U.S. Could Crack Down on My Secret Swiss Bank Account

Oh, No!

American account holders at giant Swiss bank Credit Suisse have begun receiving letters informing them the bank would be disclosing their "private" account information to the IRS. The ostensible purpose of the letters is to thwart U.S. citizens from evading taxes by parking their money in Swiss bank accounts, long known for impenetrable privacy. The records have been requested by the U.S. as part of a pending criminal investigation of U.S. tax evaders.

The Swiss counterpart of the U.S. Internal Revenue Service is called the Swiss Federal Tax Administration (SFTA).

The Swiss banking authorities are being asked to turn over the records of Swiss bank account holders during the period January 1, 2002 to December 31, 2010.

Credit Suisse is Switzerland's second largest bank, but other Swiss banks are being asked for information on accounts held by Americans. There are a total of 355 banks in the entire Swiss banking system.

The number of Americans suspected of evading taxes through the use of foreign bank accounts is estimated to number into the "tens of thousands."

U.S. tax evaders often set up the accounts for "domiciliary" or shell companies, which do little or nothing, with the tax evader as the "beneficiary" of the account.

Recipients of the U.S. banking inquiries can either agree to supply the information or they can hire a Swiss lawyer to protest the actions. But there is a catch. Contesting the tax inquiry requires the account holder to notify the U.S. Attorney General, effectively identifying themselves to the IRS.

There has been a difference in interpretation of the U.S. - Switzerland tax treaties. The Swiss have interpreted the treaty to mean that the U.S. must already know the identities of the accounting holders before asking for financial records. The U.S. believes it is sufficient to identify account holders by data patterns occasioned by account activity.

Credit Suisse became a focus of federal investigators when it indicted two Credit Suisse officials and three former Credit Suisse officials for helping Americans evade income taxes.

The U.S first targeted United Bank of Switzerland, the country's largest bank in 2009. UBS AG admitted wrongdoing in 2009 and paid $780 million in fines in a settlement that avoided prosecution. A similar "agreement" and fine is anticipated from the latest attempt by U.S. authorities to obtain financial account records of suspect tax evaders.

In order to expand its net to catch people who evaded taxes by setting up secret Swiss bank accounts, the U.S. declared tax amnesties for those who turned themselves in. These account holders provided information on how offshore banks operated in setting up such accounts.

Switzerland is about twice the size of New Jersey, has a population of 7.6 million people, and holds $2.1 trillion in financial assets in its 355 banks.

In 2006, Ameicans held 16 percent of the assets in Switzlerland's offshore accounts. Since the U.S. began applying pressure on tax evaders hiding money in Switzlerland, the percentage has dwindled to 2 percent as of 2010.

The total sum of money held in secret, sheltered offshore accounts is difficult to assess. One estimate is that $11.5 trillion dollars is sheltered in offshore accounts, but that figure excludes certain categories of transaction. The actual figure could be much higher. Consider that the national debt is currently estimated at upward of $14 trillion.