Swiss insurers are scrambling to defend themselves against possible investigations into billions of dollars of untaxed assets held by their American clients.
As Switzerland continues to seek a data-transfer deal with the United States to protect banks accused of helping U.S. citizens to evade tax, a new cross-border law is expected to bring the insurance sector to the attention of the authorities next year.
Tax-deferred life policies and annuities, once beyond the scope of U.S. tax collectors, will become subject to the U.S. Foreign Account Tax Compliance Act through agreements with governments across the globe. Slated for introduction in 2014, the law will force foreign banks and other financial institutions to tell the U.S. government about American customers’ accounts holding more than $50,000.
Insurers including Swiss Life and Vaudoise’s Valor Life are trying to ensure that American clients who bought variable life policies and annuities can show that they have paid taxes due to the United States, eight industry insiders told Reuters.
“It’s not the insurance policy that’s a problem, it’s the fact that they didn’t declare the money before,” said one Switzerland-based lawyer who advises insurance companies that have American clients who are not tax-compliant.
A Vaudoise spokeswoman said that Valor Life had not targeted U.S. clients and that its exposure to non-compliant policyholders is “minimal”.
Swiss Life spokeswoman Irene Fischbach said that all her company’s products comply with the relevant legal and tax laws, adding that policyholders confirm that the assets invested meet personal tax and legal obligations.
“Swiss Life does not want to have undeclared assets,” Fischbach said.
Sources told Reuters in March that Swiss Life was sounding out possible bidders for its U.S. client book, though they say that the company now appears to have decided against a sale.
THE UBS LINK
In 2009, the year UBS admitted helping U.S. clients to evade taxes and was forced to pay a $780 million fine and hand over more than 4,000 client names, many insurers enjoyed a boom in sales of tax-efficient policies to offshore clients fleeing the bank, five industry sources told Reuters.
These sources estimate that untaxed U.S. client money with Swiss insurers could total as much as $10 billion.
The insurers have little time to lose, said one of the sources, whose company buys U.S. client books and undertakes the complex process of making them compliant.
“Now the insurers can choose their own timetable, but it’s very different once legal action is pending. At the moment, a lot of them still have their heads in the sand,” he said.
The data passed by UBS helped U.S. authorities to pursue other banks, including Switzerland’s oldest bank, Wegelin, which was indicted in January and later shut its doors for ever after pleading guilty to the charges and paying a $58 million fine.
That same data may now be used to investigate insurers, several sources said. U.S. tax authorities declined to comment.
“If a client moved from a long-standing bank account to an insurance policy, that gives a strong indication that there could be some avoidance,” the Switzerland-based lawyer said. “Those people need to get on to voluntary disclosure as soon as possible.”
Some insurers are looking to sell or close business units that sold variable life and annuity products to U.S. clients.
Firms that specialise in making such problem assets tax-compliant, including Bermuda-based Crown Global, may be prepared to step in. Though these specialists would be unwilling to pay for the assets, some insurers may jump at an escape route.
As one insurance-focused asset manager said: “If you’re sitting on a radioactive waste dump and an expert says he can take it off your hands, the proposition starts to look pretty attractive.”