Swiss Cantonal Banks and the U.S. Tax Juggernaut (12/18/13)

I am currently supplementing my master spreadsheet to include the banks entering the U.S. / Swiss initiative.  Within the past week, a number of Swiss Cantonal Banks have announced that they will join the initiative as "Category 2" Banks.  Category 2 Banks are as announced in the agreement (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,

So, assuming that these banks are honest at this stage, they are admitting that they have "reason to believe" that they committed U.S. tax related and monetary transaction offenses.

So, what exactly are Swiss Cantonal Banks?

The main web pages for those banks as a group is here.  Another page on that site, here, provides the following description (emphasis supplied):

Cantonal Banks 

The 24 Cantonal Banks are modern, independent institutions that are required to be managed in  accordance with proper business principles. They are either 100% or majority-owned by the cantons. Consequently, they differ from one another in their legal and organisational structure.  

The history of the Cantonal Banks goes back more than a hundred years. They have been offering low-cost loans and secure investment opportunities since the 19th century. The individual Cantonal Banks operate primarily in the market of their home canton, where many of them are the market leaders. 

The Cantonal Banks recognise their social and economic responsibility towards their customers, employees and sponsoring cantons. All the Cantonal Banks together account for around 30% of banking business in Switzerland and have a combined balance sheet total about 420 billion Swiss francs.

Wikipedia Entry here:

Cantonal banks (German: Kantonalbank, French: banque cantonale, Italian: banca cantonale) are Swiss government-owned commercial banks, which are provided by the canton in which they are based with a guarantee for the assets held there. Currently they are in the process of being partially privatised. The cantonal banks are organised and regulated by the Association of Swiss Cantonal Banks, with its office in Basel. As a group, the cantonal banks account for about 30% of the banking sector in Switzerland, with a network of over 800 branches and 16 000 employees in Switzerland. 

There are 24 cantonal banks, one in each canton of the country, except for the cantons of Appenzell Ausserrhoden, which sold its bank to banking rival UBS, and Solothurn, which privatised its bank in 1995 after a scandal. Each bank uses a distinctive motif as the logo, with a cantonal colour on white used as the colours of the bank, e.g. light blue for Zürcher Kantonalbank (Zurich Cantonal Bank). Despite appearances, cantonal banks are not small private banks: in fact two of them, Zürcher Kantonalbank and Banque Cantonale Vaudoise, are the third and fourth biggest banks in Switzerland (after UBS AG and Credit Suisse).

The following Swiss Cantonal Banks are reported to be under criminal investigation and thus are Category 1 banks: Basler Kantonalbank and Zürcher Kantonalbank.

Addendum 12/19/13 12:30pm:

I am a little surprised that, as of this point, there have been no comments on these developments with respect to the Cantonal Banks.  I left unsaid what I thought was noteworthy, so I will make some comments.

The Cantonal Banks are government-owned banks which claim to recognize social responsibility.  Yet, two are under criminal investigation, which in the context, means that they are considered among the more serious U.S. tax offenders.  Another 10, according to my list, have indicated that they will join the initiative under Category 2 which, as I noted above is the category designed for the banks who believe they have committed U.S. tax and money transaction offenses.  I don't think Category 2 is intended banks having the isolated, rogue bankers acting independently.  The only banks at risk of criminal prosecution and thus having need of Category 2 protection are banks with sufficient common activity that the activity could implicate the corporate responsibility of the banks.  In the U.S. entities are not prosecuted for independent, rogue actions of employees, otherwise all entities would be subject to criminal prosecution.  Only when the actions of employees reach critical mass are then deemed to represent the organization and can and should subject the criminal organization to prosecution.

Given that banks joining the program with the counsel of sophisticated U.S. lawyers, they must recognize that they had in their banks systemic issues that reached significantly high up that the banks were at risk of criminal prosecution.

My point was that these were government owned banks which claim to "recognise their social and economic responsibility towards their customers, employees and sponsoring cantons."  If the actions were sufficient to raise a risk of criminal prosecution, those at high levels must have known or, to use the common phrase, had reason to know of these activities.

Of course, these cantonal banks were not the only offenders.  There were others.  It is just that it strikes me as particularly telling that government-owned banks allowed this type of misbehavior.