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Offshore tax-dodger dragnet widens with U.S.-Swiss bank deal: lawyers

Patrick Odier, Chairman of the Swiss Bankers Association and Senior Partner of private bank Lombard Odier (LODH) gestures during the Capital
Patrick Odier, Chairman of the Swiss Bankers Association and Senior Partner of private bank Lombard Odier (LODH) gestures during the Capital

By Patrick Temple-West and Kevin Drawbaugh

WASHINGTON (Reuters) - The U.S. government, stepping up its pursuit of American offshore tax dodgers worldwide, stands to gather an abundance of leads through a bank information-sharing deal between the United States and Switzerland, tax lawyers said on Tuesday.

The pact last week marked a turning point in a lengthy dispute between Bern and Washington, and opened the door for about 100 second-tier Swiss banks to turn over information about American account holders to the U.S. government.

Part of the deal requires Swiss banks to tell Washington about so-called leavers, or U.S. customers who shift assets to other countries. This disclosure will be a powerful tool for U.S. authorities, who started turning up the heat on offshore tax avoidance in 2008.

U.S. authorities are "clearly chasing the folks who fled Switzerland," said Josh Ungerman, a partner with law firm Meadows, Collier, Reed, Cousins, Crouch & Ungerman LLP.

In a statement last week on the pact, the U.S. Justice Department noted that its tax enforcement activities are global and have included actions undertaken in India, Luxembourg, Israel and Caribbean countries.

The United States for five years has been aggressively pursuing U.S. citizens who have been hiding assets abroad to evade taxes. So far, Switzerland has been the main focus of the chase, which includes ongoing criminal investigations of 14 big Swiss banks.

But lawyers said the scope of the crackdown could widen.

"Moving your money around to avoid disclosure is clear evidence of criminal intent," said Scott Michel, a tax lawyer with Caplin & Drysdale who has helped about 1,000 U.S. clients voluntarily disclose to the Internal Revenue Service (IRS) previously unreported money abroad.

"Clearly Justice and IRS are focused on 'leavers,'" he said.

SWISS CONTRITION

On Tuesday, Swiss banks issued an unusual public apology for their role in helping U.S. tax cheats. "We acted wrongly .... We have damaged the reputation of the entire Swiss financial center," Swiss Bankers Association Chairman Patrick Odier said at a news conference.

The U.S.-Swiss agreement will give Swiss banks a chance to avoid or defer prosecution if they cough up information about U.S. account holders.

Questions remain about the effectiveness of the offer for banks to settle, which also involves steep penalties that might discourage some banks from participating, lawyers said.

The deal is not available to the 14 large Swiss banks that are under formal U.S. Justice Department investigation. These include giants such as Credit Suisse and Julius Baer .

The agreement has the potential to be a "prototype" for other countries to follow so that their domestic banks can also avoid prosecutions by the U.S. government, Ungerman said.

The United States requires citizens to report foreign assets and pay taxes on their worldwide income, but compliance is low. Though millions of Americans have investments abroad, the IRS only received about 740,000 filings for 2011 that disclosed foreign assets, agency figures showed.

VOLUNTARY COMPLIANCE INCENTIVE?

The Swiss settlement program is only open to banks. U.S. prosecutors are hoping the renewed pressure on banks will drive U.S. taxpayers into the IRS's voluntary disclosure program, which allows taxpayers to come clean about all of their assets abroad, pay a penalty and avoid prosecution.

"Anyone who has still not reported and come into compliance, they're really at risk here," said James Mastracchio, tax lawyer at Baker Hostetler in Washington. If a large number of Swiss banks participate in settlements, he said, "it's just a matter of time before the U.S. authorities find the U.S. person."

Already, the new deal has prompted banks worldwide to review U.S. citizens' assets they received out of Switzerland since 2008, Mastracchio said.

These "recipient banks" need to be ready to prove to U.S. prosecutors that U.S. citizens' assets arriving from Switzerland were unrelated to tax evasion, he said.

On August 16, a Swiss lawyer accused of helping U.S. clients hide millions of dollars in offshore accounts pleaded guilty to conspiracy to commit tax fraud in federal court in New York.

Edgar Paltzer, 57, admitted to opening bank accounts in Switzerland in the name of entities he formed for U.S. citizens, knowing they intended to evade taxes.

Paltzer's U.S. attorney in Philadelphia said his client is scheduled to be sentenced in February 2014. He declined to comment further about the case.

The Justice Department said last week that since 2009 it has charged more than 30 bankers and 68 U.S. account holders with violations arising from offshore banking activities. It said 54 U.S. taxpayers and four bankers and advisers have pleaded guilty, while five taxpayers have been convicted at trial.

(Editing by Howard Goller and Richard Chang)

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