FATCA and Switzerland

205 thoughts on “FATCA and Switzerland”

1. @ Polly
   I wish I knew.
   I think it is about the have’s and have not’s. The propensity of mankind to take advantage of each other be it Communism or Capitalism or any other ‘ism’.
   I don’t hold out much hope for mankind’s future.

2. @Heidi
   It is frightening. When I hear of child abuse or animal abuse I just cannot grasp it. The “propensity” of mankind is so daunting.

3. @heidi @polly

   To me, this is not about any specific “terrorist group”. It’s about the disenfranchised who exist in any society (some more than others). ISIS is just one of the many catch-alls for them. Rather than take a more comprehensive approach to what is causing this disconnect within our societies, our government’s approach is to play whack-a-mole. I believe that’s what’s upsetting Canadians the most about C-51, that it’s a top-down government mandated approach rather than spending the resources it would take to have people feel more connected within Canadian society.

4. From a few years ago, but still very relevant to the gross UBS numbers cited by Treasury, and the concept of what a ‘Swiss’ bank account encompasses – for Swiss nationals working in the US, with pre-existing accounts and assets – BECAUSE those were their ‘local’ accounts. UBS and the other Swiss banking scandal stats included US homelanders, but the IRS and Treasury cannily don’t make any distinction between those whose Swiss accounts were pre-existing because they are Swiss nationals living in the US, and US homelanders hiding money. FBAR and FATCA defines ALL accounts outside the US as potentially criminal and clandestine. Just like my local legal Canadian chequing account.

   Just as the US refused to make any meaningful distinctions in the numbers cited for the ‘success’ of OVD/I/P programs, and refused to distinguish between minnows “abroad” who owed the US zero on their local post tax wages and normal everyday legal local accounts vs. US homelanders with true ‘offshore’ trusts. Like they fail to distinguish between my tiny Canadian and very limited “Tax Free Savings Account” (which I had to dissolve because it was considered by the IRS to be a “taxable foreign trust” cursed with incomprehensible 3520 and 3520 A reporting and confiscatory penalty and tax regimes) isn’t the Commerce Secretary Penny Pritzker ‘s family trust in the Caymans ( http://www.washingtontimes.com/news/2013/may/22/pritzkers-offshore-holdings-cloud-commerce-bid/?page=all ).

   See:
   ‘No one in Youngstown, Ohio has a Swiss bank account’…Except for Maybe That Big New Swiss Employer in Town?’

   Matt Welch Jul. 16, 2012 9:36 am
   http://reason.com/blog/2012/07/16/no-one-in-youngstown-ohio-has-a-swiss-ba

   excerpt;
   “….Really? No one in Youngstown has a Swiss bank account? That might come as news to executives at this new local job-creator:

   YOUNGSTOWN – Another major player in the oil and gas industry has decided to set up shop in the Mahoning Valley, bringing about 150 jobs with it.

   Geneva, Switzerland-based Weatherford International Ltd. plans to put a “multipurpose operations facility” into a building it bought April 20 at 1110 Performance Place in Youngstown’s Salt Springs Industrial Park.

   The company said it will employ about 150 at the facility, which tentatively is scheduled to start operating in late September.

   Remember: Because of the populist, economically illiterate Foreign Account Tax Compliance Act, Swiss citizens working in the United States at American-job-creators like Weatherford are being unceremoniously dumped by their banks back home. Imagine for a moment going to your ATM to pull out money, and seeing the message “account closed.” I have talked to multiple Swiss expatriates and bankers alike who say that that’s now commonplace.

   Why should we care about a bunch of goddamned fondue-eating Novartis executives? Switzerland was by several accounts the largest source of foreign direct investment into the United States in 2010 [PDF], and is consistently among the top foreign investors in the presumably Ohio-friendly field of manufacturing. The Swiss government estimates that Swiss companies employ a half-million Americans.

