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26Jun15

Swiss Bank Reaches Resolution under Justice Department's Swiss Bank Program

The Department of Justice announced today that Ersparniskasse Schaffhausen AG (EKS) has reached a resolution under the department's Swiss Bank Program.

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 agreement signed today, EKS 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 EKS for tax-related criminal offenses.

EKS was founded in 1817 and is wholly owned by a Swiss charitable foundation. It is headquartered in the city and canton of Schaffhausen, Switzerland. EKS opened, maintained and serviced accounts for U.S. persons that it knew or had reason to know were likely not declared to the Internal Revenue Service (IRS) or the U.S. Department of the Treasury as required by U.S. law.

From 2004 through 2011, EKS accepted referrals of U.S. persons as new clients from an external asset manager who, until 2009, resided in the United States and conducted some of his business through a corporation organized under the laws of the United States. The majority of the accounts that came to EKS as a result of these referrals were held in the names of non-U.S. entities that were beneficially owned by U.S. persons.

In May 2008, with the knowledge and approval of EKS management, the external asset manager and an EKS relationship manager visited five U.S. cities to meet with U.S. clients and attorneys who had the potential to refer new clients. Topics discussed during their meetings included the "crisis" involving Swiss bank UBS AG, client satisfaction with EKS, the performance of client accounts at EKS and the "asset protection" benefits of EKS.

Until 2009, EKS opened numbered accounts for U.S. persons, including code-name or pseudonym accounts, upon request. Upon opening this type of account, an EKS employee would enter the accountholder's name in a physical register rather than in the bank's electronic records system. This action limited the number of EKS personnel who knew the client's identity. Holders of these accounts could also provide documents to EKS using only their code names or numbers as their authorized signatures.

EKS provided all of its clients, including U.S. persons, with the option to request that EKS retain all mail related to a client's financial accounts in exchange for a standard service fee. EKS understood that providing such hold-mail agreements upon request could allow U.S. persons to keep evidence of their EKS accounts outside of the United States and thus assist them in concealing assets and income from the IRS.

EKS also accepted IRS Forms W-8BEN for U.S.-related accounts held in the names of non-U.S. entities, such as foreign corporations, trusts or foundations. Because Swiss law required EKS to identify the true beneficial owners of the entities on a document called a Form A, EKS knew that these accounts were beneficially owned by U.S. persons. Nonetheless, EKS accepted Forms W-8BEN that it knew falsely stated that the entities were the beneficial owners of the accounts.

EKS was aware of the 2009 IRS Offshore Voluntary Disclosure Program for U.S. persons. Despite knowing of that program and knowing or having reason to know that some of its U.S. clients had likely not declared their EKS accounts to the IRS, EKS made no effort to encourage its U.S. clients to disclose their accounts through that program.

During 2009, consultants reported to EKS, among other things, that EKS had increased risks because of its relationship with the external asset manager; that it was only a matter of time until small banks came into contact with U.S. authorities; and that there was a latent risk that previous revenues from EKS's "U.S. strategy" could be seized or corresponding fines imposed. According to minutes of a 2009 meeting of the EKS board of directors, an EKS executive stated, among other things, that "there is practically no risk if U.S. customers travel to Switzerland and a customer account is handled locally," and that he had been informed that Swiss bank Wegelin & Co. was going to keep its previous U.S. customers.

In October 2009, the EKS board of directors voted to continue the account relationships with clients of the external asset manager, including his U.S. clients, under certain conditions, including that his business be relocated to Switzerland. The board also voted to "have the option of entering into new cross-border business relationships."

Since Aug. 1, 2008, EKS provided private banking services for 90 U.S.-related accounts with approximately $65 million in assets. Thirty-seven of these accounts were opened after Aug. 1, 2008. EKS will pay a penalty of $2.066 million.

In accordance with the terms of the Swiss Bank Program, EKS 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 EKS 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 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 this non-prosecution agreement, noncompliant U.S. accountholders at EKS must now pay that 50 percent penalty to the IRS if they wish to enter the IRS Offshore Voluntary Disclosure Program.

Acting Assistant Attorney General Caroline D. Ciraolo of the Justice Department's Tax Division thanked the IRS, and in particular, IRS-Criminal Investigation and the IRS Large Business and International Division for their substantial assistance, Gregory E. Van Hoey and Michael R. Pahl, who served as counsel on this matter, as well as Senior Counsel for International Tax Matters and Coordinator of the Swiss Bank Program Thomas J. Sawyer and Senior Litigation Counsel Nanette L. Davis of the Tax Division.

[Source: DOJ, Office of Public Affairs, Washington, 26Jun15]
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Corruption and Organized Crime
small logoThis document has been published on 02Jul15 by the Equipo Nizkor and Derechos Human Rights. In accordance with Title 17 U.S.C. Section 107, this material is distributed without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes.