Two More Swiss Banks Reach Resolutions with U.S. Government

Today the Justice Department announced that Société Générale Private Banking (Suisse) SA (SGPB-Suisse) and Berner Kantonalbank AG (BEKB), have reached resolutions under the department’s Swiss Bank Program.  With today’s announcement, a total of eleven Swiss banks have reached resolutions with the U.S. government.  (See prior posts here, here, and here.)  More than 100 banks are believed to have enrolled in the program.

The DOJ press release is set forth, in pertinent part, below:

“As the agreements reached today confirm, Swiss banks that helped U.S. taxpayers to hide foreign accounts and evade their U.S. tax obligations are providing a detailed account of their cross-border banking activities. The banks are naming officers, employees and others who facilitated this conduct, and providing information that helps us track assets that accountholders moved to other banks and other countries,” said Acting Assistant Attorney General Caroline D. Ciraolo of the Department of Justice’s Tax Division.  “Using information gathered from the banks in this program, we have identified and are investigating individuals, both domestic and foreign, who helped U.S. taxpayers dodge their obligations.”

The Swiss Bank Program, which was announced on Aug. 29, 2013, provides a path for Swiss banks to resolve potential criminal liabilities in the United States.  Swiss banks eligible to enter the program were required to advise the department by Dec. 31, 2013, that they had reason to believe that they had committed tax-related criminal offenses in connection with undeclared U.S.-related accounts.  Banks already under criminal investigation related to their Swiss-banking activities and all individuals were expressly excluded from the program.

Under the program, banks are required to:

– Make a complete disclosure of their cross-border activities;

– Provide detailed information on an account-by-account basis for accounts in which U.S. taxpayers have a direct or indirect interest;

– Cooperate in treaty requests for account information;

– Provide detailed information as to other banks that transferred funds into secret accounts or that accepted funds when secret accounts were closed;

– Agree to close accounts of accountholders who fail to come into compliance with U.S. reporting obligations; and

– Pay appropriate penalties.

Swiss banks meeting all of the above requirements are eligible for a non-prosecution agreement.

According to the terms of the non-prosecution agreements signed today, each bank agrees to cooperate in any related criminal or civil proceedings, demonstrate its implementation of controls to stop misconduct involving undeclared U.S. accounts and pay penalties in return for the department’s agreement not to prosecute these banks for tax-related criminal offenses.

SGPB-Suisse has had a presence in Switzerland since 1926, and had a U.S.-licensed representative office in Miami from the early 1990s until it closed on Aug. 26, 2013.  SGPB-Suisse opened and maintained accounts for accountholders who had U.S. tax reporting obligations, and was aware that U.S. taxpayers had a legal duty to report to the Internal Revenue Service (IRS) and pay taxes on all of their income, including income earned in SGPB-Suisse accounts.  SGPB-Suisse knew that it was likely that certain U.S. taxpayers who maintained accounts at the bank were not complying with their U.S. income tax obligations.

SGPB-Suisse’s U.S. cross-border banking business aided and assisted some U.S. clients in opening and maintaining undeclared accounts in Switzerland and concealing the assets and income the clients held in their accounts from the IRS.  SGBP-Suisse used a variety of means to assist U.S. clients in hiding their assets and income, including opening and maintaining accounts for U.S. taxpayers in the name of non-U.S. entities, including sham entities, thereby assisting such U.S. taxpayers in concealing their beneficial ownership of the accounts.  Such entities included Panama and British Virgin Island corporations, as well as Liechtenstein foundations.  In two instances, an SGPB-Suisse employee acted as a director of entities that had U.S. taxpayers as beneficial owners.  In another instance, upon the death of the beneficial owner of an entity, the heirs opened accounts held by sham entities at SGPB-Suisse to receive their shares of the assets from the entity account.

SGPB-Suisse further provided numbered accounts, allowing the accountholder to replace his or her identity with a code name or number on documents sent to the client, and held statements and other mail at its offices in Switzerland, rather than sending them to the U.S. taxpayers in the United States.  In addition to these services, SGPB-Suisse:

– Processed requests from U.S. taxpayers for cash or gold withdrawals so as not to trigger any transaction reporting requirements;

– Processed requests from U.S. taxpayers to transfer funds from U.S.-related accounts at SGPB-Suisse to accounts at subsidiaries in Lugano, Switzerland, and the Bahamas;

– Opened accounts for U.S. taxpayers who had left UBS when the department was investigating that bank;

– Processed requests from U.S. taxpayers to transfer assets from accounts being closed to other SGPB-Suisse accounts held by non-U.S. relatives and/or friends; and

– Followed instructions from U.S. beneficial owners to transfer assets to corprate and individual accounts at other banks in Switzerland, Hong Kong, Israel, Lebanon, Liechtenstein and Cyprus.

Throughout its participation in the Swiss Bank Program, SGPB-Suisse committed to full cooperation with the U.S. government.  For example, SGPB-Suisse described in detail the structure of its U.S. cross-border business, including providing a list of the names and functions of individuals who structured, operated or supervised the cross-border business at SGPB-Suisse; a summary of U.S.-related accounts by assets under management; written narrative summaries of 98 U.S.-related accounts; and the circumstances surrounding the closure of relevant accounts holding cash or gold.  SGPB-Suisse also provided information to make treaty requests to the Swiss competent authority for U.S. client account records.

Since Aug. 1, 2008, SGPB-Suisse held and managed approximately 375 U.S.-related accounts, which included both declared and undeclared accounts, with a peak of assets under management of approximately $660 million.  SGPB-Suisse will pay a penalty of $17.807 million.

BEKB was founded in 1834 as Kantonalbank von Bern, the first Swiss cantonal bank.  BEKB is based in the Canton of Bern and presently has 73 branches in Switzerland.  BEKB knew or had reason to know that it was likely that some U.S. taxpayers who maintained accounts at BEKB were not complying with their U.S. reporting obligations.  BEKB opened, serviced and profited from accounts for U.S. clients who were not complying with their income tax obligations.

BEKB provided services that facilitated some U.S. clients in opening and maintaining undeclared accounts in Switzerland and concealing the assets in those accounts and related income.  These services included opening and maintaining numbered accounts, allowing clients to use code names rather than full account numbers and providing hold mail services.  BEKB opened accounts for account holders who exited other Swiss banks and accepted deposits of funds from those banks.  BEKB also processed standing orders from U.S. persons to transfer amounts under $10,000 from their U.S.-related accounts.  In one instance, a relationship manager asked an accountholder, who was a dual Swiss-U.S. citizen living in the United States, about the Foreign Account Tax Compliance Act (FATCA) and voluntary disclosure.  When the accountholder failed to execute FATCA-related documents, BEKB took steps to close the account.  In connection with that closing, the accountholder withdrew $70,000 and approximately 500,000 Swiss francs in cash.

BEKB committed to full cooperation with the U.S. government throughout its participation in the Swiss Bank Program.  As part of its cooperation, BEKB provided a list of the names and functions of 16 individuals who structured, operated or supervised its cross-border business.  These individuals served as the chairman of the board of directors, members of the executive board, regional managers, heads of departments or heads of divisions.  BEKB additionally provided information concerning its relationship managers and external asset managers, and it described in detail the structure of its cross-border business with U.S. persons, including narrative descriptions of high-value U.S.-related accounts and U.S.-related accounts held by entities.

Since Aug. 1, 2008, BEKB held approximately 720 U.S.-related accounts, which included both undeclared and not undeclared accounts, with total assets of approximately $176.5 million.  BEKB will pay a penalty of $4.619 million.

In accordance with the terms of the Swiss Bank Program, each bank mitigated its penalty by encouraging U.S. accountholders to come into compliance with their U.S. tax and disclosure obligations.  While U.S. accountholders at these banks who have not yet declared their accounts to the IRS may still be eligible to participate in the IRS Offshore Voluntary Disclosure Program, the price of such disclosure has increased.

“These two resolutions with Société Générale Private Banking (Suisse) SA and Berner Kantonalbank AG represent the ongoing commitment by the IRS and the Department of Justice to ensure that U.S. taxpayers report foreign bank accounts and pay taxes on all income earned from those accounts,” said Deputy Commissioner Douglas O’Donnell of the IRS Large Business & International Division.  “We are encouraged by the Justice Department’s program success and look forward to additional information to further our investigations of those who have evaded detection and reporting as well as those who have aided them.”

Most U.S. taxpayers who enter the IRS Offshore Voluntary Disclosure Program to resolve undeclared offshore accounts will pay a penalty equal to 27.5 percent of the high value of the accounts.  On Aug. 4, 2014, the IRS increased the penalty to 50 percent if, at the time the taxpayer initiated their disclosure, either a foreign financial institution at which the taxpayer had an account or a facilitator who helped the taxpayer establish or maintain an offshore arrangement had been publicly identified as being under investigation, the recipient of a John Doe summons or cooperating with a government investigation, including the execution of a deferred prosecution agreement or non-prosecution agreement.  With today’s announcement of these non-prosecution agreements, noncompliant U.S. accountholders at these banks must now pay that 50 percent penalty to the IRS if they wish to enter the IRS Offshore Voluntary Disclosure Program.

