By Jim McConville
U.S. citizens with Swiss accounts may become vulnerable to sweeping U.S. investigations under a proposed treaty that would relax the requirements for releasing account information, experts said.
The Swiss Parliament this month amended a tax treaty with the U.S. that eases restrictions on the sharing of tax information between the two countries.
The amended treaty, which must be ratified by the U.S. Senate, will make it far easier for U.S. authorities to identify suspected tax evaders.
Under the treaty, U.S. authorities can ask the Swiss to disclose names of U.S. taxpayers at a bank who exhibit certain "behavioral patterns," indicating tax evasion under U.S. law, such as trying to conceal the ownership of the account through a trust. The U.S. also will be able to request information even from small cantonal banks that, unlike UBS and Credit Suisse Group, don't do business in the U.S.
The law would allow for Swiss authorities to hand over files on suspected tax offenders to the U.S. in cases where the U.S. authorities don't know the identities of American holders of Swiss bank accounts and are basing requests for information merely on "certain patterns of behavior."
U.S. critics of the proposed law say it will give U.S. authorities carte blanche to investigate U.S. citizens with Swiss accounts.
"This is essentially the enactment of a sanctioned fishing expedition," said Barbara Kaplan, a tax attorney with Greenberg Traurig LLP in New York who specializes in legal issues involving offshore accounts.
"With these votes, the Swiss have taken decades of practice and turned it on its head," said Scott Michel, an attorney with Caplin & Drysdale in Washington D.C., who has represented U.S. taxpayers with Swiss accounts. "It's a complete about-face from the position that they have taken for decades."
The treaty essentially means the U.S. doesn't have to show cause for demanding the Swiss bank account records of U.S. citizens, he said.
"Essentially the U.S. simply has to allege that there is a group of people who violated the law," Michel said. "They don't need to establish a factual basis to believe why they have done so and get the names and the account information.
"That's pretty extraordinary that that power has now been granted to the U.S. to reach into these banks, whose only connection to the U.S. is that they've done business with American account holders," Michel said.
Kaplan says one key question still to be answered is, will U.S. taxpayers identified by the Swiss as fitting a pattern of non-compliance be notified before their information is released? If they are, Kaplan says those non-compliant taxpayers may be able to enter into a voluntary disclosure with the IRS. If not, they can be hit hard with civil penalties and possible criminal prosecution.