Swiss Bank BSI SA Is First to Get NonProsecution Agreement; Pays $211 Million (3/31/15)

Swiss Bank BSI SA has entered a nonprosecution agreement with DOJ Tax regarding its tax evasion assistance to U.S. persons.  The key documents related to the NPA are:

1. The NPA, here.
2. NPA Exhibit A, Statement of Facts, here.
3. NPA Exhibit B, BSI SA Board Resolution, here.

Also, DOJ had the following statements or press releases:

1. General press release, here.
2. Statement of Caroline Ciraolo, Acting Assistant Attorney General (Tax), here.
3. Stuart F. Delery, Acting Associate Attorney General, here.

Here are some selected excerpts from the press release (eliminating the promotional aspects) (bold-face supplied by JAT):

According to the terms of the non-prosecution agreement signed today, BSI agrees to cooperate in any related criminal or civil proceedings, demonstrate its implementation of controls to stop misconduct involving undeclared U.S. accounts, and pay a $211 million penalty in return for the department’s agreement not to prosecute BSI for tax-related criminal offenses. 

* * * * 

BSI helped its U.S. clients create sham corporations and trusts that masked the true identity of its U.S. accountholders.  Many of its U.S. clients also opened “numbered” Swiss bank accounts that shielded their identities, even from employees within the Swiss bank.  BSI acknowledged that in order to help keep identities secret, it issued credit or debit cards to many U.S. accountholders without names visible on the card itself.  

BSI not only helped U.S. clients shield their identity from the Internal Revenue Service (IRS). but helped them repatriate cash as well.  BSI admitted that its relationship managers and their U.S. clients used code words in emails to gain access to funds.  BSI disclosed instances where its U.S. clients would use coded language, such as asking their private bankers, “can you download some tunes for us?” or note that their “gas tank is running empty” when they required additional cash to be loaded to their cards. 

From the beginning of the Swiss Bank Program, the department has emphasized the importance of the banks’ helping to identify individuals who facilitate U.S. tax evasion and U.S. accountholders.  BSI provided substantial assistance in this regard.

“An individual is not culpable simply because he or she is identified by a bank within the program,” said Acting Assistant Attorney General Caroline D. Ciraolo of the department’s Tax Division.  “With that said, the department strongly encourages those individuals and entities currently under indictment, under investigation, or who have concerns regarding their potential criminal liability to contact and fully cooperate with the department to reach a final resolution.” 

* * * *
BSI had more than 3,000 active United States-related accounts after 2008, many of which it knew were not disclosed in the United States.  In resolving its criminal liabilities under the program, BSI provided extensive cooperation and encouraged hundreds of U.S. accountholders to come into compliance.  BSI is also assisting with ongoing treaty requests. 

* * * * 

While BSI’s U.S. accountholders who have not yet declared their accounts to the IRS may still be eligible to participate in the IRS’s offshore voluntary disclosure programs, 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 BSI’s non-prosecution agreement, its noncompliant U.S. accountholders must now pay that 50 percent penalty to the IRS if they wish to enter the IRS’ program.  

BSI and other banks in the Swiss Bank Program are also providing detailed information to the department about transfers of money from Switzerland to other countries.  The Tax Division and the IRS intend to follow that money to uncover additional tax evasion schemes. 

The department has emphasized the importance of identifying U.S. accountholders who have undeclared foreign bank accounts, and BSI has provided assistance in that task.  Because of the information provided to the department under the program, the Tax Division has already begun the process of identifying noncompliant U.S. accountholders who have maintained accounts at many Swiss banks participating in the Swiss Bank Program. 

The following is from Douwe Miedema, Karen Freifeld and Alice Baghdjian, UPDATE 4-BSI becomes first Swiss bank to settle under U.S. tax programme (Reuters 3/31/15), here.

BSI apparently had more U.S. account holders than many other banks in the programme, a reason for the sizeable penalty, according to Washington, D.C., attorney Scott Michel, who represents banks and individuals who have made voluntary disclosures. 

The BSI agreement also has substantial implications for account holders, the lawyer noted. 

If a U.S. taxpayer has an unreported account at a Swiss bank and enters the offshore disclosure programme, the account holder has to pay a penalty equal to 27.5 percent of the high balance in the account, he said. 

However, once a bank becomes the publicly announced subject of an investigation or enforcement action, the penalty rises to 50 percent. "For any American with an unreported account at BSI, their effective cost has essentially doubled today," Michel said.

JAT Comment:  I  would just add one nuance to the statements that the cost of coming clean for U.S. taxpayers with deposits in BSI has substantially increased is a bit of an overstatement.  Certainly, for those taxpayers joining OVDP and not opting out, the offshore penalty price has increased from 27 1/2 % to 50%.  But, that offshore penalty penalty is for the bad actors.  The good actors can still join, opt out and get a better audit result.  And, the good actors who don't join OVDP may get audited as a result of BSI's disclosures or otherwise, but will get a better result than the offshore penalty on audit.

The IRS List of "Foreign Financial Institutions or Facilitators" which will draw the 50% offshore penalty is here.  As of this writing, BSI Bank is not included, but presumably will be added shortly.  And the reports are that a significant number of announcements of other NPAs will follow shortly, so that the list will be supplement with those banks as well.  [Addendum 4/14/15:  A reader just advised that BSI Bank was added to the list effective 3/30/15, the date of the announcement.]