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09Jun15

Two More Banks Reach Resolutions under Justice Department's Swiss Bank Program

The Department of Justice announced today that two banks, Société Générale Private Banking (Suisse) SA (SGPB-Suisse) and Berner Kantonalbank AG (BEKB), have reached resolutions under the department's Swiss Bank Program.

"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 requireents;
  • 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."

Acting Assistant Attorney General Ciraolo thanked the IRS, in particular, IRS-Criminal Investigation and the IRS Large Business & International Division for their substantial assistance, as well as Karen M. Quesnel, who served as counsel on these matters, Senior Litigation Counsel Nanette L. Davis, and Senior Counsel for International Tax Matters and Coordinator of the Swiss Bank Program Thomas J. Sawyer of the Tax Division.

[Source: Department of Justice, Office of Public Affairs, Washington, 09Jun15]
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