   So we are now actively infuriating not only some of the roughly five million American expatriates who are seeing their bank accounts shuttered all over the globe, but also the very type of job-creating Swiss investors and executives to whom a prudent country might be a tad more welcoming. As this Congressional Research Service report [PDF] puts it, “Foreign direct investments are highly sought after by many state and local governments that are struggling to create additional jobs in their localities.” Do tell.

   Like the January statement from Sen. Carl Levin (D-Mich.) that “There is no such thing as an ordinary Swiss bank account,” Tim Ryan’s claim that “No one in Youngstown, Ohio has a Swiss bank account” is becoming a self-fulfilling prophecy, precisely because of consequence-oblivious millionaire Democratic politicians like Carl Levin and Barack Obama. And it’s cities like Youngstown that stand to suffer most…”….

5. The DOJ inquisition of the Swiss banks continues. Sofar 27 of approx. 90 banks in Category 2 have been absolved of their sins by the Grand Inquisitor, Caroline Ciraolo, Acting US Assistant Attorney General. (She replaced the infamous Kathryn Keneally, who resigned one year ago).

   The sins committed by the Swiss banks read rather dull at this point. Many or most of their US Person customers are resident in Switzerland, are dual-citizens and simply came in the front door for an account. Only two of the 27 banks had a strategy to attract and acquire Americans. An analysis of the NPAs by the Swiss NZZ newspaper includes the following comments:

   “In tourism areas like Interlaken, Bern or St. Gallen operating banks were contacted by tourists. Swiss financial institutions were also, however, chosen by Americans working in Switzerland. The Lugano “Banca Creditinvest”, for example, had 31 customers with a US connection, 15 were customers who simply came to its bank counter. A larger problem presented itself to many banks was the identification of dual-citizens, that is, of customers who had in addition to the American passport also a second passport. The IT systems of many banks had not recorded this. For some banks dual-citizens were the main reason that they were categorized as Category 2. Several small Tessin (Swiss Italian area) banks explained to the DOJ that bank documents were only produced in Italian and only with a lot of effort was it determined that some of their Italian customers had a US connection. In some cases affected customers were referred to almost entirely by external asset managers. Remarkable is it also that almost no bank pursued an explicit strategy to acquire US customers. For the 27 banks reviewed sofar there were only two.”

   http://www.nzz.ch/wirtschaft/wirtschaftspolitik/erster-einblick-in-das-us-offshore-geschaeft-1.18592175

   Comment: Kathryn Keneally demanded that retail banks be included in the DOJ program under the guise that no offense was too small to exclude. The results have been predictable. She was wise to leave the DOJ before this phase started. She was an idiot.

6. @Innocente. I recently discovered this formal request for information to the State Council of the State of Vaud (Executive cabinet for the Canton) submitted by a member of the Vaud Grand Council (Cantonal parliament, a unicameral legislature). This request was issued in August 2014 after the implementation of FATCA and the Senator making the request was concerned about persons being denied bank accounts, particularly by the Banque Cantonale Vaudoise (BCV i.e. State Bank of Vaud). The response says that for a person domiciled in Vaud (or even elsewhere in CH) accounts are possible if the client agrees to disclosure to the IRS. The bank reserves the right to close existing accounts where the owner is recalcitrant, but only the number of recalcitrant accounts will be communicated to the US, not the details, which would have to be requested through judicial assistance procedures [subject to appeal].

   What is interesting is that there doesn’t seem to be a mention of the USD 50K threshold of FATCA or the exclusion of 2nd pillar and 3a pillar retirement accounts (products not subject to reporting by the banks as per the Swiss IGA). Reading between the lines leads me to believe that the driving force behind BCV policy and perhaps that of many other banks in CH was not solely FATCA itself but the “Program for Swiss Banks”, whose thresholds and limitations are somewhat vague to me.

   Here is the request for information: http://www.vd.ch/fileadmin/user_upload/organisation/gc/fichiers_pdf/2012-2017/13_INT_190_Texte_CE.pdf

   Here is the contact page for Senator** Amélie Cherbuin (amelie.cherbuin@)gc.vd.ch) http://www.vd.ch/autorites/grand-conseil/deputees-et-deputes/deputees-et-deputes/cherbuin-amelie/ who made the inquiry.

