One More Bank Obtains NPA under DOJ Swiss Bank Program (11/13/15)

On November 13, 2015, DOJ announced here that Standard Chartered Bank (Switzerland) SA, en liquidation (SCB Switzerland) has entered an NPA under the DOJ program for Swiss banks, here.

The penalty is:

Standard Chartered Bank (Switzerland) SA, en liquidation (SCB Switzerland)

$6.337 million

Here are key excerpts:

SCB Switzerland is a private bank with a single office located in Geneva, Switzerland.  It is a wholly owned subsidiary of Standard Chartered PLC, a British multinational banking and financial services company headquartered in London. SCB Switzerland joined the Standard Chartered group of entities (the Standard Chartered Group) in May 2008 when Standard Chartered PLC acquired American Express Bank Ltd. As part of that acquisition, Standard Chartered Group acquired American Express Bank (Switzerland) SA, a private bank incorporated in Switzerland in 1987, which thereafter operated under the name SCB (Switzerland) SA. 

In early 2014, the Standard Chartered Group decided to cease its Swiss private banking operations for commercial reasons. SCB Switzerland is now in voluntary formal liquidation. Subject to Swiss regulatory approval, SCB Switzerland expects to return its banking license at the end of 2015, and then the entity will continue to exist as a corporation in liquidation until at least the end of 2018, without banking status or supervision by Swiss Financial Market Supervisory Authority FINMA and with no operations other than completing the wind down. 

Through its employees and others, SCB Switzerland knew or should have known that some of the U.S. persons who opened or maintained accounts at SCB Switzerland may not have complied with their U.S. income tax and reporting obligations.  By establishing and maintaining such accounts, SCB Switzerland provided assistance to certain U.S. persons in evading their U.S. tax obligations. Among other things, SCB Switzerland:

• Agreed to hold account statements and other mail relating to some U.S.-related accounts;
•  Provided account statements and other documentation to the accountholder which contained only the account number in order to further insure the secrecy of the identity of the accountholder; and
• Agreed to hold account statements and other mail relating to some U.S.-related accounts;
• Provided account statements and other documentation to the accountholder which contained only the account number in order to further insure the secrecy of the identity of the accountholder; and
• Accepted and included in its account records Internal Revenue Service (IRS) Forms W-8BEN (or equivalent documents) provided by the directors of the offshore companies that falsely represented that such companies were the beneficial owners of the assets in those accounts for U.S. federal income tax purposes.

SCB Switzerland opened and maintained accounts for certain U.S. persons in the name of structures, including trusts created by American Express and inherited and maintained by affiliates of SCB Switzerland, which served as the nominal accountholders of bank accounts that held assets that, in reality, belonged to U.S. persons.  SCB Switzerland adopted the Advisory Center/Booking Center Model from American Express Bank. This method allowed clients to book and hold accounts in any of Standard Chartered Group’s booking centers, including Geneva, while working with relationship managers at other locations throughout the world. The Group also acquired a trust center from American Express Bank. Trust services were available to eligible clients who wished to set up trusts or private investment companies. The trust centers were located in Guernsey, Singapore and the Cayman Islands. A client could create a trust structure in any one of the trust centers while opening an account in another booking center and working with a relationship manager in another advisory center. 

SCB Switzerland maintained one account held by a British Virgin Islands private investment company, of which the beneficial owner was a U.S. citizen. The beneficial owner had provided SCB Switzerland with a false W-8BEN, and SCB Switzerland was unaware of the U.S. citizenship of the beneficial owner until 2010.  In 2010, a compliance officer discovered the beneficial owner’s U.S. citizenship through a periodic review of the account that included an Internet search.  Nevertheless, SCB Switzerland maintained the account for approximately two years after discovering that the beneficial owner was a U.S. citizen. 

Since Aug. 1, 2008, SCB Switzerland held 22 U.S.-related accounts, comprising a peak of aggregated assets under management of $33.1 million. SCB Switzerland will pay a penalty of $6.337 million. 

In accordance with the terms of the Swiss Bank Program, SCB Switzerland 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 SCB Switzerland 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 SCB Switzerland must now pay that 50 percent penalty to the IRS if they wish to enter the IRS Offshore Voluntary Disclosure Program.

The bank 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 joining OVDP after one of their banks are listed will be subject to the 50% penalty in OVDP (provided that they do not opt out, in which case, who knows).

Here are the updated statistics for the Swiss Bank Program:

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 **	87	52	$426,432,990
U.S. / Swiss Bank Initiative Category 3	14		$0
U.S. / Swiss Bank Initiative Category 4	8		$0
Swiss Bank Program Results	126		$3,896,982,990
* 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.