Three More Non-Prosecution Agreements with Swiss Banks for a Total Penalty of $20 Million

Three more Swiss banks have reached resolutions with the Justice Department under its Swiss Bank Program – Bank La Roche, St. Galler Kantonalbank AG (SGKB), and E. Gutzwiller & Cie, Banquiers.   To resolve their respective tax-related criminal offenses, La Roche agreed to pay a penalty of approximately $9.3 million, SGKB agreed to pay a penalty of almost $9.5 million, and Gutzwiller agreed to pay a penalty of $1.5 million.

Importantly, the DOJ emphasized the data it is obtaining as a result of the program and how it is using this data in its enforcement efforts:

“The cumulative penalties the Swiss Bank Program has generated to date are extraordinary,” said Chief Richard Weber of IRS-Criminal Investigation (CI).  “However, a significant element of the program is the highly-detailed account and transactional data that has been provided to IRS specifically for law enforcement purposes.  We will continue to use this information to vigorously pursue U.S. taxpayers who may still be trying to illegally conceal offshore accounts, ensuring we are all playing by the same rules.”

The DOJ described the relevant conduct of each of the banks in relation to their U.S. accountholders as follows:

Bank La Roche (announced 9/15/2015)

La Roche was founded in 1787 and is based in Basel, Switzerland, with offices in Olten and Bern, Switzerland.  In 2011, La Roche closed a Hong Kong asset management subsidiary that opened in 2008.  On Feb. 13, 2015, La Roche sold its business to Notenstein Privatbank AG.  Most of La Roche’s employees and the clients of La Roche, with the exception of U.S. taxpayers and a few other clients, will be transferred to Notenstein Privatbank AG.  The transaction is expected to close in October 2015.  Thereafter, La Roche intends to wind down its remaining business and relinquish its banking license.

La Roche 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 Internal Revenue Service (IRS).  La Roche used a variety of means to assist some U.S. clients in concealing the assets and income the clients held in their La Roche undeclared accounts, including by

– providing numbered accounts for 70 U.S. taxpayers;

– holding bank statements and other mail relating to 66 U.S.-related numbered accounts, as well as 20 named accounts of U.S. taxpayers domiciled in the United States;

– allowing substantial cash and precious metal withdrawals in connection with the closures of 27 U.S. taxpayers’ accounts for a total amount of $11.6 million

– maintaining records in which certain U.S. taxpayers expressly instructed La Roche not to disclose their names to the IRS;

– providing travel cash cards to five U.S. taxpayers upon their request; and

– opening an account in June 2010 for a U.S. taxpayer who left UBS and who transferred $126,000 from UBS to the La Roche account.

Due in part to the assistance of La Roche and its personnel, and with the knowledge that Swiss banking secrecy laws would prevent La Roche from disclosing their identities to the IRS, some U.S. clients of La Roche filed false and fraudulent U.S. Individual Income Tax Returns (IRS Forms 1040), which failed to report their interests in their undeclared accounts and the related income.  Some of La Roche’s U.S. clients also failed to file and otherwise report their undeclared accounts on Reports of Foreign Bank and Financial Accounts (FBARs).Since Aug. 1, 2008, La Roche maintained 201 U.S.-related accounts with a maximum aggregate value of approximately $193.9 million.  136 of these accounts were beneficially owned by U.S. clients domiciled in the United States, 36 of which were maintained in the names of entities.  La Roche will pay a penalty of $9.296 million.

As part of its participation in the Swiss Bank Program, La Roche provided information concerning 10 U.S. client accounts held at La Roche in Switzerland since August 2008 sufficient to make treaty requests to the Swiss competent authority for U.S. client account records.  It also provided a list of the names and functions of individuals who structured, operated or supervised the cross-border business at La Roche.

In 51 instances, La Roche maintained accounts for U.S. taxpayers as beneficial owners of accounts held by non-U.S. corporations, foundations or other entities, some of which were sham entities that concealed the beneficial ownership of the U.S. taxpayers.  These entities included Liechtenstein foundations, two of which were established or administered by a Liechtenstein trust company, whose manager and director had a long-standing personal relationship with La Roche.

St. Galler Kantonalbank AG (announced today)

St. Galler Kantonalbank AG (SGKB) has its headquarters in the Canton of St. Gallen, Switzerland.  It was founded in 1868 to provide credit services to Cantonal residents and to assist in the development of the regional economy.  By Cantonal law, the Canton of St. Gallen is SGKB’s majority shareholder, owning 54.8 percent of SGKB’s shares.