   ** I translate her title into English as “Senator” in view of the use of the term “Senator” in Nebraska to refer to members of the unicameral legislature in that state. However, in French, she would probably be referred to as “Madame la députée”.

7. Just for the record, in case they close my mailbox for doing this:

   Le Mercredi 2 septembre 2015 [xxHxx] , Jeff D Tom a écrit :
   eveline.widmer-schlumpf@gs-efd.admin.ch

   Sehr geehrte Frau Bundesratin,

   Vielleicht gibt es für Sie etwas interesantes hiermit zu lesen:

   http://mccunewright.com/assets/news/Welborn-v-IRS.pdf

   Freundlichen Gruessen,

   Jefferson D Tomás

8. A Swiss tabloid has an article today on the status of the US-Swiss Tax Programme. Briefly, it says that the Swiss banks are not paying the high fines originally expected because:
   1) The original DOJ prosecuting team was politically motivated and was changed out at the beginning of 2015. The new DOJ team is seen as being more pragmatic.
   2) An estimated 25 of the 100 Category 2 banks should not have been in the programme since their offenses were minimal. However, they were pushed into it by the Swiss bank regulator, Finma and the DOJ. The head of Finma was forced out and, of course, the Asst Attorney General, International Tax, Kathryn Keneally, also left her post in mid-2014.
   The article does not mention the windfall that this has been for New York and Washington DC law firms. An article several months ago, possibly in the Tages-Anzeiger, said that the legal fees were three times the DOJ penalties.

   http://www.20min.ch/finance/boerse/story/So-viel-kostet-der-US-Steuerstreit-die-Banken-18987103

9. Sunday, September 6, 2015
   Will the OECD Force Switzerland To Exchange Information Based on Stolen Financial Information?
   Author asks: “………… I wonder if this will encourage theft of financial information from institutional employees who may become potential reward seekers hoping to claim a percentage of tax collection from non-compliant taxpayers? Like deep sea treasure hunters?”
   from;
   http://lawprofessors.typepad.com/intfinlaw/2015/09/will-the-oecd-force-switzerland-to-exchange-information-based-on-stolen-financial-information.html

10. There’s always an entrepreneur looking for a new business opportunity. A website has been set up in Switzerland to assist US citizens to obtain various banking and financial services. The bank account section lists a grand total of three banks in Switzerland that will accept accounts from Americans resident in Switzerland. (UBS reportedly also accepts accounts from such Americans but is not on this list.):

    http://www.americanswelcome-expats.ch/bank-accounts.php

    PostFinance is listed as a place to obtain a mortgage. If this is true, it is a recent development – a 2012 article said that the Swiss post bank would not grant US Persons mortgages:

    http://www.tagesanzeiger.ch/wirtschaft/unternehmen-und-konjunktur/ZKB-kuendigt-Schweizern-mit-Wohnsitz-USA-die-Hypothek/story/22681930

11. Innocente,

    For US Persons Abroad caught up in this and need *to bank* to stay in their Countries Abroad, may these entrepreneurial endeavours be as successful as those of the US tax compliance industry that Chambers of Commerce state are good business opportunities.

12. On the Swiss government’s web site for the Swiss Embassy, Pretoria, South Africa:

    Banking Fraud: Warning to Swiss Bank Account Holders

    Swiss citizens living in South Africa have lately become victims of banking frauds. The perpetrators get access to details from Swiss or Liechtenstein banking accounts (names, addresses, signatures, credit balance, etc.) and use this information to forge orders to transfer money to bank accounts in Asia. To prevent such cases, the Embassy of Switzerland recommends Swiss or Liechtenstein bank account holders to be vigilant with their banking identity details and to request their bank not to send correspondence via postal service and not to process any written money transfer order without prior consultation of the bank account owner via the telephone number that is lodged with the bank (not the one on the instructions).

    https://www.eda.admin.ch/pretoria

13. @Innocente

    I read that the US DOJ is making a big deal out of Swiss banks providing hold mail services for their US customers.

