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2014/04/16 00:00:00 GMT+2

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Association Program 2013: From the decision of whether to participate in the US DOJ's programme through to its implementation.

Association Program 2013: From the decision of whether to participate in the US DOJ's programme through to its implementation.

Up until December 2013, the Association Program 2013 supported banks in Switzerland in deciding whether or not to participate in the Department of Justice's (DOJ) programme for the extension of non-prosecution agreements and non-target letters, as well as which category to participate in should they decide to do so. Since the beginning of the new year, the Association Program's activities have been dominated by questions concerning implementation.

The Association Program 2013 was founded in the fall of last year, following the August 2013 announcement by the DOJ and Swiss State Secretariat for International Financial Matters (SIF) of the programme that would enable banks to obtain non-prosecution agreements or non-target letters. The procurement of these documents is intended to serve as a means of resolving claims the DOJ may otherwise pursue, arising from services provided to US clients who failed to pay taxes owed in the United States.

The Association was set up to answer questions that members may have about the programme and to facilitate a coordinated approach by seeking clarification from the DOJ.

The Association was set up from the outset to serve a dual purpose. Firstly to answer questions that members may have about the programme and secondly, to facilitate a coordinated approach by seeking clarification from the DOJ with respect to questions of common interest concerning the implementation of the programme. Moreover, the Association acts as a liaison between banks and authorities in Switzerland, and as a platform for banks, attorneys and audit firms through which to exchange their views and experiences in interpreting and implementing the programme.

Up until December 31, 2013: preparing the banks for their decision regarding participation

Until the end of last year, the Association actively sought clarification on a number of questions of overarching concern. An important example is the extent to which banks in Switzerland would truly achieve closure by participating in the programme with respect to actions that could be taken by other US government agencies, in particular the US Internal Revenue Service (the US federal tax authorities, IRS). Under the terms released in August 2013, the programme did not contain explicit guarantees that the IRS would consider all tax disputes as resolved following that bank’s successful participation in the programme. Without clarification on this point, it would have been extremely difficult or even impossible for a bank to decide in favour of participation in category 2, the category for banks that have reason to believe that they may have infringed on US tax law from a US perspective.

The IRS will not additionally pursue Swiss banks for civil penalties if they enter the settlement programme and comply with FATCA.

Following the efforts of the Association together with the Swiss Bankers Association and SIF, the IRS issued an import clarification last December. In a statement, Michael Danilack, Deputy Commissioner (International) for the Large Business and International Division, made clear that the IRS will not additionally pursue Swiss banks for civil penalties if they enter the settlement programme and comply with FATCA.

Addressing another uncertainty pointed out by the Association Program 2013, the DOJ’s Kathryn Keneally, Assistant Attorney General for the Tax Division, announced that it was possible for banks that originally enrolled in category 2 for a non-prosecution agreement, to switch to category 3 for a non-target letter if the concern of having broken US laws turned out to be unfounded.

During this period, the Association Program 2013 sponsored round table meetings, providing analysis and a forum for its members for an exchange among peers in an open format.

From January 1, 2014: implementation for category 2

The next deadline is fast approaching for the banks that have decided to participate in category 2. They will have to deliver extensive information to the DOJ on how they operated the aspect of their business that served US-related accounts, unless extended, by the end of April. A 60 day extension is possible. But the banks will nevertheless have substantial work to do in order to prepare the information on how their cross-border business operated, including the name and function of the employees who structured, operated, or supervised the cross-border business for US-related accounts.

The Association Program 2013 objectives for the immediate future comprise getting information on the technical aspects of the DOJ programme that category 2 banks must satisfy, as well as on how this information must be delivered in order to comply with Swiss law.

In order to obtain a non-prosecution agreement, the bank will also have to provide information on accounts that were closed after August 2008. This includes the names and functions of any relationship manager, client advisor, asset manager, financial advisor, trustee, fiduciary, nominee, attorney, accountant, or other individual or entity functioning in a similar capacity known by the bank to be affiliated with such US-related accounts. In addition, category 2 banks will need to deliver aggregated information concerning the transfer of funds into and out of the closed accounts after August 2008, the so called II.D.2 list (named after the relevant paragraph in the programme). Put simply, they will have to indicate how much went where before the accounts were closed. All of this information will have to be confirmed for the DOJ by an independent examiner.

The Association Program 2013 will play an important role in delivering much-needed information to its members on this point. Its objectives for the immediate future comprise getting information on the technical aspects of the DOJ programme that category 2 banks must satisfy, as well as on how this information must be delivered in order to comply with Swiss law. This is important, as no bank wants the delivery of information to be stopped by a Swiss court or to create other liability because Swiss law was not respected.

To facilitate the exchange of ideas on the implementation of the programme among its members, the Association has organised fortnightly round table discussions on significant aspects of the programme since February. These discussions cover topics such as employee notification, penalty calculation (including the very important issue of deductions) and information requirements on the business model required under section II.D.1 and the account information required under II.D.2 of the programme. These round tables enable members to discuss various approaches for complying with the programme in light of electronic record and other data research capabilities, and what options their colleagues may be considering. They are proving to be very popular. The round tables are held in the German, French and Italian speaking parts of the country on every relevant subject.

From July 2014: decision and implementation for categories 3 and 4

After the deadline for the category 2 banks, the category 3 and 4 banks will enter their final decision-making process followed by the implementation phase. Potential category 3 and 4 banks, banks that seek a non-target letter as opposed to a non-prosecution agreement, must indicate by October 31, 2014, whether or not they intend to participate in the programme. With the experience gained by assisting members in complying with the category 2 requirements, the Association will be able to set its further objectives. Much remains to be done and there will be plenty of work to be undertaken by any bank participating in the programme, regardless of the category. In any case, a significant part of the programme will have been implemented and a large step toward a resolution of the Swiss-US tax dispute will have been taken.

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