Thursday, July 23, 2015

Three More Swiss Banks Enter NPAs Under US DOJ Swiss Bank Program (7/23/15)

On July 16, 2015, DOJ announced here three other Swiss Banks have entered NPA resolutions under the DOJ program for Swiss banks.  The Swiss banks are Mercantil Bank (Schweiz) AG, Banque Cantonale Neuchâteloise and Nidwaldner Kantonalbank .  The penalties are  $1.172 Million,  $1.123 Million, and $856,000, respectively.  Here are key excerpts (emphasis supplied by JAT):
Mercantil Bank (Schweiz) AG is based in Zurich and initiated operations in 1988.  Its main focus is private banking, which offers wealth management services to individuals and private investment companies.  Mercantil opened, serviced and profited from accounts for U.S. clients and knew or should have known that many of its U.S. clients were likely not complying with their tax obligations.  Its cross-border banking business aided and assisted U.S. clients in opening and maintaining undeclared accounts in Switzerland and concealing the assets and income they held in these accounts.  Until 2010, Mercantil maintained a U.S. toll-free telephone number to service its customers.
Mercantil used a variety of means that could and did assist U.S. clients in concealing their accounts, including hold mail and code name or numbered account services, thereby ensuring that documents reflecting the existence of the accounts could remain outside the United States, beyond the reach of U.S. tax authorities and protected by Swiss banking secrecy laws.  Mercantil also assisted clients in opening and maintaining accounts in the names of sham entities.  For example, Mercantil provided accounts for what were referred to as “Personal Investment Companies” through its private banking unit.  Where there was no active, ongoing business, it was Mercantil’s practice to ignore the form of the structures and to treat the beneficial owners of the entity as the accountholders in substance.  Mercantil provided services to the accounts knowing that they could be used for evasion or avoidance of tax obligations.  On one occasion in March 2008, Mercantil opened an account for a bank executive with U.S. citizenship in the name of a Panamanian holding company.  In that instance, Mercantil accepted and included in account records forms provided by the director of the Panamanian company that falsely represented the ownership of the account for U.S. federal income tax purposes. 
Since Aug. 1, 2008, Mercantil held a total of 116 U.S.-related accounts with a maximum aggregate value totaling over $59.8 million.  Mercantil will pay a penalty of $1.172 million. 
Banque Cantonale Neuchâteloise (BCN) was formed in 1883 and is headquartered in the city of Neuchâtel, Switzerland.  BCN opened, serviced and profited from accounts for U.S clients with the knowledge that many likely were not complying with their U.S. tax obligations.  BCN knew or had reasons to know that it was likely that certain U.S. taxpayers were maintaining undeclared accounts at BCN in order to evade their U.S. tax obligations in violation of U.S. law. 
BCN provided traditional Swiss banking services that it knew could assist, and that did in fact assist, certain U.S. taxpayers to evade their U.S. tax obligations and otherwise hide accounts held at BCN from the Internal Revenue Service (IRS).  For example, after it became public that the department was investigating the conduct of UBS, and later other Swiss banks, BCN allowed several U.S. persons to open accounts at BCN and transfer funds into those BCN accounts from the banks under investigation.
BCN provided numbered accounts and agreed to hold bank statements and other mail relating to accounts at BCN, rather than send them to U.S. taxpayers located in the United States, thereby ensuring that documents reflecting the existence of the accounts remained outside the United States and beyond the reach of U.S. tax authorities.  In some instances, BCN permitted accounts to be held by Swiss or, in one case, foreign non-operating entities that were ultimately beneficially owned by U.S. persons.  By permitting U.S. accountholders to hold their accounts in the name of non-operating entities, BCN thus enabled U.S. accountholders to conceal their identity from the U.S. government.  Until 2014, BCN permitted its U.S. accountholders to withdraw funds in cash both by withdrawing sums below $10,000 and, in some cases, withdrawing larger sums of cash when closing their accounts.
As part of its participation in the Swiss Bank Program, BCN has provided certain account information related to U.S. taxpayers which may assist the government in making requests under the 1996 Convention between the United States of America and the Swiss Confederation for the Avoidance of Double Taxation with Respect to Taxes on Income for, among other things, the identities of U.S. accountholders. 
Since Aug. 1, 2008, BCN had 190 U.S. clients with a total of 595 U.S.-related accounts.  The maximum dollar value, in the aggregate, of all accounts associated with U.S. taxpayers at BCN was approximately $67.5 million.  BCN will pay a penalty of $1.123 million. 
Nidwaldner Kantonalbank (NKB), established in 1879, is a public and registered cantonal bank in Switzerland owned by the canton of Nidwalden, Switzerland.  Despite understanding that U.S. taxpayers had a legal duty to report to the IRS and to pay taxes on income earned in accounts maintained in Switzerland, NKB opened and maintained undeclared accounts for U.S. taxpayers.  NKB chose to continue to service U.S. clients without disclosing their identity to the IRS and without regard for the impact of U.S. criminal law on that decision.  
NKB 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 IRS.  These services included hold mail and numbered accounts.  NKB also allowed U.S. nationals with Swiss relatives to open accounts, even in circumstances where NKB was or should have been aware that the accounts were not declared in the United States. 
In several instances, requirements of an agreement NKB had with the IRS, in particular with respect to requiring IRS Forms W-9 from U.S. clients, were either not followed or were waived by NKB.  For example, in one case, NKB knowingly waived the W-9 requirement for an account from a bank under investigation by the department.  This allowed the accountholders, both U.S. citizens and residents, to hold U.S. securities in the account without disclosure of the account to the IRS.  NKB’s failure to comply with its reporting and withholding obligations allowed these and other U.S. accountholders to conceal their accounts from U.S. authorities. 
One external asset manager had a relationship with an NKB banker and brought five accounts to NKB, including some from Credit Suisse.  One of these accounts held U.S. securities through a life insurance policy (an “insurance wrapper”) for the benefit of a U.S. person, allowing the account to hold U.S. securities without disclosure to U.S. authorities.  NKB accepted another account from UBS that was owned by an individual who was a foreign national and U.S. resident.  At the time it approved the account, NKB was aware that the client left UBS because he was concerned about the U.S. government’s activities in investigating U.S. persons with accounts at that bank.  
During the Applicable Period, NKB held a total of 95 U.S.-related accounts with a peak value of assets under management of approximately $30.5 million.  NKB will pay a penalty of $856,000. 
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 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.
Note that the stated maximum for the accounts after August 1, 2008 and the penalty payments suggest that the banks were able to establish that many of the accountholders came into U.S. tax compliance.

Also, although the notice says that the price of OVDP has increased.  Actually, the offshore penalty price has increased.  Some of those U.S. persons may have profiles that permit an opt out (i.e., nonwillfulness) with a significantly lesser nonwillful penalty.

My updated statistics are:

US DOJ Swiss Bank Program
Number Resolved
Total Costs
   U.S. / Swiss Bank Initiative Category 1 (Criminal Inv.) *
   U.S. / Swiss Bank Initiative Category 2 **
   U.S. / Swiss Bank Initiative Category 3

   U.S. / Swiss Bank Initiative Category 4

Swiss Bank Program Results


* 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.

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