SGKB offered a variety of traditional Swiss banking services that it knew could assist, and that did in fact assist, U.S. clients in the concealment of assets and income from the Internal Revenue Service (IRS).  These services included hold mail, as well as code name or numbered account services.  These services helped U.S. clients eliminate the paper trail associated with the undeclared assets and income they held at SGKB in Switzerland.  By accepting and maintaining such accounts, SGKB assisted some U.S. taxpayers in evading their U.S. tax obligations.

SGKB agreed to open accounts for at least 58 U.S. taxpayers who had left other banks being investigated by the department without ensuring that each such account was compliant with U.S. tax law from their inception at SGKB.  SGKB also issued checks, including series of checks, in amounts of less than $10,000 that were drawn on accounts of U.S. taxpayers or structures in at least nine cases, totaling $3 million.  For example, one U.S. taxpayer made 31 wire transfers for just less than $10,000 between June 2012 and December 2012.  SGKB further processed large cash withdrawals totaling approximately $5.8 million for at least 14 U.S. taxpayers at or around the time the clients’ accounts were closed, even though SGKB knew, or had reason to know, the accounts contained undeclared assets.

Since Aug. 1, 2008, SGKB held accounts for 41 entities or structured accounts.  Eight of these accounts came to SGKB as part of the acquisition of business from Hyposwiss Privatbank AG, of which SGKB formerly was the parent company.  Of the remaining 33 entities, 18 were incorporated at or around the time their SGKB accounts were opened.  These entities were incorporated in Switzerland, Liechtenstein, St. Vincent and the Grenadines, the United States, Ireland, Panama, Haiti and Belize.

In August 2008, SGKB mandated that no new funds would be accepted from U.S. residents without a signed IRS Form W-9.  However, certain executives had full discretion and authority to make exceptions to this policy, in keeping with SGKB’s general bank policy of permitting flexibility in its directives.  One executive first requested the authority to make a specific exception because he already had agreed to accept a “pipeline” of problematic U.S.-related accounts from UBS and wanted to keep his word to his former UBS colleague.  This “pipeline” consisted of six U.S.-related accounts with approximately $9.2 million in assets under management.  This executive granted another significant exception from this policy in connection with clients of an external asset manager.  At least 72 accounts with approximately $150 million in assets under management were opened at an SGKB subsidiary between late October and December 2008 without a Form W-9 as an exception to SGKB’s policy.  The majority of these accounts were transferred from UBS.

Since Aug. 1, 2008, SGKB held a total of 626 U.S.-related accounts with approximately $303 million in assets under management.  SGKB will pay a penalty of $9.481 million.

Gutzwiller & Cie, Banquiers (announced today)

Gutzwiller & Cie, Banquiers, was founded in 1886 and is headquartered in Basel, Switzerland.  This entity is affiliated with two asset managing entities in Geneva and Zurich, Gutzwiller SA Geneve and Gutzwiller AG Zurich, respectively (collectively Gutzwiller).

Of the 128 U.S.-related accounts at Gutzwiller, approximately 96 used hold mail services.  Gutzwiller also opened and maintained 11 U.S.-related accounts held by non-U.S. entities, such as a Panama foundation or a British Virgin Islands corporation, with the knowledge that a U.S. person was the true beneficial owner of assets.  With respect to some of those 11 accounts, the entity properly identified the U.S. beneficial owners of the assets for Swiss “Know Your Customer” rules, but Gutzwiller’s IRS Forms W-8BEN falsely declared that the beneficial owner of the account was not a U.S. person.  The false Forms W-8BEN thus allowed the true ownership of the accounts to be concealed.

In addition, Gutzwiller accepted an account from a U.S. citizen and resident who presented a U.S. passport at the account opening in 1992.  At various times, the U.S. client refused to sign a Form W-9, prohibited anything relating to the account from being reported to the IRS or other U.S. governmental authority, and refused to respond to Gutzwiller’s questions about whether the account was declared to the IRS.  Although Gutzwiller did not use code names or numbers to communicate with clients, the U.S. client communicated with Gutzwiller by signing communications with an identifying number.  Beginning in 2009, Gutzwiller began to urge the U.S. client to close the account.  Over approximately the next year, the U.S. client began liquidating the account by withdrawing large amounts of cash in person in the form of U.S. dollars, Swiss francs, Euros and U.S. travelers checks.  Gutzwiller also honored the U.S. client’s requests to prepare numerous checks written in amounts below $10,000, which the U.S. client then picked up at Gutzwiller.  In late 2010, Gutzwiller declined a request to liquidate remaining funds in the account in a similar manner and informed the U.S. client that it would only close the account through a single payment in the form of a cash withdrawal, a single check or a wire transfer.  The account was closed in 2011 with a wire transfer of more than $3 million to another Swiss bank, without the U.S. client coming into compliance with U.S. tax obligations.  The U.S. client later voluntarily disclosed the account at Gutzwiller and the other Swiss bank to the IRS.

