What Offshore Account Holders Need to Know About the Credit Suisse Plea

In a landmark settlement, Credit Suisse Group has agreed to pay $2.6 billion and pleaded guilty to criminal charges that it helped U.S. taxpayers to hide money abroad in the decades leading up to 2009.

The outcome of the long-running case has many implications for Credit Suisse account holders. As part of the plea agreement, the bank agreed to “make a complete disclosure” of its cross-border activities and cooperate with treaty requests for account information, according to the Justice Department.

U.S. officials also said that Credit Suisse will provide “detailed” information about other banks that transferred funds into the bank and accepted transfers from it, officials said.  Assistant Attorney General Kathy Keneally warned, “We are obtaining information that is enabling us to follow the funds to other Swiss banks or to banks in other tax haven and bank secrecy countries.”

Experts said her comment showed that the Internal Revenue Service is keenly interested in tracking money that was moved out of Credit Suisse and other Swiss banks after 2009, when UBS admitted to helping U.S. taxpayers hide money abroad. “There will be a real focus on ‘leavers,’ as they’re called,” says Scott Michel, a lawyer at Caplin & Drysdale in Washington.

Deputy Attorney General James Cole noted that the Justice Department has taken public actions in India, Israel, Luxembourg, the Cayman Islands and several other Caribbean countries, and is engaged in others not yet public.

While Credit Suisse isn’t turning over names of account holders as part of the agreement, they are handing over information that Deputy Attorney General James Cole said would lead to specific account holders.

The U.S. is alone among developed nations in taxing the worldwide earnings of its citizens and its green-card holders, no matter where they reside. In addition, such taxpayers must file disclosure forms annually if total foreign financial assets top $10,000.

The penalties for not filing these forms can be severe, in some cases up to half the value of the account. Some of the penalties apply to taxpayers who were unaware of the law as well as to those who meant to hide money abroad.

Here’s what U.S. taxpayers with undeclared accounts at Credit Suisse and other foreign financial institutions need to keep in mind, experts say.

Confessions help. “Come to us before we find you”: U.S. officials have issued this warning many times since the intense campaign against undeclared offshore accounts began in 2009. The penalties for hiding money abroad are highest if the owner has made no move to come forward.

Account size matters, too. Experts say that in practice, U.S. authorities are usually more interested in pursuing taxpayers with accounts above $1 million rather than smaller ones.

But not always. Bryan Skarlatos, an attorney at Kostelanetz & Fink in New York, which has handled hundreds of offshore-account confessions, said that Justice Department officials “don’t want tax evaders to think anyone is too old or too sick or has too small an account to be prosecuted.”

Banks may not send out warning letters. In the past, many offshore account holders received notices saying that their account information could be turned over to U.S. authorities. UBS sent such letters to customers after its settlement in 2009, and Credit Suisse notified some account holders in late 2011.

Recently, however, Keneally has said that “the days of waiting for a warning sign, such as a letter, are over.”

Were you “willful”? The strongest sanctions, including prison, apply to people who “willfully” intended to hide money abroad.

Evidence of willfulness could include having an account in a country with bank-secrecy laws, such as Switzerland; not disclosing the account to your tax preparer; having a numbered account or one held under a pseudonym; having undeclared income of about $5,000 or more a year; concealing the account in a foundation, trust or foreign corporation; and having a “hold mail” notice on the offshore account—which can indicate that it’s secret.

There’s more than one way to come clean. Taxpayers who aren’t in compliance and want to become compliant face confusing choices with nuances that frustrate even the experts.

The IRS is now offering its third limited-amnesty program since 2009 for offshore-account holders. Taxpayers who apply for the programs are likely to be rejected if the IRS already has their name from another source, such as a bank or adviser.

People accepted into the amnesty programs usually owe back taxes, interest and a large penalty of up to 27.5% of their account’s highest balance in the last eight years. But they receive protection from criminal prosecution.

Nina Olson, the National Taxpayer Advocate, has criticized the IRS programs for imposing unfairly high penalties on many “benign actors” who made honest mistakes.