Another Swiss Bank Enters NPA Under US DOJ Swiss Bank Program (6/26/15)

DOJ just announced here another Swiss Bank NPA resolution under the DOJ program for Swiss banks.  The Swiss bank is Ersparniskasse Schaffhausen AG (EKS).  The penalty is $2.066 million.  Here are key excerpts (emphasis supplied by JAT):

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.

EKS will be added to the IRS's Foreign Financial Institutions or Facilitators, here (not added as of 6/26/15 12:30pm).

 My updated statistics are:

US DOJ Swiss Bank Program	Number	Number Resolved	Total Costs
U.S. / Swiss Bank Initiative Category 1 (Criminal Inv.) *	17	5	$3,470,550,000
U.S. / Swiss Bank Initiative Category 2 **	62	14	$267,883,090
U.S. / Swiss Bank Initiative Category 3	12		$0
U.S. / Swiss Bank Initiative Category 4	7		$0
Swiss Bank Program Results	98		$3,738,433,090
* Includes subsidiary or related entities counted as separate entities, so the numbers may exceed the numbers the IRS and DOJ posted numbers which combine some of the entities.
** DOJ says original total was 106 but that it expects about 80 to complete the process.