Since Aug. 1, 2008, Gutzwiller held a total of 128 U.S.-related accounts with a high value of approximately $271 million.  Gutzwiller will pay a penalty of $1.556 million.

Under the Swiss Bank Program, eligible Swiss banks that had notified the DOJ by December 31, 2013 of an intent to participate in the Program were eligible to resolve any potential criminal liabilities in the U.S. by completing the following:

  • 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 these non-prosecution agreements, 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 DOJ’s agreement not to prosecute these banks for tax-related criminal offenses.

The Justice Department released the following documents with each of these announcements:

  • The La Roche non-prosecution agreement and statement of facts (available here).
  • The SGKB non-prosecution agreement and statement of facts (available here).
  • The Gutzwiller non-prosecution agreement and statement of facts (available here).

Three More Swiss Banks Have Secured Non-Prosecution Agreements with the DOJ

Since our last update, three more Swiss banks have reached resolutions with the Justice Department under its Swiss Bank Program –Valiant Bank AG, Schroder & Co. Bank AG, and Hypothekarbank Lenzburg AG. To resolve their respective tax-related criminal offenses, Valiant Bank agreed to pay a penalty of $3.3 million, Schroder Bank agreed to pay a penalty of $10.3 million, and HBL agreed to pay a penalty of $560,000.

In press releases, the DOJ described the relevant conduct of each of the banks in relation to their U.S. accountholders as follows:

Valiant Bank (announced yesterday)

Valiant traces its origins to 1824 and is headquartered in Bern, the capital of Switzerland.  Today, Valiant is the successor of 40 banks.

Valiant offered hold mail services and numbered accounts to its U.S. clients, including some U.S. clients who had not provided Valiant with an Internal Revenue Service (IRS) Form W-9.  Valiant also accepted funds from 19 UBS accountholders who exited UBS.  Eleven of these 19 U.S. persons provided a signed Form W-9.  The remaining eight U.S. persons who did not were later forced to close their Valiant accounts.

For 26 accountholders who refused to sign a Form W-9, Valiant cashed out or converted into gold hundreds of thousands (and even millions) of dollars in account balances.  In late November 2011, one accountholder withdrew more than one million Swiss francs in various currencies and 114,000 Swiss francs in gold coins, gold bars and precious metal.  Another accountholder withdrew $2 million in cash and wired 400,000 Swiss francs to a U.S. bank.  In both instances, the accountholders refused to sign a Form W-9.  Other accountholders withdrew only amounts under $10,000 either by U.S. dollar cash withdrawals or by check or wire transfer to the United States, or transferred large sums to non-U.S. institutions.  For example, one accountholder transferred over 435,000 euros to France and $350,000 to Luxembourg.  Two other accountholders each transferred 75,000 Swiss francs to Dubai and closed their accounts with cash withdrawals of over 300,000 Swiss francs.

In 2009, an accountholder refused to sign a Form W-9 and requested that Valiant ignore the accountholder’s U.S. status.  The accountholder’s non-U.S. spouse later opened a separate account at Valiant, and the accountholder transferred more than $1 million into that account.  According to an “Agreement of Donation” between the accountholder and the accountholder’s non-U.S. spouse, the purpose of the transfer was “to make a donation” and “without any consideration.”  The agreement provided that the donation was “irrevocable.”  The non-U.S. spouse then transferred the funds to UBS and instructed Valiant to close the account.

Some U.S.-related accounts at Valiant were held in the name of non-U.S. entities with one or more U.S. beneficial owners.  In one case, a British Virgin Islands entity opened an account at Valiant through a third-party Swiss entity assigned to manage the account.  The entity holding the account designated four U.S. persons as beneficial owners, but signed a Valiant form declaring that the account was for the benefit of non-U.S. persons.

Since Aug. 1, 2008, Valiant had 330 U.S.-related accounts, out of a total of 600,000 accounts.  The maximum aggregate dollar value of the U.S.-related accounts was $147.4 million.  Valiant will pay a penalty of $3.304 million.

Schroder Bank (announced 9/3/2015)

Schroder Bank was founded in 1967 and received its Swiss banking license in 1970.  Since 1984, Schroder Bank has had a branch in Geneva.  The bank has two wholly owned subsidiaries, Schroder Trust AG (domiciled in Geneva) and Schroder Cayman Bank & Trust Company Ltd. (domiciled in George Town, Grand Cayman).  Schroder Cayman Bank & Trust Company Ltd. provides services to clients such as the creation and support of trusts, foundations and other corporate bodies.  Both subsidiaries also acted in some cases as an account signatory for entities holding an account with the bank.  Schroder Bank is in the process of closing the operations of Schroder Trust AG and Schroder Cayman Bank & Trust Company Ltd.