“The bank agreements announced today continue to change the landscape in the offshore banking world,” said Chief Richard Weber of IRS-Criminal Investigation. “With each additional agreement, the world where criminals can hide their money is becoming smaller and smaller.  Those who circumvent offshore disclosure laws have little room to hide.”

The BEKB non-prosecution agreement can be found here. The SGPB-Suisse non-prosecution agreement can be found here.

Two More Banks Reach Resolutions Under Justice Department’s Swiss Bank Program

DOJ logoOn June 3, 2015, the Justice Department announced that two more Swiss banks, Rothschild Bank AG and Banca Credinvest SA, reached resolutions under the DOJ Swiss Bank Program. Yesterday’s announcement brings the total Swiss bank resolutions to date to nine. (See prior posts here, here, and here.)  More than 100 Swiss banks previously notified the Tax Division that they wished to enroll in the program.

In the press release announcing the resolutions, officials from both the Justice Department and the Internal Revenue Service issued stern warnings to taxpayers who continue to hide money offshore:

“The days of safely hiding behind shell corporations and numbered bank accounts are over,” said Acting Assistant Attorney General Caroline D. Ciraolo of the Department of Justice’s Tax Division. “As each additional bank signs up under the Swiss Bank Program, more and more information is flowing to the IRS agents and Justice Department prosecutors going after illegally concealed offshore accounts and the financial professionals who help U.S. taxpayers hide assets abroad.”

“These resolutions with Credinvest and Rothschild are further examples of the commitment by the IRS and the Department of Justice to ensure that U.S. taxpayers report foreign bank accounts and pay taxes on all income earned from those accounts,” said Deputy Commissioner Douglas O’Donnell of the IRS Large Business and International Division. “We are encouraged by today’s progress and our ongoing work with the other Swiss banks that have entered the DOJ Swiss Bank Program.”

“The bank agreements announced today continue to change the landscape in the offshore banking world,” said Chief Richard Weber of IRS-Criminal Investigation. “With each additional agreement, the world where criminals can hide their money is becoming smaller and smaller. Those who circumvent offshore disclosure laws have little room to hide.”

According to the terms of the non-prosecution agreements signed yesterday, each bank agrees to cooperate in any related criminal or civil proceedings, demonstrate its implementation of controls to stop misconduct involving undeclared U.S. accounts and pay penalties in return for the department’s agreement not to prosecute these banks for tax-related criminal offenses.

In its press release announcing the resolutions, the Justice Department provided the following factual background regarding each bank’s banking practices in connection with U.S.-related accounts:

Rothschild Bank AG (Rothschild) was founded in 1968 and is headquartered in Zurich, Switzerland. Rothschild offered services that it knew could and did assist U.S. taxpayers in concealing assets and income from the Internal Revenue Service (IRS), including code-named accounts, numbered accounts and hold mail service, where Rothschild would hold all mail correspondence for a particular client at the bank. These services allowed certain U.S. taxpayers to minimize the paper trail associated with the undeclared assets and income they held at Rothschild in Switzerland. For a number of years, including after Swiss bank UBS AG announced in 2008 that it was under criminal investigation, and following instructions from certain U.S. taxpayers, Rothschild serviced certain U.S. customers without disclosing their identities to the IRS. Some of Rothschild’s U.S. clients had accounts that were nominally structured in the names of non-U.S. entities. In some such cases, Rothschild knew that a U.S. client was the true beneficial owner of the account but nonetheless obtained a form or document that falsely declared that the beneficial owner was not a U.S. taxpayer. Since Aug. 1, 2008, Rothschild had 66 U.S.-related accounts held by entities created in Panama, Liechtenstein, the British Virgin Islands, the Cayman Islands or other foreign countries with U.S. beneficial owners. At least 21 of these accounts had false IRS Forms W-8BEN in the file, which are used to identify the beneficial owner of an account. Rothschild knew it was highly probable that such U.S. clients were engaging in this scheme to avoid U.S. taxes but permitted these accounts to trade in U.S. securities without reporting account earnings or transmitting any withholding taxes to the IRS, as Rothschild was required to do. Rothschild also opened accounts for U.S. taxpayers who had left other Swiss banks that the Department of Justice was investigating, including UBS. Since Aug. 1, 2008, Rothschild had 332 U.S.-related accounts with an aggregate maximum balance of approximately $1.5 billion. Of these 332 accounts, 191 accounts had U.S. beneficial owners and an aggregate maximum balance of approximately $836 million. Rothschild will pay a penalty of $11.51 million.

Located in Lugano, Switzerland, Banca Credinvest SA (Credinvest) started operations as a fully licensed bank in 2005. Credinvest offered a variety of services that it knew could assist, and that did assist, U.S. clients in concealing assets and income from the IRS, including hold mail service and numbered accounts. Credinvest did not set up any formalized internal reporting regarding U.S. clients and did not adopt any procedures to ascertain or monitor the compliance of its U.S. clients with their U.S. tax obligations. In late 2008, an external asset manager referred 11 accounts to Credinvest, all of which were for U.S. clients who had left UBS. The bank delegated to that external asset manager the primary management of those accounts and failed to ascertain the compliance of those clients with their U.S. tax obligations. The bank thus aided and assisted those clients in concealing their accounts from U.S. authorities. Since Aug. 1, 2008, Credinvest had 31 U.S.-related accounts with just over $24 million in assets. Credinvest will pay a penalty of $3.022 million.

In accordance with the terms of the Swiss Bank Program, each bank mitigated its penalty by encouraging U.S. accountholders to come into compliance with their U.S. tax and disclosure obligations. While U.S. accountholders at these banks who have not yet declared their accounts to the IRS may still be eligible to participate in the IRS Offshore Voluntary Disclosure Program, the price of such disclosure has increased.

Most U.S. taxpayers who enter the IRS Offshore Voluntary Disclosure Program to resolve undeclared offshore accounts will pay a penalty equal to 27.5 percent of the high value of the accounts. On August 4, 2014, the IRS increased the penalty to 50 percent if, at the time the taxpayer initiated their disclosure, either a foreign financial institution at which the taxpayer had an account or a facilitator who helped the taxpayer establish or maintain an offshore arrangement had been publicly identified as being under investigation, the recipient of a John Doe summons or cooperating with a government investigation, including the execution of a deferred prosecution agreement or non-prosecution agreement. With today’s announcement of these non-prosecution agreements, noncompliant U.S. accountholders at these banks must now pay that 50 percent penalty to the IRS if they wish to enter the IRS Offshore Voluntary Disclosure Program.

The Justice Department also released the following documents as part of its announcement:

DOJ Announces Four More Swiss Bank Resolutions

DOJ logoLate yesterday, the Justice Department announced that it had reached resolutions with four more Swiss banks under the terms of the DOJ Swiss Bank Program. The latest banks to resolve their U.S. tax issues are the following:  Société Générale Private Banking (Lugano-Svizzera); MediBank AG; LBBW (Schweiz) AG; and Scobag Privatbank AG.

Yesterday’s announcement brings the total Swiss bank resolutions to seven to date. The Justice Department previously announced resolutions with BSI SA, Vadian Bank AG, and Finter Bank Zurich AG.  More than 100 Swiss banks previously notified the Tax Division that they wished to enroll in the program.

In the DOJ press release announcing the resolutions, Acting Assistant Attorney General Caroline D. Ciraolo made the following statement:

Today’s agreements reflect the Tax Division’s continued progress towards reaching appropriate resolutions with the banks that self-reported and voluntarily entered the Swiss Bank Program. The department is currently investigating accountholders, bank employees, and other facilitators and institutions based on information supplied by various sources, including the banks participating in this Program. Our message is clear – there is no safe haven.

Richard Weber, Chief of IRS-Criminal Investigation (CI) made the following statement about the resolutions:

These four additional bank agreements signal a change in terrain for offshore banking. No longer is it safe to hide money offshore and expect that it will not be discovered. ‎ IRS CI Special Agents will continue to follow the money to find those who circumvent the offshore disclosure laws and hold them accountable.

The Swiss Bank Program, which was announced on August 29, 2013, provides a path for Swiss banks to resolve potential criminal liabilities in the United States.  Swiss banks eligible to enter the program were required to advise the Tax Division by December 31, 2013, that they had reason to believe that they had committed tax-related criminal offenses in connection with undeclared U.S.-related accounts.  Banks already under criminal investigation related to their Swiss-banking activities and all individuals were expressly excluded from the program. Under the program, banks are required to:

  • Make a complete disclosure of their cross-border activities;
  • Provide detailed information on an account-by-account basis for accounts in which U.S. taxpayers have a direct or indirect interest;
  • Cooperate in treaty requests for account information;
  • Provide detailed information as to other banks that transferred funds into secret accounts or that accepted funds when secret accounts were closed;
  • Agree to close accounts of accountholders who fail to come into compliance with U.S. reporting obligations; and
  • Pay appropriate penalties.

