States for over 35 years.

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Comments

Mena Reich
2012-05-02
Is this, which the american government is doing not called "extortion" How are the American courts allowing this ?
Dan Kovnat
2012-04-27
This is just the tip of the iceberg as FATCA comes into effect. This law forces all banks in the world to report the account records of all U.S. persons to the IRS. And the next step is reported in my blog http://wp.me/p1JAbt-2E

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