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.”