    The US DOJ has managed to turn everything into a crime. I am glad I don’t live there anymore.

14. Swissinfo.ch interviewed the US Ambassador to Switzerland, Suzan LeVine which was posted as a podcast yesterday.
    Her remarks starting at about 4:00 include:
    1) She again claims that US citizenship is beneficial/ needed to receive Social Security and Medicare.
    2) She claims that more Swiss banks are willing to work with Americans as a result of the embassy’s lobbying them, although there seem to be the same three or four banks offering services to USPs as when she started as US ambassador in June 2014.
    3) She says that most of the Americans giving up their US citizenship in Bern are accidentals based on informal surveys/ anecdotal data.

    http://www.swissinfo.ch/eng/us-ambassador-suzi-levine_curious-about-this-place-called-switzerland/41682856

15. Listen carefully:

    http://m.srf.ch/sendungen/tagesgespraech/juerg-bucher-bussen-haben-geholfen-im-haus-aufzuraeumen

16. caveat:
    I haven’t had time to actually read this:

    “The End of Secret Swiss Accounts?” by Jane G. Song
    scholarlycommons.law.northwestern.edu › JILB › Vol. 35 › Iss. 3 (2015)
    http://scholarlycommons.law.northwestern.edu/njilb/vol35/iss3/4/

17. http://isaacbrocksociety.ca/?attachment_id=45861

18. The Swiss daily, NZZ, has an article on its website titled “The Curious Case of PostFinance” as it relates to the DOJ Program for Swiss Banks.

    Background:
    PostFinance has been a business unit of the Swiss Post for many years and offered and offers limited banking-like services such as bank accounts and payment services. It did not and does not make loans on its own account, although it markets loans for about two banks. According to its governmental charter, PostFinance must give anyone resident in Switzerland or Swiss citizens living abroad a current account. In the summer of 2013 it obtained a bank license.

    This is an excerpt from the NZZ article:
    “Interesting is the example of PostFinance. In the crucial period for the United States, PostFinance
    still did not have a banking license. Since it never handled securities for its clients, it had not concluded a “Qualified Intermediary” agreement, which pledged that banks were to report US customers who traded in US securities.

    PostFinance’s main field of activity was in payment processing. It did not have private bankers who took care of specific customers. Accordingly, there were no country strategies, no trips to the US, no services such as the retention of the post or the opportunity to invest money in structures. On the contrary, US customers were always under special rules; they were not allowed to hold any savings or investment accounts. From 2009, the PostFinance required from its US customers also written assurance that their funds were taxed in the homeland. When combing through the three million customer relationships only two cases were found in which illegal transactions by US persons were possible.

    So why was PostFinance in Category 2 of the US program, which included the presumed great sinners? This can only be surmised since banks are not allowed to talk about their agreement and the PostFinance would not comment. Answers emerge from the “presentation of the facts” by the US authorities and from interviews with those involved.

    Because of its public service mission that the PostFinance has it may not refuse customers residing in Switzerland. It therefore had to accept US customers, in contrast to most other banks even after 2008. After the PostFinance received its banking license in 2013 and was now able to sign up for the US program, it decided as a first step for the Category 2. Until the end of 2013 it could not completely rule out the possible presence of untaxed funds. The trigger for staying in this strict group, and not as hoped to switch to the less stringent treatment Category 3, were obviously the two cases which had violated American law. PostFinance seems to have come to the conclusion that only one non-compliant account with US tax laws would put it into Category 2, said a banking expert. This view is controversial because the program was open to interpretation. American lawyers tend to a strict view, Swiss lawyers however took the view that if the violations involved only “individual cases”, then Category 3 could be selected.