Swiss banks meeting all of the above requirements are eligible for a non-prosecution agreement.

According to the terms of the non-prosecution agreements signed today, each bank agrees to cooperate in any related criminal or civil proceedings, demonstrate its implementation of controls to stop misconduct involving undeclared U.S. accounts and pay the penalties in return for the department’s agreement not to prosecute these banks for tax-related criminal offenses.

The Justice Department announcement provided the following details about each bank’s U.S.-related accounts and practices related thereto:

Société Générale Private Banking (Lugano-Svizzera) SA (SGPB-Lugano) was established in 1974 and is headquartered in Lugano, Switzerland.  Through referrals and pre-existing relationships, SGPB-Lugano accepted, opened and maintained accounts for U.S. taxpayers, and knew that it was likely that certain U.S. taxpayers who maintained accounts there were not complying with their U.S. reporting obligations.  Since Aug. 1, 2008, SGPB-Lugano held and managed approximately 109 U.S.-related accounts, with a peak of assets under management of approximately $139.6 million, and offered a variety of services that it knew assisted U.S. clients in the concealment of assets and income from the Internal Revenue Service (IRS), including “hold mail” services and numbered accounts.  Some U.S. taxpayers expressly instructed SGPB-Lugano not to disclose their names to the IRS, to sell their U.S. securities and to not invest in U.S. securities, which would have required disclosure and withholding.  In addition, certain relationship managers actively assisted or otherwise facilitated U.S. taxpayers in establishing and maintaining undeclared accounts in a manner designed to conceal the true ownership or beneficial interest in the accounts, including concealing undeclared accounts by opening and maintaining accounts in the name of non-U.S. entities, including sham entities, having an officer of SGPB-Lugano act as an officer of the sham entities, processing cash withdrawals from accounts being closed and then maintaining the funds in a safe deposit box at the bank and making “transitory” accounts available, thereby allowing multiple accountholders to transfer funds in such a way as to shield the identity and account number of the accountholder.  SGPB-Lugano will pay a penalty of $1.363 million.

Created in 1979 and headquartered in Zug, Switzerland, MediBank AG (MediBank) provided private banking services to U.S. taxpayers and assisted in the evasion of U.S. tax obligations by opening and maintaining undeclared accounts.  In furtherance of a scheme to help U.S. taxpayers hide assets from the IRS and evade taxes, MediBank failed to comply with its withholding and reporting obligations, providing “hold mail” services and offering numbered accounts, thus reducing the ability of U.S. authorities to learn the identity of the taxpayers.  After it became public that the Department of Justice was investigating UBS, MediBank hired a relationship manager from UBS and permitted some of that person’s U.S. clients to open accounts at MediBank.  Since Aug. 1, 2008, MediBank had 14 U.S. related accounts with assets under management of $8,620,675.  MediBank opened, serviced and profited from accounts for U.S. clients with the knowledge that many likely were not complying with their U.S. tax obligations.  MediBank will pay a penalty of $826,000.

LBBW (Schweiz) AG (LBBW-Schweiz) was established in Zurich in 1995.  Since August 2008, LBBW-Schweiz held 35 U.S. related accounts with $128,664,130 in assets under management.  After it became public that the department was investigating UBS, LBBW-Schweiz opened accounts from former clients at UBS and Credit Suisse.  Despite its knowledge that U.S. taxpayers had a legal duty to report and pay tax on income earned on their accounts, LLB permitted undeclared accounts to be opened and maintained, and offered a variety of services that would and did assist U.S. clients in the concealment of assets and income from the IRS.  These services included following U.S. accountholders instructions not to invest in U.S. securities and not reporting the accounts to the IRS and agreeing to hold statements and other mail, causing documents regarding the accounts to remain outside the United States.  LBBW-Schweiz will pay a penalty of $34,000.

Headquartered in Basel, Switzerland, Scobag Privatbank AG (Scobag) was founded in 1968 to provide financial and other services to its founders, and obtained its banking license in 1986.  Since August 2008, Scobag had 13 U.S. related accounts, the maximum dollar value of which was $6,945,700.  Scobag offered a variety of services that it knew could and did assist U.S. clients in the concealment of assets and income from the IRS, including “hold mail” services and numbered accounts. Scobag will pay a penalty of $9,090.

The DOJ noted that in accordance with the terms of the Swiss Bank Program, each bank mitigated its penalty by encouraging U.S. accountholders to come into compliance with their U.S. tax and disclosure obligations.  While U.S. accountholders at these banks who have not yet declared their accounts to the IRS may still be eligible to participate in the IRS Offshore Voluntary Disclosure Program, the price of such disclosure has increased.

Most U.S. taxpayers who enter the IRS Offshore Voluntary Disclosure Program to resolve undeclared offshore accounts will pay a penalty equal to 27.5 percent of the high value of the accounts.  On August 4, 2014, the IRS increased the penalty to 50 percent if, at the time the taxpayer initiated their disclosure, either a foreign financial institution at which the taxpayer had an account or a facilitator who helped the taxpayer establish or maintain an offshore arrangement had been publicly identified as being under investigation, the recipient of a John Doe summons or cooperating with a government investigation, including the execution of a deferred prosecution agreement or non-prosecution agreement.  With today’s announcement of these non-prosecution agreements, noncompliant U.S. accountholders at these banks must now pay that 50 percent penalty to the IRS if they wish to enter the IRS Offshore Voluntary Disclosure Program.

The Justice Department released the following documents as part of its announcement:

Justice Department Announces Second Swiss Bank Resolution

On May 8, 2015, the Justice Department announced publicly that it had reached resolution with Vadian Bank AG, of St. Gallen, Switzerland.  This announcement marks only the second such resolution that the government has reached with a Swiss bank under the terms of the “Swiss Bank Program.”  The first resolution, with BSI AG, was announced on March 30 of this year.

According to the DOJ press release, Vadian Bank is a small Swiss institution that took advantage of the opportunity created when it became public that UBS was under investigation, and many larger Swiss banks were closing U.S. accounts.  Vadian thereafter increased its inventory of U.S. accounts from two to more than 70.  According to the non-prosecution agreement signed by Vadian, the bank agreed to cooperate with ongoing U.S. investigations, implement appropriate internal controls, and pay a penalty of approximately $4.2 million.  The announcement of this resolution also increases the penalty for Vadian accountholders who enroll in the Offshore Voluntary Disclosure Program to 50 percent of the highest aggregate balance of their offshore accounts.

The Justice Department’s press release is shown below.

 The Department of Justice announced today that Vadian Bank AG (Vadian), located in St. Gallen, Switzerland, reached a resolution under the Department of Justice’s (DOJ) Swiss Bank Program.

“The department continues to work with Swiss banks to reach final resolutions in accordance with the terms of the program, and is focused on its goal of completing this process expeditiously,” said Acting Assistant Attorney General Caroline D. Ciraolo, of the Department of Justice’s Tax Division.  “Simultaneously, the department has opened investigations of culpable individuals and entities based on information obtained from the Swiss banks in the program, and will pursue and prosecute those engaged or assisting others in evading U.S. tax obligations.”

The Swiss Bank Program, which was announced on Aug. 29, 2013, provides a path for Swiss banks to resolve potential criminal liabilities in the United States.  Swiss banks eligible to enter the program were required to advise the department by Dec. 31, 2013, that they had reason to believe that they had committed tax-related criminal offenses in connection with undeclared U.S.-related accounts.  Banks already under criminal investigation related to their Swiss-banking activities and all individuals were expressly excluded from the program.

Under the program, banks are required to:

– Make a complete disclosure of their cross-border activities;

– Provide detailed information on an account-by-account basis for accounts in which U.S. taxpayers have a direct or indirect interest;

– Cooperate in treaty requests for account information;

– Provide detailed information as to other banks that transferred funds into secret accounts or that accepted funds when secret accounts were closed;

– Agree to close accounts of account holders who fail to come into compliance with U.S. reporting obligations; and

– Pay appropriate penalties.

Banks meeting all of the above requirements are eligible for a non-prosecution agreement.

According to the terms of the non-prosecution agreement signed today, Vadian agrees to cooperate in any related criminal or civil proceedings, demonstrate its implementation of controls to stop misconduct involving undeclared U.S. accounts and pay a $4.253 million penalty in return for the department’s agreement not to prosecute Vadian for tax-related criminal offenses.

