Friday, August 7, 2015

Three More Swiss Banks Enter NPAs Under US DOJ Swiss Bank Program (8/7/15)

On August 6, 2015, DOJ announced here three other Swiss Banks have entered NPA resolutions under the DOJ program for Swiss banks.  The Swiss banks and their respective penalties are:

Privatbank Reichmuth & Co.
Banque Cantonale du Jura SA
Banca Intermobiliare di Investimenti e Gestioni (Suisse) SA
$ -0-

Key excerpts are:
Privatbank Reichmuth & Co. was founded in 1996 as an external asset management firm.  It is now a private bank headquartered in Lucerne, Switzerland.  Reichmuth knew that it was likely that certain U.S. customers who maintained accounts there were not complying with their U.S. income tax and reporting obligations.  
Reichmuth opened and maintained undeclared numbered or code name accounts for individual U.S. customers and held statements and other mail at its offices in Switzerland.  In the period since Aug. 1, 2008, Reichmuth opened at least 14 undeclared U.S.-related accounts that came from UBS or another bank under investigation by the department.  
In 2001, Reichmuth entered into a Qualified Intermediary (QI) Agreement with the Internal Revenue Service (IRS).  The QI Agreement took account of the fact that Reichmuth, like other Swiss banks, was prohibited by Swiss law from disclosing the identity of an accountholder.  In general, if an accountholder wanted to trade in U.S. securities and avoid mandatory U.S. tax withholding, the QI Agreement required Reichmuth to obtain the consent of the accountholder to disclose the client’s identity to the IRS. 
Reichmuth’s position was that it could assist U.S. accountholders that it knew or had reason to believe were engaged in tax evasion so long as its accountholders were prohibited from trading in U.S.-based securities or the account  was nominally structured in the name of a non-U.S. based entity.  In the latter circumstance, U.S. accountholders, with the assistance of their advisors, would create an entity, such as a Liechtenstein or Panama foundation, and pay a fee to third parties to act as directors.  Those third parties, at the direction of the U.S. accountholder, would then open a bank account at Reichmuth in the name of the entity or transfer a pre-existing Swiss bank account from another Swiss bank.  Reichmuth made no effort to determine whether such an entity was valid for U.S. tax purposes. 
Since Aug. 1, 2008, Reichmuth permitted U.S. customers to open and maintain at least 18 undeclared accounts held in the name of non-U.S. corporations, foundations, trusts or other legal entities.  Of these structures, seven were domiciled in Liechtenstein, five in Panama, five in St. Vincent and the Grenadines and one in the British Virgin Islands.  Even though Reichmuth was aware that U.S. persons were the beneficial owners of those accounts, Reichmuth obtained documents from the nominal accountholders that falsely declared they were not U.S. taxpayers.  
In connection with one structured account, Reichmuth agreed to open an “insurance wrapped” account for the U.S. beneficial owner, whereby the beneficial owner funded an insurance policy with assets held in an undeclared account at Reichmuth.  While the insurance-wrapped account was held in the name of a Panamanian structure and Reichmuth was not named as a party to the insurance contract, the assets held in the account were provided by the beneficial owner, held for his benefit and controlled by him.  Reichmuth was aware that the account consisted of assets supplied by the beneficial owner and retained for his benefit.  By accepting this account, Reichmuth knowingly enabled the beneficial owner in the evasion of his U.S. tax liabilities and concealment of his assets. 
Since Aug. 1, 2008, Reichmuth maintained and serviced 103 U.S.-related accounts with an aggregate value of approximately $281 million, including both declared and undeclared accounts.  Reichmuth will pay a penalty of $2.592 million. 
Banque Cantonale du Jura SA (BCJ) was formed in 1979 and is headquartered in Porrentruy, Switzerland.  BCJ opened and maintained undeclared accounts for certain U.S. client taxpayers knowing or having reason to know that by doing so, BCJ likely helped these U.S. taxpayers evade their U.S. tax obligations.  BCJ was aware, or should have been aware, that this conduct violated U.S. law.
BCJ 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, file false federal tax returns with the IRS and otherwise hide accounts held at BCJ from the IRS.  Those services included opening accounts identified solely by pseudonyms, rather than by the names of the accountholders, and hold mail service.  In at least two instances, BCJ permitted U.S. persons to transfer funds from accounts held at banks under investigation by the department into pre-existing accounts at BCJ.  It also processed cash withdrawals for U.S. accountholders in sums below $10,000 on numerous occasions and, in at least two cases, withdrawing larger sums of cash when closing their accounts. 
Due in part to the assistance of BCJ and its personnel, and with the knowledge that Swiss banking secrecy laws would prevent BCJ from disclosing their identities to the IRS, some of BCJ’s U.S. clients filed false and fraudulent U.S. Individual Income Tax Returns (IRS Forms 1040) which failed to report their respective interests in their undeclared accounts and the related income.  Some of BCJ’s U.S. clients also failed to file and otherwise report their undeclared accounts on Reports of Foreign Bank and Financial Accounts (FBARs). 
As part of its cooperation throughout the Swiss Bank Program, BCJ has provided certain account information related to U.S. taxpayers that may assist the government in making requests under the 1996 Convention between the United States 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, BCJ had 18 U.S. clients with a total of 118 U.S.-related accounts.  The aggregate amount of assets under management of all accounts associated with U.S. taxpayers at BCJ was approximately $10 million.  BCJ will pay a penalty of $970,000.    
Banca Intermobiliare di Investimenti e Gestioni (Suisse) SA (BIM Suisse) was established in 2001 and is located in Lugano, Switzerland.  BIM Suisse opened and maintained undeclared accounts for some U.S. taxpayers with the knowledge that by doing so, BIM Suisse was helping these U.S. taxpayers violate their legal duties.  BIM Suisse agreed to hold bank statements and other mail relating to the accounts at BIM Suisse, rather than send them to U.S. taxpayers located in the United States, to ensure that documents reflecting the existence of the accounts remained outside the United States and beyond the reach of U.S. tax authorities. 
In January 2002, BIM Suisse entered into a QI Agreement with the IRS.  BIM Suisse subverted the terms of that agreement by failing to fully comply with both its withholding and reporting obligations to the IRS, thus enabling U.S. accountholders to avoid reporting their accounts to the U.S. authorities. 
Between Aug. 1, 2008, and May 2015, BIM Suisse closed 13 of its 16 U.S.-related accounts.  As of July 2015, BIM Suisse maintains only three U.S.-related accounts, and none of those accounts remain undisclosed to the U.S. tax authorities.  Under the terms of the agreement signed today, BIM Suisse will not pay a penalty. 
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.
These banks will be added to the IRS's Foreign Financial Institutions or Facilitators, here.  As indicated in the last quoted paragraph, accountholders in the listed banks will be subject to the 50% penalty in OVDP (provided that they do not opt out, in which case, who knows).

The 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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