    Forced confession
    Like other banks, it was not possible for PostFinance to submit the required complete documentation for each customer and thus to prove beyond doubt that all funds were taxed. PostFinance subsequently paid a total fine of $2 million for these customers. Comparing this punishment, however, with those of other banks, which managed a similar amount of US funds, one sees that the American authorities considered PostFinance as a special case. Although the penalty was much lower in comparison, the third-party costs for combing through the accounts and for lawyers and consultants were likely to have been several times the penalty.

    Apparently PostFinance decided to remain in Category 2 after clarifying its risk. This is against the background that the Swiss bank regulator, Finma, called upon all banks, who were “in doubt”, to apply for Category 2 in that autumn of 2013. Still, it is very questionable that this ultimately “innocent” but system-relevant institution was forced to admit to being guilty of “conspiracy against the United States”. ”

    http://www.nzz.ch/wirtschaft/wirtschaftspolitik/der-seltsame-fall-der-postfinance-1.18669834#kommentare

19. South Africa is a good example of why someone prudent would need to hold some money outside their country. While SA has a decent economy, its politics are not reassuring. Somewhere down the road it is entirely possible that it ceases to function as a true democracy. The economy will suffer. A devalued Rand and confiscatory temptations by the government remain possible. This is why it remains necessary to have foreign accounts that are somewhat shielded from one’s country. Like cash, foreign accounts are an insurance policy against governments’ (even the most democratic and “benign” ones) totalitarian temptations.

    The US will not tolerate stashing of money abroad, except in one case: stashing foreign money in the US.

20. @Innocente

    I read a blog comment from a homelander the other day suggesting the US sanction foreign banks for refusing to take US customers. Is that next?

21. Some interesting articles in TDG about bank secrecy, data privacy issues, and ongoing non-prosecution agreement issues:

    Secret bancaire: la Suisse doit-elle rester un bastion pour ses contribuables?
    http://www.tdg.ch/geneve/actu-genevoise/secret-bancaire-suisse-doitelle-rester-bastion-contribuables/story/15527846

    Protection des données: «La Suisse est restée à l’ère de la carte Cumulus»
    Avec l’arrivée d’un nouveau préposé et la révision de la loi, la protection des données sera un des enjeux de l’année à venir.
    http://www.tdg.ch/suisse/Protection-des-donnees-La-Suisse-est-restee-a-l-ere-de-la-carte-Cumulus/story/25235453

    (Safe Harbor initiative)

    L’accord avec les Etats-Unis désormais remis en cause
    Protection des données: La Suisse est également touchée par la décision de la Cour européenne de justice d’invalider le cadre juridique qui couvre le transfert de données personnelles vers les Etats-Unis.
    http://www.tdg.ch/suisse/accord-etatsunis-desormais-remis-cause/story/15914076

    (Transfer of information about bank employees)

    La Cour de justice de Genève déboute Credit Suisse
    Transmission de données: Les juges genevois confirment que les intérêts personnels d’une ex-employée prévalent sur ceux de la banque à transmettre des données.
    http://www.tdg.ch/economie/entreprises/cour-justice-geneve-deboute-credit-suisse/story/25408623

    Pour les banques, le conflit fiscal n’est pas clos
    Accord avec les USA: Pour les employés des établissements ayant signé un accord avec la justice américaine, l’incertitude se prolonge.
    http://www.tdg.ch/economie/banques-conflit-fiscal-clos/story/15649954

    (Non-prosecution agreement related)

    Trois nouveaux accords avec la justice américaine
    http://www.tdg.ch/economie/trois-nouveaux-accords-justice-americaine/story/30648709

    Les banques Cornèr et Coop vont payer
    Les établissements luganais et bâlois écopent de 3 à 5 millions de dollars d’amende.
    http://www.tdg.ch/economie/banques-corner-coop-payer/story/30892911

22. Just for the record, here is the amendment to the double-taxation treaty with Switzerland that Rand Paul is blocking:

    http://isaacbrocksociety.ca/wp-content/uploads/2016/01/CDOC-112tdoc11.pdf
    (retrieved today from https://www.congress.gov/treaty-document/112th-congress/1 )

23. In January 2015 the IRS announced the closure of its taxpayer assistance offices in Frankfurt, London and Paris to save $4 million and transfer the one dozen employees back to the US. Bloomberg wrote at that time:

    “The closing of IRS offices attached to U.S. Embassies in London and Paris, as well as the consulate in Frankfurt, will allow the agency to reassign about a dozen employees to its domestic offices and save about $4 million a year, the IRS said in a statement.”

