Some Swiss Banks Spin Their Self-Identification as Category 2 Banks (1/2/14)

Some Swiss banks are in full spin mode, explaining why they are joining category 2.  Just to remind readers, Category 2 is defined as follows (emphasis supplied):

 A. Any Swiss Bank
  1. as to which the Tax Division has not authorized a formal criminal investigation concerning its operations as of August 29, 2013 (i.e., that is not a Category 1 Bank);
  2. that is not a Category 4 Bank; and
  3. that has reason to believe it may have committed tax-related offenses under Titles 18 or 26, United States Code, or monetary transactions offenses under §§ 5314 or 5322, Title 31, United States Code, in connection with undeclared U.S. Related Accounts held by the Swiss Bank during the Applicable Period,

I guess that the use of the word "may" offers some wiggle room for banks to argue / spin that joining Category 2 is protective only and not an admission of guilt of violating U.S. law.  Consider the following article:  Peter Siegenthaler, Zug bank says US disclosure is not a guilty plea (Swissinfo.ch 12/27/13), here.  Key excerpts are:

Category Two banks acknowledge that they may have some US assets on their books and may be liable for fines even if they only have a single US tax evader as a customer.

Pascal Niquille, chief executive officer of Zug Cantonal Bank, explains why his institution has opted for this category.

swissinfo.ch: Banks which are classified in Category Three, like Bank Vontobel, are giving themselves a clean bill of health. Is classification in Category Two, on the other hand, the same as a guilty plea? 

Pascal Niquille: This opposite conclusion is invalid and superficial. The range of banks classified in Category Two is very broad in terms of the business model. 

 At one end there are banks, such as the Zug Cantonal Bank, which never really pushed this business and were never active in the American market. If you happen to be in a very international place like Zug where there are people from 127 countries, it is normal that there will also be people from the US. At the other end of the spectrum, there are banks that have actively pursued business with customers in the US and still are. 

swissinfo.ch: What considerations were key to your decision? 

P.N.: The criteria for the classification into these categories are so narrow that even a bank with a single case in which a US customer has not fulfilled his tax liability should not be classified in Category Three or Four. It is consistent with our risk behaviour to err on the side of caution. 

swissinfo.ch : In your communiqué, you write that Zug Cantonal Bank cannot rule out it may have been sporadically involved in customers’ tax offences. With this passive formulation are you implying that the bank may have been drawn into a customer’s offence but certainly hasn’t actively contributed to it? 

P.N.: This is about customers who have ties to the US, who are taxable in the US and may not have properly fulfilled their tax obligations. Just maintaining a relationship with such customers could already amount to “support for non-compliance of legal requirements” as far as the US is concerned.

A Tax Crimes Fable - Plea Dilemmas for the Innocent Defendant (3/9/09)

Once upon a time a major accounting firm looking for revenue and thus profits began a tax shelter operation. The tax shelter operation involved accounting firm personnel at the center (the designers and the decision makers that the strategy should be promoted) and personnel at the periphery in the regional offices of the firm who would market the shelter designed and approved by those at the center. Persons outside the firm were engaged to design and implement a trading strategy that would, at least facially, support the shelter. One such person was a true market expert who designed a trading program that, while independent of the tax rules play giving rise to the shelter, would be wrapped into it to supply the claimed profit motive. A lawyer with an independent law firm worked with this team to refine the program in a way that he felt would give him a basis for rendering a more likely than not tax opinion to the taxpayers buying into the shelter. The tax shelter was successfully marketed. Billions of dollars of tax liability escaped the fisc. The Government was not happy and spied a conspiracy with a cast of hundreds. In a first wave, the Government convinced the grand jury to indict the promoters. The promoters indicted included 12 of those at the center (including accounting firm personnel, the outside lawyer, and the market expert) and three of those in the field whose only role was to sell the shelter. The indictment alleged an overall conspiracy (both offense and defraud / Klein conspiracy) and 39 substantive counts of tax evasion (with perhaps overlapping Pinkerton and accomplice aiding and abetting liability for those not directly involved in some or all of the substantive counts) with respect to the shelters sold.

The Government then tried to pick off some of the vulnerable defendants to offer a plea. The plea negotiation went like this: If we are successful in prosecution, you (the defendant being solicited for the plea) are at risk of a sentence that the Guidelines (then mandatory) pegged at a low range of 25 years. The Government’s first offer to shake this defendant down was for 2 counts of tax evasion (maximum 10 year sentence). Getting a no, the Government then sweetened the pot with a 1 tax evasion count offer (maximum 5 year sentence). The defendant who has always maintained his innocence is a rational actor and is tempted by the new offer. Being a rational actor and knowing the risks that he might be tarred by being included in a conspiracy where there are some persons with less compelling objective facts than his, he perceived that a certain cap at 5 years, even with the loss of some civil liberties, would be better than the risks of going to trial – to wit up to 25 years. He wanted the 1 proffered count but he was unwilling to profess guilt in order to get the plea. The fable ends there with his dilemma.

Comments:

1. The concept of permitting a truly innocent defendant to plea to and be convicted of a crime that he did not commit is disturbing but it does illustrate a truth. In our system, the innocent are convicted because those involved in prosecuting, determining guilt and imposing punishment draw the wrong conclusion (even when that may be a – or even the – logical conclusion from the incomplete evidence).