Tuesday, August 3, 2021

USAO SDNY and Bank of Butterfield Enter NPA (8/3/21)

The USAO SDNY has issued this press release:  Manhattan U.S. Attorney Announces Agreement With Bermudian Bank To Resolve Criminal Tax Investigation: The Bank of N.T. Butterfield & Son Limited Pays $5.6 Million in Forfeiture and Restitution; Receives Non-Prosecution Agreement as a Result of its Cooperation, here.  The combined NPA and Statement of Facts are linked in the press release; direct link is here.

Key excerpts from the press release:

Audrey Strauss, the United States Attorney for the Southern District of New York, Stuart M. Goldberg, Acting Deputy Assistant Attorney General of the Justice Department’s Tax Division, and James C. Lee, Chief of the Internal Revenue Service, Criminal Investigation (“IRS-CI”), announced today that Bank of N.T. Butterfield & Son Limited (“BUTTERFIELD”) entered into a non-prosecution agreement (“NPA”) with the U.S. Attorney’s Office and agreed to pay $5.6 million to the United States for assisting U.S. taxpayer-clients in opening and maintaining undeclared foreign bank accounts from 2001 through 2013.  The NPA was based on BUTTERFIELD’s extraordinary cooperation, including its efforts in providing 386 client files for non-compliant U.S. taxpayer-clients, and provides that BUTTERFIELD will not be criminally prosecuted.  The NPA requires BUTTERFIELD to forfeit $4.896 million to the United States, representing certain fees that it earned by assisting its U.S. taxpayer-clients in opening and maintaining these undeclared accounts, and to pay $704,000 in restitution to the IRS, representing the approximate unpaid taxes arising from the tax evasion by BUTTERFIELD’s U.S. taxpayer-clients.

   * * * *

As part of the NPA, BUTTERFIELD admitted various facts concerning its wrongful conduct and the remedial measures that it took to cease that conduct.  Specifically, BUTTERFIELD admitted that it knew or should have known certain U.S. taxpayers were using their BUTTERFIELD accounts to evade their U.S. tax obligations, in violation of U.S. law.  BUTTERFIELD acknowledged that it helped certain U.S. taxpayer-clients conceal from the IRS their beneficial ownership of undeclared assets maintained in foreign bank accounts by: (i) maintaining undeclared accounts for U.S. taxpayer-clients that were held by sham entities – structures that had no legitimate business purpose – even though Bank personnel knew, or should have known, that the entities were being used to conceal the identities of the true account owners; and (ii) opening accounts and facilitating the transfer of funds for U.S. taxpayer-clients despite obvious red flags that the U.S. clients were using the accounts to maintain undeclared assets or commit tax evasion.

 The NPA recognizes that, in 2013, BUTTERFIELD implemented a series of remedial measures to stop assisting U.S. taxpayers evading federal income taxes.  The NPA further recognizes BUTTERFIELD’s cooperation, including its efforts to facilitate the production of approximately 386 client files for non-compliant U.S. taxpayers, which included the identities of those U.S. taxpayers.

 As part of the NPA, BUTTERFIELD has agreed to forfeit $4.896 million to the United States, representing the gross revenues from services that it provided to U.S. taxpayers with undeclared foreign bank accounts from 2001 through 2013.  In connection with this forfeiture, BUTTERFIELD has agreed not to contest a civil forfeiture action filed by the United States.

 The NPA requires BUTTERFIELD to continue to cooperate with the United States for at least three years from the date of the agreement.  In the event that BUTTERFIELD violates the NPA, the U.S. Attorney’s Office may prosecute BUTTERFIELD.

 Key excerpts from the NPA:


It is understood that Butterfield: * * * * ( d) specifically provide, as soon as practicable upon request, all items, assistance, information and documents  required to be produced by Swiss banks participating in the Program for Non- Prosecution Agreements or Non-Target Letters for Swiss Banks (the "Program") as set forth specifically in Parts II.D. l, 2 and 4 and Part II.F of the Program, and with respect to Part II.D.2, for accounts closed in the period from January 1, 2008 through December 31, 2020, in the format requested by this Office; *  * * * Unless otherwise specified below, Butterfield's obligations under subsections (a) through (f) of this paragraph shall continue for a period of three years from the date this Agreement is executed (the ''NPA Period").     * * *


* * * * The United States contends, and Butterfield agrees not to contest, that the facts contained in this Agreement, the civil forfeiture complaint to be filed against the Forfeiture Amount ("Civil Forfeiture Complaint"), and the Statement of Facts are sufficient to establish that the Forfeiture Amount being paid by Butterfield to the United States is subject to civil forfeiture to the United States and that this Agreement, and the accompanying Statement of Facts, may be attached to and incorporated into the Civil Forfeiture Complaint.

   * * *

Butterfield further agrees to make a restitution payment to the United States in the amount of $704,000 (the "Tax Restitution Amount"). Butterfield admits that the Tax Restitution Amount represents the approximate unpaid pecuniary loss to the United States as a result of the conduct described in the Statement of Facts.  The Tax Restitution Amount shall not be reduced by payments that have been made or may be made to the United States by U.S. taxpayers through the  Offshore Voluntary Disclosure Initiative and similar programs (collectively, "OVDI") before or after the date of this Agreement.

From the Statement of Facts:


[A] accounts open at the Bank's Bermuda and Cayman Islands operations that were held or beneficially owned by one or more U.S. taxpayer-clients accounted for approximately $433 million in assets under management.

JAT Summary:  Pages 1-3 then outline “the Offense Conduct” with some anecdotal examples of Butterfield's misconduct, which are the types of misconduct often performed by offshore banks in tax secrecy jurisdictions, with Swiss banks as the prime example.

 JAT Comments:

1.  The $704,000 in restitution seems low.  Given the amounts under management, I think there should have been more tax evaded (or attempted to evade).  Of course, Butterfield is not being given credit for tax paid in OVDI, so it may be that the bulk of the tax was paid so that the tax loss for restitution purposes might be low.  In other words, although Butterfield will not be given a reduction of the $704,000 for amounts paid in OVDI, perhaps the $704,000 is already net of some portion or all of the tax paid in OVDI.

2.  Note the odd working in the plea agreement that "The United States contends, and Butterfield agrees not to contest" the facts set forth in the various documents.  I would infer that there was some negative consequence to Butterfield to admit the truth of the facts and that Butterfiled convinced DOJ Tax and USAO SDNY to allow the wording.

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