Vadian Bank Obtains NPA Under DOJ Swiss Bank Program (5/8/15)

DOJ announced here that Vadian Bank, here, had entered a nonprosecution agreement.  Here are some excerpts:

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. 

In an earlier part of the press release, DOJ said, quoting Caroline Ciraolo:

“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.”

JAT comment:

1.  Obviously, U.S. depositors in Swiss banks who were willfully noncompliant and who have not yet joined OVDP should seriously consider joining before the banks hit the 50% penalty list.  At least for those banks joining the program, their depositor information will out, although the process may take some time as requests are made under the treaty.
2.  Also, Vadian seems to be a small fry among the Swiss bank players, so the financial cost is relatively light.
3.  But, on the other hand, Vadian's foray serving U.S. taxpayers was a blatant attempt to exploit the U.S. tax evasion opportunity created by UBS's woes.