What a U.S. Deferred Prosecution Against a Swiss Bank Might Mean for Some Canadian Taxpayers: Is it Too Late for Voluntary Disclosure?

In February, the United States Department of Justice entered into a deferred prosecution agreement with Swiss bank, Rahn and Bodmer (R+B). The agreement refers to the criminal charge that R+B conspired with others to defraud the IRS, to file false tax returns and to evade tax.

In brief, through the agreement the bank agreed that it conspired with U.S. taxpayers to conceal bank accounts from the IRS, which were subject to U.S. tax laws and through that, U.S. taxpayers were able to evade the payment of U.S. tax. The conspiracy was advanced by the bank opening accounts using numbers, pseudonyms and sham entities so that the name of the U.S. taxpayer would not appear on the account and the bank assisted in repatriating funds to the United States in a manner that would avoid detection.

As is typical, the deferred prosecution came with a price which is the payment of a significant fine and an agreement to provide continuing cooperation. The terms of the required cooperation are extensive but include full cooperation with the Department of Justice, the IRS and any other federal law enforcement agency “regarding all matters related to the Department’s investigation into U.S.-related accounts banking at R+B”. It also requires R+B to provide information and assist the United States with the drafting of treaty requests, and to bring to the attention of the U.S. all criminal conduct by R+B, its officers, partners or employees.

The potential significance of this agreement for cooperation to some in Canada is obvious. If a person who is subject to Canadian tax laws was using an account at R+B to hide assets or income and evade tax, the risk of detection has just gone up and perhaps the risk has gone up significantly.

Canada, along with the United States belongs to the J5 Joint Chiefs of Global Tax Enforcement. As described in a 2019 press release, this group focuses on “shared areas of concern and cross-national tax crime threats including cyber-crime and crypto-currency as well as enablers of global tax evasion, while working to share intelligence and data in near real time.”

Each Canadian taxpayer who held an account at R+B will have to decide for themselves whether the terms of the deferred prosecution agreement cause concern. If there is concern, the person might consider applying for relief under CRA’s Voluntary Disclosure Program. Whether it is too late to be eligible for relief will depend upon a careful understanding and analysis of each individual’s circumstances. However, at the very least, those who held accounts at R+B should understand that the doors to the vault of secrecy have now been opened.