New U.S. tactic for suspected Swiss bank tax cheats

Wed Dec 28, 2011 5:30pm EST
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By Lynnley Browning

(Reuters) - U.S. authorities hunting in Swiss banks for suspected tax cheats have a new weapon in their arsenal: an arcane but aggressive legal maneuver more commonly used against drug smugglers, money launderers and Imelda Marcos, widow of the Philippine dictator.

Backed by court judges, federal prosecutors are issuing subpoenas -- official papers which compel the recipients to provide potentially damning evidence -- to United States taxpayers suspected of holding hidden accounts at Swiss and other offshore banks, according to criminal defense lawyers whose clients have received the papers.

The grand jury subpoenas are unusual in that they ask bank clients -- not the banks themselves -- to turn over to the authorities their bank account details since 2003, including statements with the highest annual balances. Taxpayers who refuse to comply potentially face a stark choice: be found in contempt of court and thus subject to civil or criminal fines and jail time, or disclose potentially incriminating evidence against themselves.

"This is a very hot issue right now," said Nathan Hochman, former assistant attorney general for the Tax Division of the Justice Department who is now in private practice at the law firm Bingham McCutchen. Hochman said that defense lawyers representing taxpayers were furious over the tactic, which already has been challenged in some courts.


The subpoenas, at least a dozen of which have been issued over the past year or so, are the latest twist in a showdown between Switzerland and the United States over the battered tradition of Swiss bank secrecy. Swiss law, dating to 1934 and stemming from a medieval tradition, protects client bank information from disclosure; bankers who reveal client details can face jail time.

The subpoenas are evidence of tensions between Switzerland, the global capital of offshore wealth with an estimated $2 trillion in hidden assets, and the U.S. Justice Department, which is conducting criminal investigations of 11 Swiss banks suspected of enabling tens of thousands of wealthy Americans to evade U.S. taxes through secret bank accounts holding billions of dollars in hidden assets. The banks include Credit Suisse AG CSGN.VX, which received a target letter last July notifying it that it was formally under criminal scrutiny; HSBC Holdings plc (HSBA.L: Quote), and Basler Kantonalbank, a large Swiss cantonal, or regional, bank.

The Justice Department is seeking to force the banks to disclose American client names and account information and pay hefty fines or face serious consequences, including possible indictment or deferred-prosecution agreements. "The number one thing is the customer data -- it is at the heart of the issue," said a U.S. government official briefed on the matter and on the subpoenas.   Continued...