    According to Swiss statistics at year-end 2014, the US had 2,126 people classified as US diplomats (433) and US civil servants (1,693) in Switzerland, residing in the Geneva and Bern areas. It should be noted that these statistics probably include family members of diplomats and civil servants since there are underage and retirement age individuals in the count. US government employees and family members represent 10.8% of American citizens in Switzerland (2,216/ 19,677).

    Statistics can be retrieved at this link:
    https://www.pxweb.bfs.admin.ch/Selection.aspx?px_language=de&px_db=px-x-0103010000_101&px_tableid=px-x-0103010000_101\px-x-0103010000_101.px&px_type=PX

24. @Innocente wrote: “According to Swiss statistics at year-end 2014, the US had 2,126 people classified as US diplomats (433) and US civil servants (1,693) in Switzerland, residing in the Geneva and Bern areas. It should be noted that these statistics probably include family members of diplomats and civil servants since there are underage and retirement age individuals in the count. US government employees and family members represent 10.8% of American citizens in Switzerland (2,216/ 19,677).”

    It’s not obvious how the statistics are determined. All officers assigned to Bern and to the US Mission to the UN in Geneva (and to other international organisations there) have full immunity. Support staff at the Embassy, the Consular Agency in Zürich, and in Geneva, have functional immunity (i.e. immunity as to official acts, broadly interpreted). US citizens employed by international organisations have whatever immunity the organisation’s treaty with the host nation provides for.

    It is likely that Swiss statistics ignore the American connection of its own dual nationals, of which there are many. The Swiss Government collects data on the (dual) nationality status of its citizens but I don’t see a number readily available online. As Swiss ID cards and passports only show “place of origin” and not place of birth, it would be up to a dual national to volunteer that information in any case.

25. I can imagine that the dozen IRS employees assigned to the three European offices amounted to 20 to 35 when including families. In the scheme of things, the $4 million that was “saved” by the IRS is not a lot of money and US taxpayers in Europe now have to get tax information from other sources such as costly CPAs. For the little country of Switzerland alone, the number of US civil servants increased by 121 from 2013 to 2014. It would have been beneficial to US taxpayers in Europe if the State Department could have shared some of their budget funds to retain these IRS employees.

    Swiss statistics classify foreigners according to their residence permit. Two of these classifications are Diplomats and ordinary Functionaries without diplomatic immunity. Of the major countries, the US has the most in Switzerland, even more than Germany, which has upwards of 300,000 of its citizens living in the country.

    By canton American diplomats and ordinary functionaries were distributed at y/e 2014 as follows:

    Bern:
    Diplomats: 94
    Functionaries: 15

    Basel-Stadt & Land:
    Diplomats: 0
    Functionaries: 73

    Vaud (Lausanne):
    Diplomats: 125
    Functionaries: 307

    Geneva:
    Diplomats: 214
    Functionaries: 1,298

    Note that there were no US Diplomats or Functionaries listed for Zurich, the canton with the greatest population.

    Although not a large number, a pecularity is who are these functionaries in Basel. Living in Basel but commuting to Bern? Working at the Bank for International Settlement? Food and Drug Administration employees inbedded in the pharmaceutical companies there? Chocolate inspectors?

    The fact that 2,126 Americans in tiny Switzerland have US Diplomatic or Functionary status makes it look like the country is occupied. Of course, it could be just a huge junket at the US taxpayers’ expense.

    On a side note, Eritrea, which has around 25,000 of its citizens living in the country, has a total of 12 with diplomatic (2) and functionary (10) status.