Vadian has one office and 26 employees.  Prior to 2008, Vadian’s business predominantly consisted of savings accounts, residential mortgage lending and small business loans.  In 2007, Vadian hired a marketing firm to assist with its planned growth into private banking, and focused its efforts on attracting external asset managers.  In 2008, after it became publicly known that UBS was a target of a criminal investigation, Vadian accepted accounts from U.S. persons who were forced out of other Swiss banks.  At this time, Vadian’s management was aware that the U.S. authorities were pursuing Swiss banks that facilitated tax evasion for U.S. accountholders in Switzerland, but was not deterred because Vadian had no U.S. presence.  As a result of its efforts, after August 2008, Vadian attracted cross-border private banking business and increased its U.S. related accounts from two to more than 70, with $76 million in assets under management.

Through its managers, employees and/or other individuals, Vadian knew or believed that many of its U.S. accountholders were not complying with their U.S. tax obligations, and Vadian would and did assist those clients to conceal assets and income from the IRS.  Vadian’s services included: “hold mail” services; numbered accounts, where the client was known to most bank employees only by a number or code name; opening and maintaining accounts for U.S. taxpayers through non-U.S. entities such as corporations, trusts or foundations; and accepting instructions from U.S.-based accountholders to prevent investments from being made in U.S.-based securities that would require disclosure to U.S. tax authorities.

In resolving its criminal liabilities under the program, Vadian provided extensive cooperation and encouraged U.S. accountholders to come into compliance.

While Vadian’s U.S. accountholders who have not yet declared their accounts to the IRS may still be eligible to participate in the IRS’s offshore voluntary disclosure programs, the price of such disclosure has increased.

Most U.S. taxpayers who enter the IRS offshore voluntary disclosure program to resolve undeclared offshore accounts will pay a penalty equal to 27.5 percent of the high value of the accounts.  On Aug. 4, 2014, the IRS increased the penalty to 50 percent if, at the time the taxpayer initiated their disclosure, either a foreign financial institution at which the taxpayer had an account or a facilitator who helped the taxpayer establish or maintain an offshore arrangement had been publicly identified as being under investigation, the recipient of a John Doe summons or cooperating with a government investigation, including the execution of a deferred prosecution agreement or non-prosecution agreement.  With today’s announcement of Vadian’s non-prosecution agreement, its noncompliant U.S. accountholders must now pay that 50 percent penalty to the IRS if they wish to enter the IRS’ program.

“Today’s action is another warning for those who are still considering hiding money offshore to evade U.S. tax laws,” said Chief Richard Weber of IRS-Criminal Investigation (CI).  “The IRS and DOJ continue to aggressively work together to put an end to this abuse.  When individuals and institutions allow this to happen, they are not only cheating the U.S. government, they are cheating the honest taxpaying citizens who are obeying the law and doing the right thing.”

BSI Provides Road Map for Future Swiss Bank Agreements

On March 30, 2015, the U.S. Department of Justice announced that it had entered into a nonprosecution agreement with BSI SA, the first Swiss bank to reach resolution with the U.S. government as to its potential criminal exposure for assisting its U.S. clients in engaging in tax evasion.[1] As part of its agreement, the nearly 150-year-old bank disclosed that for decades it aided and assisted its U.S. clientele in opening and maintaining undeclared accounts, and concealing the assets and income they held in those accounts.

In agreeing to a nonprosecution agreement, the Justice Department acknowledged that BSI had made a timely, voluntary and thorough disclosure of its illegal conduct; fully cooperated with the Justice Department, including by conducting an internal investigation and presenting the findings of its investigation to the government; and produced voluminous, detailed information about the U.S. accounts maintained at BSI, including the fact that the bank managed approximately 3,500 U.S. accounts, valued at approximately $2.8 billion, since August 2008.

The BSI nonprosecution agreement demonstrates the extraordinary level of disclosure and cooperation that Swiss banks are required to undertake in order to qualify for such a resolution, and provides a detailed road map for other Swiss banks seeking similar treatment.

The Swiss Bank Program

Announced on Aug. 29, 2013, the so-called “Swiss Bank Program” affords banks in Switzerland a path to resolve their potential criminal liabilities in the United States.[2] Banks eligible to enter the program were required to advise the Justice Department by Dec. 31, 2013, that they had reason to believe that they had committed tax-related criminal offenses in connection with undeclared U.S. accounts. Banks already under criminal investigation related to their Swiss banking activities and all individuals were expressly excluded from the program.

Under the program, banks are required to:

  • make a complete disclosure of their cross-border activities;
  • provide detailed information on an account-by-account basis for accounts in which U.S. taxpayers have a direct or indirect interest;
  • cooperate in treaty requests for account information;
  • provide detailed information as to other banks that transferred funds into secret accounts or that accepted funds when secret accounts were closed;
  • agree to close accounts of account holders who fail to come into compliance with U.S. reporting obligations; and
  • pay penalties calculated at 20 percent of the value of undeclared accounts on Aug. 1, 2008; 30 percent for accounts opened between Aug. 1, 2008, and February 2009; and 50 percent for accounts opened after February 2009.

Banks meeting all of the above requirements are eligible for a nonprosecution agreement. Following the Dec. 31, 2014, deadline for entering the program, it was reported publicly that at least 106 Swiss banks had submitted letters of intent to enter the program.

The BSI Nonprosecution Agreement

Pursuant to the terms of the nonprosecution agreement, the Justice Department agreed not to prosecute BSI for any tax-related offenses or monetary transaction offenses. In return, BSI agreed to cooperate in any related criminal or civil proceedings, demonstrate its implementation of controls to stop misconduct involving undeclared U.S. accounts and pay a $211 million penalty.

According to the nonprosecution agreement, BSI helped its U.S. clients create sham corporations and trusts that masked the true identity of its U.S. account holders. Many of its U.S. clients also opened “numbered” Swiss bank accounts that shielded their identities, even from employees within the Swiss bank. BSI acknowledged that in order to help keep identities secret, it issued credit or debit cards to many U.S. account holders without names visible on the card itself.

BSI also assisted its U.S. clients in repatriating cash by utilizing code words in emails with account holders seeking access to funds. BSI disclosed instances where its U.S. clients would use coded language, such as asking their private bankers, “can you download some tunes for us?” or stating that their “gas tank is running empty” when they required additional cash to be loaded to debit cards.

In resolving BSI’s criminal liabilities under the program, the Justice Department acknowledged that the bank made a full disclosure of its illegal conduct, including (1) how its cross-border business was structured, operated and supervised; (2) the name and function of the individuals who structured, operated and supervised the bank’s cross-border business; (3) how BSI attracted and serviced account holders; and (4) an in-person presentation and documentation (properly translated) supporting the disclosure.

The Justice Department also found that BSI fully cooperated in all respects, including by conducting an internal investigation and sharing the results of that investigation with the U.S. government. Importantly, BSI voluntarily approached the U.S. government about resolving its potential criminal exposure in early August 2013, even before the Swiss Bank Program was unveiled. BSI also voluntarily exited the cross-border business involving U.S. accounts one year earlier and, apparently, of its own accord and without prompting by the U.S. government.

BSI also made a full production of information regarding its U.S. accounts to the Justice Department, including the total number of U.S. accounts open at BSI since Aug. 1, 2008; the number of U.S. accounts closed since Aug. 1, 2008; and the identity of financial institutions that received funds transferred from closed accounts. Finally, BSI retained an independent examiner who verified all information disclosed to the Justice Department by the bank. Pursuant to the terms of the nonprosecution agreement, BSI agreed to continue to cooperate with ongoing U.S. investigations and assist the U.S. with treaty requests for information.

What the Future Holds

The BSI nonprosecution agreement is the first public declaration of how the Justice Department will treat banks participating in the Swiss Bank Program, and offers guidance to the more than 100 other participating Swiss banks who are awaiting such agreements. In particular, it confirms that Swiss banks seeking similar treatment must (1) make full disclosures to the U.S. authorities of their illegal activities; (2) cooperate fully with the U.S. and its ongoing investigations, including by conducting internal investigations and sharing the findings of such investigations; and (3) turn over all information and documents pertaining to their cross-border businesses involving U.S. accounts and account holders. Participating Swiss banks that fail to make the kind of full and complete disclosures that BSI appears to have made do so at their peril.

The BSI announcement also represents another significant milestone in the U.S. government’s crackdown on offshore tax evasion. Since 2009, the Justice Department and the IRS have waged a high-profile, global campaign to combat the use of undeclared foreign bank accounts by U.S. taxpayers. To date, the Justice Department has brought criminal charges against more than 100 offshore bank account holders, dozens of facilitators (many of who are foreign nationals and are now fugitives), and Swiss financial institutions, such as UBS, Credit Suisse and Wegelin & Co. These enforcement efforts have reached far beyond Switzerland, as evidenced by publicly announced actions involving banking activities in India, Luxembourg, Liechtenstein, Israel, and the Caribbean.

