Three More Banks Obtain NPAs under DOJ Swiss Bank Program (12/15/15)

On December 15, 2015, DOJ announced here that Crédit Agricole (Suisse) SA (CAS), Dreyfus Sons & Co Ltd, Banquiers (Dreyfus), and Baumann & Cie, Banquiers (Baumann) have entered NPAs under the DOJ program for Swiss banks, here.  The penalties are:

Crédit Agricole (Suisse) SA (CAS)	$99.211 million
Dreyfus Sons & Co Ltd, Banquiers (Dreyfus)	$24.161 million
Baumann & Cie, Banquiers (Baumann)	$7.7 million

Key excerpts are:

Following World War II, Dreyfus created Panama corporations to hold funds for clients.  This practice had its roots in the desire of Jewish clients to protect their assets for reasons of personal safety, and the purpose and operation of the entities was to conceal ownership of the assets from all government authorities, “friendly” or otherwise.  However, the practice extended well into the 2000s.  Among the Panama entity accounts created by Dreyfus are 33 U.S.-related accounts, the oldest of which opened in 1951. 

 The combined high value of these accounts was approximately $90 million.  The U.S. person beneficial owners of the Panama entity accounts were properly identified as beneficial owners of the entities on Forms A pursuant to Swiss know your customer rules.  However, the entities were identified as the beneficial owner on IRS Forms W-8BEN, when, as Dreyfus well knew, the true beneficial owners were U.S. persons.  Dreyfus employees – primarily the Deputy Chairman of the Executive Management, a former member of Dreyfus’s Board of Directors and Head of the Gérance division, which provides services mainly to corporate entities, and a former deputy manager – also served as corporate directors of the entities.  

With respect to at least two Panama entity accounts, the entity structure was used to conceal payments into the United States.  For example, one Panama entity account was opened in 1991 with a husband and wife, both U.S. nationals living in the United States, as beneficial owners.  The account, which had a high value of over $1 million during the period since Aug. 1, 2008, was opened with funds inherited from a relative with an account at Dreyfus.  Beginning in 2008, checks in amounts between $4,000 and $5,000 each were sent to the husband and the couple’s three sons in the United States on a regular basis.  In total, 205 checks with a combined value of approximately $925,000 were sent to the individual family members in the United States.  Dreyfus’s efforts to convince the beneficial owners to disclose the account were unsuccessful, and the account was closed in 2012 without being disclosed to U.S. authorities. 

For four Panama entity accounts, Dreyfus allowed the accounts to be closed in the form of bearer shares, which assisted in the further concealment of assets in the accounts.  A bearer share is a security that is not required to be registered and which can be transferred without an endorsement of any kind.  Thus, a bearer share is negotiable by whoever possesses it.  For example, an individual can purchase shares from an issuer and exchange the shares for cash at a financial institution that redeems bearer shares or may give the shares to another individual, who may exchange the shares for cash.  The four Panama entities used assets in the accounts to purchase bearer shares at Dreyfus, with the shares then physically delivered to representatives of the Panama entities in closure of the accounts.  Because the shares could then be delivered to the U.S. persons whose assets were converted to bearer shares, or to anyone else, funds from these accounts left Dreyfus in a virtually untraceable manner.  With respect to these four accounts, over $4 million in assets left Dreyfus in the form of bearer shares.    

* * * *

The majority of Baumann’s U.S. clients structured their accounts so that they appeared as if they were held by a non-U.S. legal structure, such as an offshore corporation or trust, which aided and abetted the clients’ ability to conceal their undeclared accounts from the IRS. Baumann was not involved in setting up these entities, but those entities were generally created or serviced by a few Zurich-based lawyers with whom the relationship managers in Baumann’s Zurich branch were personally acquainted. In the period since Aug. 1, 2008, Baumann opened U.S.-related accounts for non-U.S. structures, such as offshore corporations or trusts.  These offshore entities included British Virgin Islands, British West Indies, Panama and Seychelles corporations, as well as Liechtenstein foundations, all of which were established by external law firms. 

As one example, Baumann opened an account in June 2009 for a Panama corporation, established in 2000, where the beneficial owner as listed on Form A was a U.S. citizen domiciled in the United States.  This person was a retired lawyer living in Las Vegas.  The beneficial owner provided a U.S. passport upon opening the account, which was funded by $27 million from the accountholder’s account at another bank.  The accountholder signed Baumann’s compliance form indicating that the Panama corporation was in fact the beneficial owner of the assets for U.S. tax withholding purposes when Baumann knew or should have known this was untrue. 

Baumann offered a variety of other traditional Swiss banking services that, although available to all its clients, it knew could assist, and did assist, its U.S. clients in concealing their undeclared assets and income.  Among other things, Baumann opened numbered accounts and held bank statements and other mail relating to some U.S.-related accounts at Baumann’s offices in Switzerland, rather than sending the statements and mail to the U.S. taxpayers in the United States.  

Regarding one numbered account, in July 2010, the clients transferred $2 million to an account at Baumann from an account at Credit Suisse.  The taxpayers were American horse breeders who had granted a power of attorney to an external asset management company based in Zurich.  That external asset manager introduced the clients to Baumann, and Baumann was instructed to retain the correspondence, to send copies to the clients’ external asset manager and not to invest in U.S. securities.  In 2010 and 2011, Baumann was instructed to make repeated payments of under $10,000 to a U.S. bank account in the name of a U.S.-based coin dealer.  From June to August 2011, the clients instructed Baumann to buy 2,279 pieces of Krugerrand gold coins, at that time worth approximately $3.7 million.  In September 2011, the clients instructed Baumann to close the account.  The remaining assets were withdrawn in cash, and the account closed in 2011.

The 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 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.) *	16	4	$3,470,550,000
U.S. / Swiss Bank Initiative Category 2 **	93	66	$742,021,990
U.S. / Swiss Bank Initiative Category 3	14		$0
U.S. / Swiss Bank Initiative Category 4	8		$0
Swiss Bank Program Results	131		$4,212,571,990
* 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.

Addendum 12/16/15 9:45am:

A TNT article today emphasizes the importance of U.S. taxpayer disclosures of the accounts in reducing the penalty amount. Nathan J. Richman & Tom Kasprzak, DOJ Gets 2 More Substantial Swiss Bank Penalties, 2015 TNT 241-6 (12/16/15):

Further, the CAS and Dreyfus NPAs illustrate the importance of account disclosure for determining the penalty amount. Both CAS and Dreyfus had over 850 U.S.-related accounts (954 for CAS and 855 for Dreyfus) and approximately $1.8 billion each in U.S.-related account assets under management, and yet CAS paid four times as large a penalty. (Prior coverage 2015 TNT 109-5: News Stories.)

As readers will recall, the Category 2 penalty base does not include amounts that were either originally disclosed or disclosed pursuant to the IRS's offshore programs.  One would infer that CAS was less successful than Dreyfus in encouraging its depositors to submit to CAS proof that they had disclosed (if they had disclosed).  One would also infer that those taxpayers consisted of some that had disclosed and did not submit proof of disclosure and taxpayers who had not disclosed.  The latter group is almost certainly at some risk of further IRS and DOJ interest.