DOJ Offshore Enforcement Update: Swiss Bank Program Moves Forward and Former Credit Suisse Banker Pleads Guilty

Earlier this week, Kathryn Keneally, Assistant Attorney General of the Department of Justice’s Tax Division, spoke at the 2nd Annual International Tax Enforcement Conference in Washington and said that the Tax Division will be strictly enforcing the deadlines of its program available to Swiss banks.  See Lydia Beyoud, DOJ Will Hold Firm on Deadlines for Swiss Banks to Make Disclosures (Bloomberg BNA 3/19/2014).

The next deadline in the process for the Swiss bank program is April 30 where Swiss banks that have indicated their interest in participating in the program must provide a plan to the DOJ of how each bank will become compliant with respect to its U.S. accountholders.  More specifically, Swiss banks have to provide information on how it structured, operated, and supervised its cross-border business, including the name and function of the individuals responsible for that business; how account holders were attracted and serviced by the bank; and the total number of U.S. accounts and the maximum aggregate dollar value of each account in existence on August 1, 2008, opened between August 1, 2008 and February 28, 2009, and opened after February 28, 2009.  [Our full breakdown of the program can be found here]. 

The DOJ has received 106 letters from Swiss banks requesting to participate in the program, although some banks may drop out as they move through this process.  In her remarks yesterday, Ms. Keneally emphasized that locating those who use foreign bank accounts to evade taxes will be a main priority of the Tax Division for the foreseeable future:

If you have people who come to you and are doing anything other than coming into compliance at this point, I simply can’t imagine what they’re thinking because we’re going to be on this for a while.

Along these lines, President Obama is seeking a substantial boost to the IRS’s budget for fiscal year 2015, proposing to increase its budget by $1.2 billion for a total of $12.5 billion.  See Obama Budget Seeks $12.5 Billion for IRS to Combat Fraud, Boost Taxpayer Services (Bloomberg BNA 3/18/2014).  While part of the increase is directed to reduce fraudulent returns filed using information obtained from identity theft, an increasing trend in this area, it would also be utilized to increase tax law enforcement activities, a focus of this administration in its effort to reduce the estimated $450 billion tax gap.

Finally, last week, the DOJ announced that a Swiss banker pleaded guilty to conspiring to defraud the IRS through his banking and investment services provided to U.S. customers on behalf of Credit Suisse Group AG, one of the 14 Swiss banks currently under U.S. criminal investigation. 

In a statement of facts accompanying the plea, Swiss citizen Andreas Bachmann admitted that between 1994 and 2006, he engaged in a conspiracy to assist U.S. customers in evading U.S. tax laws by concealing assets and income in secret Swiss bank accounts.  Mr. Bachmann would conduct two annual trips to the U.S., which were sanctioned by executive management of the bank, to meet with U.S. customers for banking and investment purposes.  Apparently, Mr. Bachmann had been told by the CEO that his actions would violate U.S. law and that “[y]ou know what we expect of you – don’t get caught.”  During his meetings with U.S. customers, he counseled them from retaining paper statements of their secret accounts and advised making transfers of amounts smaller than $10,000 to avoid reporting requirements.  He also would conduct cash transactions among U.S. customers.  Mr. Bachmann also worked with another individual, co-defendant Josef Dörig, who formed his own company specializing in the formation and management of nominee tax haven entities for U.S. customers.  Between 20 and 30 U.S. customers, who were not yet identified, were serviced by Mr. Bachmann.

Mr. Bachmann is scheduled to be sentenced on August 8, 2014, and he potentially could receive a sentence of five years’ imprisonment.  In his plea agreement, Mr. Bachmann has agreed to cooperate with the U.S. regarding any criminal activity known to him, including providing testimony, documents, and debriefings with the U.S. on this and other matters.  Should he cooperate to the degree sought by the U.S., then the U.S. has the right to seek a §5K departure at the time of Mr. Bachmann’s sentencing.  This guilty plea now places additional pressure on Credit Suisse to resolve the U.S. criminal investigation so as to avoid or mitigate what appears to be significant exposure for aiding and abetting the violation of U.S. tax laws by account holders.

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