BSI and other banks in the Swiss Bank Program are also providing detailed information to the U.S. government about transfers of money from Switzerland to other countries, which are referred to as the so-called “leaver lists.” The Justice Department and IRS are using this data to “follow the money” to uncover additional tax evasion schemes. Finally, with the Foreign Account Tax Compliance Act now fully implemented, the U.S. is now receiving a wealth of data from non-U.S. financial institutions about their U.S. accounts.

The Good News: Options for Noncompliant U.S. Taxpayers Still Exist

These enforcement efforts demonstrate that the U.S. government has wielded an enormous “stick” in its efforts to eliminate bank secrecy and ensure global transparency in tax matters. At the same time, the U.S. has offered a substantial “carrot” to entice noncompliant U.S. taxpayers to come forward and declare their offshore bank accounts.

Since 2009, the IRS has offered, in various forms, an Offshore Voluntary Disclosure Program (OVDP) that offers amnesty from criminal prosecution for taxpayers who voluntarily disclose their offshore accounts and pay back taxes, interest and substantial penalties. Over 50,000 taxpayers have taken advantage of these programs since their inception, paying over $7 billion to the U.S. Treasury, and making this the most successful tax amnesty program in U.S. history. Since June 2014, the IRS has also offered a popular program for nonwillful taxpayers called the Streamlined Filing Compliance Procedures.

While BSI’s U.S. account holders who have not yet declared their accounts to the IRS may still be eligible to participate in the OVDP, the price of such disclosure has dramatically increased. Most U.S. taxpayers who enter the OVDP to resolve undeclared offshore accounts will pay a penalty equal to 27.5 percent of the highest value of their offshore accounts.

On Aug. 4, 2014, the IRS announced that such penalty would increase to 50 percent if, at the time the taxpayer initiated their disclosure, either a foreign financial institution at which the taxpayer had an account or a facilitator who helped the taxpayer establish or maintain an offshore arrangement had been publicly identified as being under investigation, the recipient of a John Doe summons, or cooperating with a government investigation, including the execution of a deferred prosecution agreement or nonprosecution agreement. With the announcement of BSI’s nonprosecution agreement, its noncompliant U.S. account holders must now pay that 50 percent penalty to the IRS if they wish to enter the OVDP.

Conclusion

The BSI nonprosecution agreement is the first such resolution to be publicly announced under the Swiss Bank Program. With more than 100 Swiss banks said to be participating in the program, additional public announcements of resolutions are expected soon. Given what appears to have been substantial disclosure of illegal conduct by BSI and an enormous amount of cooperation undertaken by that bank, the Justice Department may have deliberately chosen to announce the BSI nonprosecution agreement first, to demonstrate to other Swiss banks, and the global financial community, the measures it expects from banks seeking to avoid prosecution. Other banks in Switzerland and around the world seeking similar treatment would be well-advised to follow BSI’s lead and ensure that their disclosures and cooperation are equally impressive.

Footnotes

[1] See Justice Department Press Release, “BSI SA of Lugano, Switzerland, is First Bank to Reach Resolution Under Justice Department’s Swiss Bank Program” (March 30, 2015) (available at http://www.justice.gov/opa/pr/bsi-sa-lugano-switzerland-first-bank-reach-resolution-under-justice-department-s-swiss-bank).

[2] See Justice Department Press Release, “United States And Switzerland Issue Joint Statement Regarding Tax Evasion Investigations” (Aug. 29, 2013) (available at http://www.justice.gov/tax/pr/united-states-and-switzerland-issue-joint-statement-regarding-tax-evasion-investigations).

“BSI Provides Road Map for Future Swiss Bank Agreements,” by Matthew D. Lee appeared in the April 23, 2015, edition of Law360. To learn more, please click here or visit www.law360.com. Reprinted with permission from Law360.

On the Eve of Tax Day, DOJ Gently Reminds Taxpayers to File Timely and Accurate Returns

Every year as April 15 approaches, we observe an uptick in the frequency of Internal Revenue Service and Justice Department press releases announcing criminal charges against individuals accused of violating the tax laws.  The conventional wisdom appears to be that high profile headlines will ensure that last minute tax filers take care to file accurate and timely returns.  This year is no different, with the DOJ’s Tax Division issuing a lengthy press release yesterday aptly titled “Justice Department Reminds Taxpayers that No One Is Above the Law or Below the Radar” which cites no fewer than 22 criminal prosecutions of tax offenders who received jail sentences for their crimes.

The text of the DOJ press release is as follows:

With the annual tax filing deadline approaching on Wednesday, April 15, the Justice Department’s Tax Division reminds U.S. taxpayers across the country and around the world of their obligation to file timely and accurate income tax returns.

“As U.S. taxpayers, we enjoy many benefits, including the security provided by our U.S. military, the ability to travel on public roads and highways, and the beauty and enjoyment of national parks and monuments,” said Acting Assistant Attorney General Caroline D. Ciraolo of the Tax Division. “Those individuals who choose to accept these benefits and yet turn a blind eye to their federal tax obligations by failing to file required returns, filing false and fraudulent returns, and evading the assessment and payment of tax due will be pursued for their criminal conduct. No one is above the law or below the radar.”

The Justice Department works with the Internal Revenue Service (IRS) and other law enforcement partners to enforce the nation’s tax laws fully, fairly and consistently through both criminal and civil litigation. During the past year, the Tax Division’s prosecutions have included:

— April 2015 – Daniel Porter, a Chino, California, businessman, was sentenced by a federal court in Las Vegas to serve 55 months in prison for conspiring to defraud the United States by promoting and selling fraudulent tax products, including a product called Tax Break 2000. The intended tax loss of the scheme was more than $60 million. Porter designed and sold Tax Break 2000 directly and through other individuals and entities, including NADN, a company in Las Vegas. Alan Rodrigues, NADN’s former general manager and executive vice president, Weston Coolidge, the former president of NADN, and Joseph Prokop, a former NFL punter, were convicted at trial in a separate criminal case. In March 2015, Rodrigues was sentenced to serve 72 months in prison, Coolidge was sentenced to serve 70 months in prison and Prokop was sentenced to serve 18 months in prison to be followed by 30 months home confinement.

– Arkan Summa, an owner of Happy’s Pizza franchises, was sentenced by a federal court in the Eastern District of Michigan to serve 18 months in prison and ordered to pay $199,847 in restitution for his role in a wide ranging conspiracy to defraud the IRS. The conspiracy involved diverting more than $6.1 million in gross receipts, underreporting wages and understating income and expenses of the pizza franchises. The total tax loss resulting from the scheme was more than $6.2 million. The founder of Happy’s Pizza, Happy Asker, was previously convicted at trial, and three others have also pleaded guilty to related charges.

— March 2015 – Jon McBride, owner of a cell phone clip company and a real estate investor in Utah, was sentenced by a federal court in Utah to serve 27 months in prison and ordered to pay $174,684 in restitution following his conviction for filing a false return and tax evasion. McBride filed a false tax return for 2005 that failed to report his gross income. He later filed a false amended return for the same year and again failed to report his gross income. McBride created several nominees to conceal his income and ownership in real properties to evade the payment of his taxes for 1999 through 2002, tried to evade the assessment of his 2006, 2007, and 2009 taxes, filed false 2006 and 2009 returns, and failed to file a return for 2007.

— March 2015 – Paul DiLorenzo, a doctor from Ocean Township, New Jersey, was sentenced by a federal court in New Jersey to serve 46 months in prison and ordered to pay $304,293 in restitution for structuring cash transactions to avoid reporting requirements and for aiding and assisting in the filing of his own false tax returns. The court also ordered DiLorenzo to forfeit nearly $1 million in illegally derived proceeds.

— March 2015 – Yvette Johnson was sentenced by a federal court in Maryland to serve two years in prison for tax evasion. Her husband, Shannon Johnson, was previously sentenced to serve 72 months in prison for his role in the tax evasion and conspiracy to commit mail and wire fraud. Shannon Johnson held himself out as a wealthy international investment banker offering financing to businesses and investors, who wired and mailed advance banking fees to multiple bank accounts in different states controlled by the Johnsons. Shannon Johnson received millions in fees and payments, but never provided the promised financing. Yvette and Shannon Johnson filed false claims for refunds for the 1998 through 2001 tax years based on fictitious Forms W-2, and further evaded their taxes for the 2002 through 2006 tax years. The court also ordered Shannon Johnson to forfeit $3.7 million based on fraud committed against investors.

— February 2015 – Kenneth and Kimberly Horner, who owned and operated Topcat Towing and Recovery Inc., were each convicted by a federal court in Georgia of filing false personal and corporate tax returns. According to the charges and information presented in court, between 2005 and 2008, the Horners skimmed more than $1.5 million in cash receipts from their towing business and deposited that money into their personal bank account without disclosing the income to their tax return preparer or on corporate and personal tax returns filed with the IRS. They owe approximately $400,000 in taxes to the IRS for their unreported income.

