Inside the U.S. Swiss Bank Tax Evasion Program

Nearly 80 banks, according to the Justice Department, took advantage of its Swiss Bank Program. What did they receive in exchange for cooperating with U.S. authorities?

Mr. Krakaur: The Swiss Bank program established several categories of banks: those that were already under investigation prior to the program (Category 1), those that believed they may have committed a tax or monetary transaction offense (Category 2), those that believed they could demonstrate they had not committed a tax or monetary transaction offense (Category 3) and those that predominantly had a local client base and met certain Foreign Account Tax Compliance Act compliance requirements (Category 4). When most people speak of the 80 or so banks that took part in the program, they are thinking of the Category 2 banks, which received non-prosecution agreements once the Justice Department was satisfied they had met the program's requirements. These NPAs covered so-called U.S.-related accounts that the banks held during the roughly six-year period between August 2008 and December 2014.

What was the U.S. government looking for from these banks? What was the exchange like between the bankers and the prosecutors?

Mr. Krakaur: The NPAs required the banks to pay a penalty based on the value of their U.S.-related accounts and to cooperate with the DOJ Tax Division in its ongoing investigations of U.S. taxpayers and others, such as external asset managers who were involved with their accounts. The NPAs have four-year terms, but the cooperation requirements can continue even past the four years—until the conclusion of related investigations or proceedings. The NPAs were essentially the same for all banks, other than the amounts of the penalties imposed.

Were there any complications when handing international evidence to the U.S. prosecutors?

Mr. Krakaur: As is the case in many U.S.-based cross-border enforcement investigations, the laws of countries outside the U.S. can be an important factor in processing and disclosing information to law enforcement authorities in the U.S. In dealing with information-transfer requests under the program, Swiss privacy and bank secrecy laws have played a significant role in determining whether and how each bank can properly handle and transmit information at the DOJ's request.

At least one Swiss bank--Wegelin--went under in the wake of the U.S. settlement. Did watching that experience affect the mindset of banks considering whether to cooperate?

Mr. Krakaur: The Wegelin conviction certainly was an important backdrop. The program was designed to incentivize banks to obtain NPAs, and the Swiss government strongly encouraged banks to participate. Where a possible alternative to obtaining an NPA might be a full-on prosecution that, in a worst-case scenario, results in a bank going out of business, the incentives to participate are obvious.

Has the U.S. program changed how Switzerland oversees its financial system? If so, how and how are Swiss banks complying with it?

Mr. Krakaur: The program built on the strong messages that were sent to the industry through the UBS, Credit Suisse and Wegelin in resolutions. Swiss regulatory authorities were at various times involved in and responsive to all these initiatives, and where appropriate banks have enhanced their risk assessment and account monitoring processes with respect to potential tax issues as well as anti-money laundering and know-your-customer issues more generally.

There were reports recently that Swiss banks are starting to go abroad for business because the allure of secrecy there is gone. Is the U.S. program responsible for this perception?

Mr. Krakaur: The historical bedrock concept of Swiss banking secrecy has indeed been materially challenged in the wake of the program, which requires banks to provide U.S.-related account information to the DOJ. Although Swiss law dictates the manner in which that information can be provided, the perception of many clients is that they cannot rely on their accounts remaining hidden, whether their motives for secrecy were tax driven or otherwise. It would not be unreasonable to assume that some U.S.-related clients who continue to value secrecy might look to place their assets in other countries. That search is becoming more difficult, however, as banks in many countries have agreed to comply with FATCA.

Write to Samuel Rubenfeld at Samuel.Rubenfeld@wsj.com. Follow him on Twitter at @srubenfeld.