The rules of Swiss banking have taken a sharp turn toward more transparency and less secrecy. Swiss bank accounts are suddenly a lot less private than they were a year ago.

Is this a good thing or a bad thing? It depends on whether you have assets in a Swiss bank for which you sought privacy for legal, tax, or other reasons. From the point of view of the I.R.S., recent developments amount to a giant step toward monitoring offshore accounts and enforcing current tax laws.

The backdrop is that the world has an estimated $7 trillion dollars in offshore bank accounts. Of this, perhaps 27 percent (about $2 trillion) resides in Swiss banks. The rest is thought to be in such tax havens as Hong Kong, Luxembourg, and the Cayman Islands. In any case, some Swiss banks and advisers are said to have arranged to hide American-owned accounts by way of third-country sites, including Panama and Singapore.

Switzerland is the bellwether offshore bank location for privacy. Its reputation goes back at least to 1934, when the Swiss government imposed secrecy on accounts owned by foreigners in Switzerland as a way of resisting Nazi attempts to keep track of German holdings in other countries.

In this decade, Swiss banks have come under rising pressure by foreign governments to open their books. Since 2001, for example, the U.S. has sought to collect taxes on American accounts held offshore by means of the Qualified Intermediary (QI) program. Some 95 percent of Swiss banks now participate,  all but the smallest local banks. Until now, this has allowed Swiss banks to pay taxes to the I.R.S. without revealing the identities of the American account holders—in other words, an honor system.

But this year a series of convulsions centering on UBS (formerly the Union Bank of Switzerland, the country’s largest) have precipitated drastic changes in the privacy rules. A few years ago a disillusioned whistle-blower from Boston (code name: Tarantula) employed by UBS in Switzerland alerted U.S. officials to the bank’s recruiting missions. Teams of UBS advisers, for example, made over 200 visits to the U.S. in 2004, pitching the advantages of Swiss secrecy to high-income Americans. Such inside information led the U.S. to file charges against UBS for fomenting tax evasion.

In February, UBS  paid a $780 million fine to the U.S. and fired key managers and admitted wrong-doing. (By contrast, the usual practice finds companies paying fines but admitting nothing.) Various American advisers, who helped recruit and set up new UBS accounts, have now been indicted for tax fraud.

On August 19, UBS went further, pledging to reveal the names on 4,450 of its largest U.S. accounts, which average about $4 million each. The procedure may prove indirect and slow, taking perhaps a year to reach its fruition. But the bridge has been crossed—at least by UBS.  Whether other Swiss banks will follow suit and reveal account owners’ names to the I.R.S. remains to be seen.

In the meantime, the I.R.S. has imposed an aggressive amnesty program, designed to make the most of the current uncertainty. Its key date is less than a month away. The table below can be used to show the importance of the amnesty.

Consider first a voluntary discloser, who gets in under the wire and declares by September 23. In this example from the I.R.S. website, his penalty would be as much as $386,000 plus interest. This consists partly of taxes on the interest earnings. But most of the penalty consists of 20 percent of the undisclosed assets of $1.3 million at the end of the period. (Details can be found on the website.)

The same account, if it is not voluntarily disclosed, would be subject to penalties about six times as high: $2,306,000. A fraud penalty may also kick in.

To repeat, the amnesty ends September 23. Account owners who have not voluntarily disclosed their holdings by then run the risk of being discovered in the UBS negotiation with the I.R.S.
 

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