Schroder Bank opened accounts for trusts and companies owned by trusts, foundations and other corporate bodies established and incorporated under the laws of the British Virgin Islands, the Cayman Islands, Panama, Liechtenstein and other non-U.S. jurisdictions, where the beneficiary or beneficial owner named on the Form A was a U.S. citizen or resident.  In addition, a small number of accounts were opened for U.S. limited liability companies (LLCs) with U.S. citizens or residents as members, as well as for U.S. LLCs with non-U.S. persons as members.  Schroder Bank communicated directly with the beneficial owners of some accounts of trusts, foundations or corporate bodies, and it arranged for the issuance of credit cards to the beneficial owners of some such accounts that appear in some cases to have been used for personal expenses.

Schroder Bank also processed cash withdrawals in amounts exceeding $100,000 or the Swiss franc equivalent.  For at least three U.S.-related accounts, a series of withdrawals that in aggregate exceeded $1 million were made.  In addition, at least 26 U.S.-related accountholders received cash or checks in amounts exceeding $100,000 on closure of their accounts, including in at least three cases cash or checks in excess of $1 million.

Between 2004 and 2008, four Schroder Bank employees traveled to the U.S. in connection with the bank’s business with respect to U.S.-related accounts.  In 2008, Swiss bank UBS AG publicly announced that it was the target of a criminal investigation by the Internal Revenue Service (IRS) and the department, and that it would be exiting and no longer accepting certain U.S. clients.  In a later deferred prosecution agreement, UBS admitted that its cross-border banking business used Swiss privacy law to aid and assist U.S. clients in opening accounts and maintaining undeclared assets and income from the IRS.  Between Aug. 1, 2008, and June 30, 2009, Schroder Bank opened eight U.S.-related accounts with funds received from UBS, which was then under investigation by the U.S. government.

Since Aug. 1, 2008, Schroder Bank had 243 U.S.-related accounts with approximately $506 million in assets under management.  Schroder Bank will pay a $10.354 million penalty.

Hypothekarbank Lenzburg AG (announced 8/27/2015)

HBL offered a variety of traditional Swiss banking services that it knew could assist, and that did assist, U.S. clients in the concealment of assets and income from the Internal Revenue Service (IRS).  For example, HBL, upon client request, did not send mail associated with some U.S.-related accounts to the United States.  In addition, HBL offered numbered accounts to its clients, a service by which access to information about an account, including the identity of the accountholder, was limited to only certain employees of HBL.  In a handful of instances, the accountholders of U.S.-related accounts who refused to provide a Form W-9 or who admitted that they were not tax compliant withdrew significant amounts of cash or physical assets when HBL forced these accounts to be closed.

In or about 2008, Swiss bank UBS AG publicly announced that it was the target of a criminal investigation by the IRS and the department, and that it would be exiting and no longer accepting certain U.S. clients.  In a later deferred prosecution agreement, UBS admitted that its cross-border banking business used Swiss privacy law to aid and assist U.S. clients in opening accounts and maintaining undeclared assets and income from the IRS.  HBL opened one account for a U.S. person who exited UBS.  For another long-standing holder of a U.S.-related account, HBL received a transfer of funds from an account held at UBS into a pre-existing account at HBL.

Another accountholder who resided in the United States for many years had two accounts, one of which was a numbered account.  In 2012, the accountholder’s relationship manager requested a Form W-9 for the numbered account and the accountholder refused to provide one.  As a result, the relationship manager directed the accountholder to close the numbered account.  Thereafter, the accountholder came to Lenzburg to close the numbered account.  The accountholder withdrew 240,000 Swiss francs and 12,000 euros and purchased precious metals in the amount of 318,000 Swiss francs.

Since Aug. 1, 2008, HBL had 96 U.S.-related accounts with an aggregate value of $69.8 million.  HBL’s average annual revenue attributable to U.S.-related accounts in the form of fees, commissions and earnings on client funds that were loaned out by HBL was $198,000, or a total of $1.2 million since Aug. 1, 2008.  HBL will pay a penalty of $560,000.

Under the Swiss Bank Program, eligible Swiss banks that had notified the DOJ by December 31, 2013 of an intent to participate in the Program were eligible to resolve any potential criminal liabilities in the U.S. by completing the following:

  • 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 these non-prosecution agreements, 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 DOJ’s agreement not to prosecute these banks for tax-related criminal offenses.

The Justice Department released the following documents with each of these announcements:

  • The Valiant Bank non-prosecution agreement and statement of facts (available here).
  • The Schroder Bank non-prosecution agreement and statement of facts (available here).
  • The HBL non-prosecution agreement and statement of facts (available here).

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: