TaxProf Blog

Editor: Paul L. Caron, Dean
Pepperdine University School of Law

Thursday, December 29, 2011

U.S. Deploys New Tactic in War Against Swiss Bank Tax Cheats

Reuters, New US Tactic for Suspected Swiss Bank Tax Cheats, by Lynnley Browning:

U.S. authorities hunting in Swiss banks for suspected tax cheats have a new weapon in their arsenal: an arcane but aggressive legal manoeuvre more commonly used against drug smugglers, money launderers and Imelda Marcos, widow of the Philippine dictator.

Backed by court judges, federal prosecutors are issuing subpoenas -- official papers which compel the recipients to provide potentially damning evidence -- to United States taxpayers suspected of holding hidden accounts at Swiss and other offshore banks, according to criminal defence lawyers whose clients have received the papers.

The grand jury subpoenas are unusual in that they ask bank clients -- not the banks themselves -- to turn over to the authorities their bank account details since 2003, including statements with the highest annual balances. Taxpayers who refuse to comply potentially face a stark choice: be found in contempt of court and thus subject to civil or criminal fines and jail time, or disclose potentially incriminating evidence against themselves.

"This is a very hot issue right now," said Nathan Hochman, former assistant attorney general for the Tax Division of the Justice Department who is now in private practice at the law firm Bingham McCutchen. Hochman said that defence lawyers representing taxpayers were furious over the tactic, which already has been challenged in some courts.

(Hat Tip: Francine Lipman, Ann Murphy.)

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Think of the possibilities for worldwide tax enforcement when you combine this tactic (it's about the "required records" exception to the 5th Amendment) with the principles of Pasquantino v. US. It's a tax bureaucrat's dream.

Posted by: TexEcon | Dec 29, 2011 6:04:08 AM

I know the US is the 800 lbs gorilla in this argument, but I suspect that these actions are going to have terrible consequences.

I'm imagining "Swiss Bank Record Dump Reveals Network of CIA Front Companies" or "US Government Payments to Bin Laden Family Revealed"...

Posted by: Chris Smith | Dec 29, 2011 6:28:08 AM

Arcane? Are the subpoenas on scrolls or something?

Posted by: Matt | Dec 29, 2011 10:21:52 AM

I have no sympathy for tax cheats or those who are complicit in their cheating. I fail to understand those who are sympathetic with such behavior.

Posted by: Bill | Dec 29, 2011 11:06:20 AM

There's nothing like grand jury subpoenas for raising the consciousness of conservatives into neo-liberals. I especially enjoy the anxious discussions about the "root causes" of white collar crime. Anyway, welcome aboard.

I wouldn't worry too much if I were you; Eric Holder seems to have a de facto stand-still agreement with the criminal underworld. No doubt this will benefit the job-creating superheroes who have all these secret foreign bank accounts.

Posted by: jim harper | Dec 29, 2011 11:16:00 AM

Whatever amount of would-be-tax money is in Swiss accounts, might be better off there. At least it can be invested and used productively via the market and subject to market forces, rather than being forwarded to the U.S. govt to be lost for all time in the financial black hole that is the U.S. govt.

Posted by: anon | Dec 29, 2011 1:08:41 PM