— February 2015 – Thair Alwan, the owner of a pizza shop, was sentenced by a federal court in North Carolina to serve 12 months and one day in prison and ordered to pay $237,587 in restitution and a $10,000 fine for filing a false tax return for 2008. According to court filings, Alwan skimmed cash from pizza shops he owned, failed to report the cash on the corporate returns and under-reported his income on his personal income tax returns.

— February 2015 – Fidencio Moreno, owner of a charter bus company, was sentenced by a federal court in California to serve 41 months in prison for conspiring to defraud the United States. Arturo Moreno, also an owner of the company, was sentenced to serve 28 months in prison for conspiring to defraud the United States, and conspiring to commit wire fraud and mortgage fraud. According to court filings, from 2005 until 2010, Fidencio and Arturo Moreno, along with their co-defendant Elena Moreno, conspired to file false and fraudulent corporate and personal income tax returns, on which they failed to report cash receipts from the charter bus company. The defendants also submitted fraudulent loan applications to purchase or refinance real properties. Elena Moreno was sentenced to serve 22 months in prison in January 2015.

— January 2015 – Matthew Libous, an attorney licensed to practice in New York, was convicted by a federal jury in New York of filing false tax returns for tax years 2007, 2008 and 2009. According to court filings, Libous failed to report income from his law practice and tens of thousands of dollars in personal expenses that he caused to be paid by another company he operated.

— January 2015 – Michael Stover, a Michigan businessman, was sentenced by a federal court in Michigan to serve 42 months in prison for tax evasion and wire fraud. From 2004 through 2010, Stover was president of a company from which he embezzled more than $2 million, and he failed to report the income on his tax returns.

— December 2014 – Jesus Pons, a computer-services manager for Miami-Dade County, was sentenced by a federal court in Florida to serve 51 months in prison and ordered to pay $556,254 in restitution for tax evasion. According to court filings, from 2007 to 2011, Pons, who was in charge of managing information technology projects and county vendors, received illegal kickback payments in exchange for approving payments for consulting work that was never done and failed to report this income on his personal income tax returns.

— November 2014 – Joel Field, owner and operator of Cadillac Ranch restaurants and bars in Ohio and elsewhere, was sentenced by a federal court in Ohio to serve 12 months and one day in prison, to be followed by four months in a halfway house and four months of home confinement, and was ordered to pay $349,778 in restitution and a $4,000 fine for tax evasion. According to court documents, Field filed his 1997 through 2001 tax returns but failed to pay the full tax due and owing. While the IRS was attempting to collect his taxes, Field transferred assets into the names of nominees and submitted false IRS Forms 433-A (Collection Information Statements for Wage Earners and Self-Employed Individuals).

— October 2014 – Jeffrey Scott, owner and operator of Greenville Loop Seafood (GLS), a seafood distribution company, was sentenced by a federal court in North Carolina to serve 12 months and one day in prison and was ordered to pay $26,263 in restitution and a $25,000 fine for attempting to evade his 2007 taxes. According to court filings, between 2006 and 2010, Scott paid nearly all of his living expenses with checks from GLS, including his mortgage, utilities, insurance premiums, landscaping, home improvements, school fees and a country club membership. Scott also purchased five vehicles for more than $200,000, a $100,000 boat and a $2.1 million waterfront home. Scott did not report these funds as income. He also filed a false corporate tax return for 2011 claiming the painting of his personal residence, plumbing work at his personal residence and vet bills for his family dog as business expenses.

–October 2014 – Michael Mangold, a doctor specializing in emergency medicine and urgent care, was sentenced by a federal court in Wisconsin to serve 18 months in prison for tax evasion and making false statements. According to court filings, Mangold earned income working for various hospitals, emergency rooms, urgent care facilities and state and county correctional facilities. From 1997 through 2007, Mangold concealed his income by filing false tax returns and asserting frivolous legal arguments to the IRS.

— September 2014 – Nick Jodha, also known as Nick Persaud, an owner and operator of contracting company United HVAC Services Inc., was sentenced by a federal court in New York to serve 12 months and one day in prison and ordered to pay $214,529 in restitution for evading his 2007 through 2010 taxes. According to court filings, Jodha cashed checks written to United HVAC at a check-cashing service rather than depositing them into the business bank account. He failed to tell his accountant about these cashed checks, which were not reflected in the statements that the accountant used to prepare United HVAC’s corporate returns, or about the fact that he used a portion of the cashed checks to pay business and personal expenses.

–April 2014 – Amberula Levitt, who owned and operated Tax Time Tax Service, a tax-preparation business with multiple locations throughout Atlanta, was sentenced by a federal court in Georgia to serve 21 months in prison, ordered to pay $620,004 in restitution and ordered to complete 100 hours of community service for filing false tax returns for 2004 and 2005, assisting in filing a false tax return for 2006, and failing to file tax returns for 2007, 2008 and 2009.

Additional highlights from the U.S. Attorneys’ Offices include:

–April 2015 – William M. Weisberg, an attorney from Vienna, Virginia, was sentenced by a federal court in Virginia to serve 12 months and one day in prison and ordered to pay $451,955 in restitution for willful failure to pay tax due and owing. According to court filings, Weisberg filed his income tax returns, but failed to pay his taxes for 2008 and 2010, and paid only a portion of his taxes for 2009. During this time, Weisberg paid approximately $250,000 to rent a house in Vienna, $150,000 for private and parochial schools for his two children, $35,000 for maid service and $130,000 for travel and entertainment. When the IRS tried to work with Weisberg in 2010 to obtain the money he owed, Weisberg falsified a document from his law firm, which told the IRS that the firm was withholding money from his paychecks to give to the IRS, when, in fact, no money was being withheld.

– March 2015 – Gwendolyn Muller, a receptionist previously employed by a medical office in Kearny, New Jersey, was sentenced by a federal court in New Jersey to serve 34 months in prison and ordered to pay $556,000 in restitution for embezzlement, using fraudulent credit cards to obtain goods and services and tax evasion. According to court filings, from 2007 through 2011, Muller used her position at the medical practice to take cash and conceal more than $446,000 in checks paid by insurance companies to the medical practice for services to patients. At various times during this same period, Muller also fraudulently obtained 10 credit cards in the name of a principal of the medical practice and used those cards to charge more than $218,000 in goods and services – a portion of which Muller paid for with embezzled funds. Muller admitted to filing a false tax return to evade the payment of taxes on this illegally obtained income.

— February 2015 – Don F. Lindner, an attorney from Severna Park, Maryland, pleaded guilty to filing a false return and agreed to pay $341,730 in restitution. According to court filings, Lindner practiced law in Glen Burnie, Maryland, and treated his law practice as a sole proprietorship. For his tax returns for 2007 and 2011, Lindner omitted $1,230,614 in gross receipts from his law practice. He also maintained a rental property and falsely reported on his tax returns that he paid more than $82,700 in repairs on the rental property during the same tax years, when in fact no repairs were done, thereby fraudulently decreasing his purported taxable income.

— February 2015 – Rebecca Hoff, a former office manager and accounts payable bookkeeper from Ironwood, Michigan, was sentenced by a federal court in Wisconsin to serve 15 months in prison for filing a false income tax return. According to court filings, Hoff used company checks to pay her personal expenses, which included the purchase of a vehicle, home improvements and mortgage payments. Although the employer did not pursue charges for the embezzlement, Hoff never declared the money she embezzled as income on her federal tax returns, resulting in a tax liability of more than $300,000.

— February 2015 – Joel Carlson, an investment advisor, was sentenced by a federal court in Minnesota to serve 42 months in prison for tax evasion. Carlson deposited client investments and additional funds solicited from his father into a Trust Financial Group account, which he treated as his personal bank account. Carlson spent the money on personal items and, when confronted, lied to his clients about the existence of their investments. In addition to misappropriating assets, totaling more than $1.5 million, Carlson failed to file personal income tax returns for tax years 2010 and 2011. Carlson will pay approximately $3.1 million total in restitution, which includes $1.2 million in restitution to the IRS.

– November 2014 – Dennis Weiss, formerly a suburban home builder, was sentenced by a federal court in Illinois to serve 30 months in prison and ordered to pay $296,643 in restitution to the IRS for filing a false federal income tax return and making false statements in a bankruptcy petition. According to court documents, Weiss filed false individual federal income tax returns for 2005 through 2009 and failed to file corporate tax returns for both of his companies, Custom Homes by D.R. Weiss Inc. and Reliable Home Solutions Inc. Between 2005 and 2009, Weiss paid personal expenses from a business bank account, accepted cash payments from customers of his businesses and failed to record the receipt of these funds on the books and records of the corporations, resulting in a total federal tax loss of $1,271,280.

