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The online magazine of the Swiss Bankers Association
2014/12/17 12:30:00 GMT+1

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The tax dispute with the US Model NPA and next steps

The tax dispute with the US Model NPA and next steps

A couple of weeks ago, the US Department of Justice (DoJ) sent the Category 2 banks a first draft of the Non-Prosecution Agreement. The model NPA marks another milestone in the DoJs programme, but also poses a significant challenge to Swiss banks, as it appears to go beyond the scope of the programme.

Only a few weeks after disclosing information or knowledge about cross-border activities concerning US related accounts as well as delivering documents to the DoJ that prove their clients are tax compliant, category 2 banks received a draft Non-Prosecution Agreement (NPA) from the US. The delivered documents are of great importance to the banks: The NPAs set out the conditions under which the banks can reach the closure they are seeking.

Those banks who wish to participate in the programme as Category 3 or 4 banks must submit their letters of intent prior to December 31, 2014.

NPA raises manifold points of concern

The draft NPA the DoJ provided to category 2 banks raised a number of concerns. The main points expressed by Swiss category 2 banks in a letter to the DoJ on behalf of around 70 banks may be summarized as follows:

  • The model NPA does not stipulate an end date with regards to the required cooperation with US authorities
  • Under the model NPA, Swiss banks (parent companies and subsidiaries included) are required to extend the cooperation to any other foreign law enforcement agency that is cooperating with the DoJ or IRS
  • Swiss banks are required to disclose information on business models on a multilateral level, however, exemption from punishment is guaranteed only in Switzerland
  • The model NPA requires participating banks to disclose information about relationship managers which goes beyond the scope of closed accounts in the applicable period

The SBA shares those concerns. But it also reasons that the programme, although it entails painful consequences for the banks, remains the only solution that allows banks in Switzerland to ultimately end their problems with the US and to ensure legal certainty. And the category 2 banks have made enormous efforts to meet the requirements of the programme.

Questions of compatibility of legal systems

Still, among other issues, the points above raise questions about the compatibility between the legal systems of the two countries, which the programme was intended to address. Indeed, in their joint declaration of August 29, 2013 the DoJ and the Swiss Federal Department of Finance assured that Swiss law allowed for effective participation of the Swiss Banks. Any implementation of the programme will therefore need to provide positive answers to the questions about legal compatibility.

The SBA’s view is that it is crucial that the DoJ programme soon comes to a successful conclusion and that as many banks as possible can solve their tax-related issues with the US authorities. For this purpose it is critical that banks can reach full closure in a reasonable timeframe and, by doing so, do not risk breaching Swiss law by participating in the programme.

For better relations between Switzerland and the US

Most importantly, the successful conclusion of the programme would be a substantial contribution to turning the page on the deteriorating Swiss-US relations. The bilateral relationship between the two countries has been suffering under the weight of this unresolved tax conflict for too long. It is high time to focus again on fostering economic ties – as Switzerland remains one of the top foreign direct investors in the US – and common values.