— October 2014 – Patrick J. Belzner, also known as Patrick McCloskey, a home builder residing in Selbyville, Delaware, was sentenced by a federal court in Maryland to serve 15 years in prison and ordered to pay $19.8 million in restitution on charges of wire fraud conspiracy, wire fraud and tax evasion. According to court filings, Belzner worked for the McCloskey Group, a real estate development business, and conspired with others to defraud investors through a fraudulent investment scheme. Belzner admitted that investor funds were used to pay personal and business expenses, as well as to make partial repayments to earlier lenders and to pay fees to some of the victim investors to keep them from demanding the return of their money. In addition, Belzner admitted to stealing more than $1 million from former employers and failing to report those sums on his federal tax returns. He further admitted evading the payment of the tax due and owing by placing his residences, other real estate and automobiles in the names of corporations that he formed, as well as by paying his personal expenses – including his mortgage, ground rent for a vacation home, construction costs on a house that he built, car payments, Baltimore Ravens season tickets and private school tuition – from bank accounts he opened in the names of the corporations or from payments out of the real estate development business. In 2006 and again in 2009, Belzner submitted forms to the IRS falsely claiming that he did not have sufficient income to make any payments on the assessed back taxes, penalties and interest. By August 2013, the total assessed tax, interest and penalties due and owing by Belzner exceeded $2.6 million.

The Justice Department will continue to vigorously pursue and prosecute those engaged in tax crimes. These efforts of the department, the IRS and its other law enforcement partners are critical to the continued integrity of our national tax system, and send a strong message to those individuals who make good faith efforts to comply with their tax obligations that we will hold accountable those who do not.

DOJ Announces First Swiss Bank to Reach Resolution Under Swiss Bank Program

Today the Justice Department announced that BSI SA of Lugano, Switzerland, one of the 10 largest private banks in Switzerland, is the first bank to reach a resolution under the Department of Justice’s Swiss Bank Program.

The DOJ press release announcing the news is as follows:

“Because of the department’s continuing efforts to root out offshore tax evasion, Swiss banks are operating much differently today than they did just a few years ago, and the department’s Swiss Banking Program is a big part of that change,” said Acting Deputy Attorney General Sally Quillian Yates.  “When we announced the program, we said that it would enhance our efforts to pursue those who help facilitate tax evasion and those who use secret offshore accounts to evade taxes.  And it has done just that.  We are using the information that we have learned from BSI and other Swiss banks in the program to pursue additional investigations into both banks and individuals.”

The Swiss Bank Program, which was announced on Aug. 29, 2013, provides a path for Swiss banks to resolve potential criminal liabilities in the United States.  Swiss banks eligible to enter the program were required to advise the department by Dec. 31, 2013, that they had reason to believe that they had committed tax-related criminal offenses in connection with undeclared United States-related accounts.  Banks already under criminal investigation related to their Swiss-banking activities and all individuals were expressly excluded from the program.

Under the program, banks are required to:

-Make a complete disclosure of their cross-border activities;
-Provide detailed information on an account-by-account basis for accounts in which U.S. taxpayers have a direct or indirect interest;
-Cooperate in treaty requests for account information;
-Provide detailed information as to other banks that transferred funds into secret accounts or that accepted funds when secret accounts were closed;
-Agree to close accounts of account holders who fail to come into compliance with U.S. reporting obligations; and
-Pay appropriate penalties.

Banks meeting all of the above requirements are eligible for a non-prosecution agreement.

According to the terms of the non-prosecution agreement signed today, BSI agrees to cooperate in any related criminal or civil proceedings, demonstrate its implementation of controls to stop misconduct involving undeclared U.S. accounts, and pay a $211 million penalty in return for the department’s agreement not to prosecute BSI for tax-related criminal offenses.

“The department’s Swiss Bank Program is an innovative effort to get the financial institutions that facilitated a massive fraud on the American tax system to come forward with information about their wrongdoing – and to ensure that they are held responsible for it,” said Acting Associate Attorney General Stuart F. Delery.  “Today’s resolution demonstrates that the program is working.  BSI is paying an appropriate penalty for its misconduct and the information and continuing cooperation we have required the banks to provide in order to participate in the program is allowing us to systematically attack offshore tax avoidance schemes.”

BSI helped its U.S. clients create sham corporations and trusts that masked the true identity of its U.S. accountholders.  Many of its U.S. clients also opened “numbered” Swiss bank accounts that shielded their identities, even from employees within the Swiss bank.  BSI acknowledged that in order to help keep identities secret, it issued credit or debit cards to many U.S. accountholders without names visible on the card itself.

BSI not only helped U.S. clients shield their identity from the Internal Revenue Service (IRS). but helped them repatriate cash as well.  BSI admitted that its relationship managers and their U.S. clients used code words in emails to gain access to funds.  BSI disclosed instances where its U.S. clients would use coded language, such as asking their private bankers, “can you download some tunes for us?” or note that their “gas tank is running empty” when they required additional cash to be loaded to their cards.

From the beginning of the Swiss Bank Program, the department has emphasized the importance of the banks’ helping to identify individuals who facilitate U.S. tax evasion and U.S. accountholders.  BSI provided substantial assistance in this regard.

“An individual is not culpable simply because he or she is identified by a bank within the program,” said Acting Assistant Attorney General Caroline D. Ciraolo of the department’s Tax Division.  “With that said, the department strongly encourages those individuals and entities currently under indictment, under investigation, or who have concerns regarding their potential criminal liability to contact and fully cooperate with the department to reach a final resolution.”

Since 2009, the department has charged more than 100 offshore bank accountholders, dozens of facilitators, and financial institutions.  The department’s offshore enforcement efforts have reached far beyond Switzerland, as evidenced by publicly announced actions involving banking activities in India, Luxembourg, Liechtenstein, Israel and the Caribbean.

BSI had more than 3,000 active United States-related accounts after 2008, many of which it knew were not disclosed in the United States.  In resolving its criminal liabilities under the program, BSI provided extensive cooperation and encouraged hundreds of U.S. accountholders to come into compliance.  BSI is also assisting with ongoing treaty requests.

“This action under the Swiss Bank Program shows just how far we’ve come in our efforts to stop offshore tax avoidance,” said Deputy Commissioner Douglas O’Donnell of IRS’s Large Business and International Division (LB & I).  “The IRS and DOJ remain committed to aggressively enforce our nation’s tax laws regardless of how sophisticated or complicated the schemes may be.”

While BSI’s U.S. accountholders who have not yet declared their accounts to the IRS may still be eligible to participate in the IRS’s offshore voluntary disclosure programs, the price of such disclosure has increased.

Most U.S. taxpayers who enter the IRS offshore voluntary disclosure program to resolve undeclared offshore accounts will pay a penalty equal to 27.5 percent of the high value of the accounts.  On Aug. 4, 2014, the IRS increased the penalty to 50 percent if, at the time the taxpayer initiated their disclosure, either a foreign financial institution at which the taxpayer had an account or a facilitator who helped the taxpayer establish or maintain an offshore arrangement had been publicly identified as being under investigation, the recipient of a John Doe summons or cooperating with a government investigation, including the execution of a deferred prosecution agreement or non-prosecution agreement.  With today’s announcement of BSI’s non-prosecution agreement, its noncompliant U.S. accountholders must now pay that 50 percent penalty to the IRS if they wish to enter the IRS’ program.

BSI and other banks in the Swiss Bank Program are also providing detailed information to the department about transfers of money from Switzerland to other countries.  The Tax Division and the IRS intend to follow that money to uncover additional tax evasion schemes.

The department has emphasized the importance of identifying U.S. accountholders who have undeclared foreign bank accounts, and BSI has provided assistance in that task.  Because of the information provided to the department under the program, the Tax Division has already begun the process of identifying noncompliant U.S. accountholders who have maintained accounts at many Swiss banks participating in the Swiss Bank Program.

“Today’s action sends a clear message to anyone thinking about keeping money offshore in order to evade tax laws,” said Chief Richard Weber of IRS-Criminal Investigation (CI).  “Fighting offshore tax evasion continues to be a top priority for IRS-CI and we will trace unreported funds anywhere in the world.  IRS-CI special agents are our nation’s best financial investigators, trained to follow the money and enforce our country’s tax laws to ensure fairness for all.”

Acting Assistant Attorney General Ciraolo thanked the IRS and in particular, IRS-CI and LB & I for their substantial assistance, as well as Trial Attorney Kevin F. Sweeney of the Tax Division, who served as lead counsel on this matter, and Senior Counsel for International Tax Matters and Coordinator of the Swiss Bank Program Thomas J. Sawyer of the Tax Division.

The BSI non-prosecution agreement can be found here.  The statement of facts for the NPA can be found here.  The BSI corporate resolution approving the NPA can be found here.

Significant Setbacks to U.S. War on Offshore Tax Evasion with Two Not Guilty Verdicts for Offshore Bankers

As reported in this blog and elsewhere over the past few weeks, Raoul Weil was on trial in Florida for conspiring with U.S. taxpayers to hide their assets from the IRS through secret accounts held at UBS AG. Weil was the former third-ranked officer at UBS and head of its wealth management division. He claimed that he was never told about the tax shelters and that he believed that the accounts that he was aware of complied with U.S. laws.

The government put on a number of witnesses, primarily lower-level former UBS employees who had obtained immunity in exchange for testimony and were shown to be unreliable under cross-examination. On Monday morning, defense counsel announced that they were resting their case without calling any witnesses, and closing arguments immediately were heard. The jury deliberated for 90 minutes and returned a not guilty verdict. For more discussion of the case, see Nathan Hale, Ex-UBS Exec Found Not Guilty in Tax Evasion Trial (Law360, 11/03/2014), available here.

Commentators have subsequently suggested that the government erred by charging one single conspiracy involving Weil and all of UBS’s U.S. clients who held secret accounts. Another government error was not appropriately considering the Weil’s ability to re-direct blame to lower-level employees, who directly manage the relationship with the bank’s U.S. clients, and to the U.S. clients themselves, who filed false tax returns with the IRS. See Jack Townsend, Raoul Weil Found Not Guilty, (Federal Tax Crimes, 11/3/14), available here, and Ex-UBS Executive Weil Acquitted in Tax Probe (swissinfo.ch, 11/04/2014), available here.

The other offshore banker to beat federal charges within the past week is Shokrollah Baravarian who was found not guilty on Friday. Mr. Baravarian, a former senior vice president at Mizrahi Bank, was on trial in Los Angeles for conspiring to conceal undeclared bank accounts held by Iranian Jewish exile customers in the U.S. The witnesses marshaled by the government for this trial included several individuals who had been indicted for tax evasion for hiding assets in accounts at Mizrahi Bank but pleaded guilty only to conspiracy, which then allowed the government to charge Mr. Baravarian with conspiracy. The government’s case unraveled when those witnesses testified that there was no agreement with Mr. Baravarian to hide assets from the IRS. After four hours of deliberation, the jury returned a not guilty verdict. For more reporting on the verdict, see Daniel Siegal, Banker Beats Israeli Account Tax Fraud Charges at Trial (Law360, 10/31/2014), available here.

While the government will likely continue to prosecute offshore banks and its bankers, it is unknown how these losses will affect the government’s overall strategy going forward. There are approximately 30 bankers and advisers who have been indicted by the Justice Department living in Switzerland, successfully avoiding extradition. And, approximately 100 Swiss banks had applied to the Justice Department’s amnesty program for Swiss banks, many of which recently pushed back on the obligations the Justice Department was requiring to obtain a non-prosecution agreement. Whether some of those banks drop out of the program in light of the government’s failure in these trials will soon be seen.

IRS and DOJ Crack Down on Cash Reporting Violations

Federal law requires that anyone engaged in a trade or business who receives more than $10,000 in U.S. currency is required to file a Form 8300 (available here) with the Internal Revenue Service.  Failure to do so can subject the individual or business receiving the cash to civil and/or criminal penalties.

A recent criminal prosecution in Texas illustrates the severe consequences for failing to properly report cash transactions using Form 8300.  An electronics business known as D-Tronics was prosecuted for failing to report its receipt of cash in excess of $1.3 million in multiple transactions.  The company pleaded guilty to willfully failing to file Forms 8300 and agreed to forfeit the amount of $1.3 million to the government.  On October 29, 2014, the company was sentenced to one year of probation, and ordered to forfeit the amount of $1.3 million.  The court further ordered that the company and its employees were required to complete training on Form 8300 requirements.  In a press release announcing the sentence (available here), the Justice Department stated that the forfeiture amount in this case “is among the highest against a trade or business for violating the Form 8300 filing requirement.”

On October 25, 2014, the New York Times published an article describing the Internal Revenue Service’s controversial, yet legal, practice of seizing bank accounts when the account holder is suspected of engaging in “structuring.”  “Structuring” refers to the practice of depositing (or withdrawing) funds from a bank account in amounts of less than $10,000, in order to avoid triggering the cash reporting requirement.  The article provided several examples of small business owners who had been subjected to this practice by the IRS yet were not accused, or convicted, of any criminal activity:

 For almost 40 years, Carole Hinders has dished out Mexican specialties at her modest cash-only restaurant. For just as long, she deposited the earnings at a small bank branch a block away — until last year, when two tax agents knocked on her door and informed her that they had seized her checking account, almost $33,000.

The Internal Revenue Service agents did not accuse Ms. Hinders of money laundering or cheating on her taxes — in fact, she has not been charged with any crime. Instead, the money was seized solely because she had deposited less than $10,000 at a time, which they viewed as an attempt to avoid triggering a required government report.

As the article points out, under federal law, the IRS is permitted to seize bank accounts utilizing the civil forfeiture laws even if the account holder is never charged with a crime:

The I.R.S. is one of several federal agencies that pursue such cases and then refer them to the Justice Department. The Justice Department does not track the total number of cases pursued, the amount of money seized or how many of the cases were related to other crimes, said Peter Carr, a spokesman.

But the Institute for Justice, a Washington-based public interest law firm that is seeking to reform civil forfeiture practices, analyzed structuring data from the I.R.S., which made 639 seizures in 2012, up from 114 in 2005. Only one in five was prosecuted as a criminal structuring case.

The practice has swept up dairy farmers in Maryland, an Army sergeant in Virginia saving for his children’s college education and Ms. Hinders, 67, who has borrowed money, strained her credit cards and taken out a second mortgage to keep her restaurant going.

Their money was seized under an increasingly controversial area of law known as civil asset forfeiture, which allows law enforcement agents to take property they suspect of being tied to crime even if no criminal charges are filed. Law enforcement agencies get to keep a share of whatever is forfeited.

Critics say this incentive has led to the creation of a law enforcement dragnet, with more than 100 multiagency task forces combing through bank reports, looking for accounts to seize. Under the Bank Secrecy Act, banks and other financial institutions must report cash deposits greater than $10,000. But since many criminals are aware of that requirement, banks also are supposed to report any suspicious transactions, including deposit patterns below $10,000. Last year, banks filed more than 700,000 suspicious activity reports. Owners who are caught up in structuring cases often cannot afford to fight. The median amount seized by the I.R.S. was $34,000, according to the Institute for Justice analysis, while legal costs can easily mount to $20,000 or more.

There is nothing illegal about depositing less than $10,000cash unless it is done specifically to evade the reporting requirement. But often a mere bank statement is enough for investigators to obtain a seizure warrant. In one Long Island case, the police submitted almost a year’s worth of daily deposits by a business, ranging from $5,550 to $9,910. The officer wrote in his warrant affidavit that based on his training and experience, the pattern “is consistent with structuring.” The government seized $447,000 from the business, a cash-intensive candy and cigarette distributor that has been run by one family for 27 years.

The article further points out that small businesses often have perfectly legitimate reasons for making deposits in amounts less than $10,000:

There are often legitimate business reasons for keeping deposits below $10,000, said Larry Salzman, a lawyer with the Institute for Justice who is representing Ms. Hinders and the Long Island family pro bono. For example, he said, a grocery store owner in Fraser, Mich., had an insurance policy that covered only up to $10,000 cash. When he neared the limit, he would make a deposit.

Ms. Hinders said that she did not know about the reporting requirement and that for decades, she thought she had been doing everyone a favor.  “My mom had told me if you keep your deposits under $10,000, the bank avoids paperwork,” she said. “I didn’t actually think it had anything to do with the I.R.S.”

In response to questions from the New York Times, the IRS announced a major policy change to ensure that the government’s civil forfeiture powers are not abused.  In particular, the IRS said it would no longer seek seizure and forfeiture of accounts unless the funds in question were generated by illegal activity or there were exceptional circumstances justifying the exercise of forfeiture: 

After a thorough review of our structuring cases over the last year and in order to provide consistency throughout the country (between our field offices and the U.S. attorney offices) regarding our policies, I.R.S.-C.I. will no longer pursue the seizure and forfeiture of funds associated solely with “legal source” structuring cases unless there are exceptional circumstances justifying the seizure and forfeiture and the case has been approved at the director of field operations (D.F.O.) level.  While the act of structuring — whether the funds are from a legal or illegal source — is against the law, I.R.S.-C.I. special agents will use this act as an indicator that further illegal activity may be occurring.  This policy update will ensure that C.I. continues to focus our limited investigative resources on identifying and investigating violations within our jurisdiction that closely align with C.I.’s mission and key priorities.  The policy involving seizure and forfeiture in “illegal source” structuring cases will remain the same.