Thursday, May 28, 2015

4 More Swiss Banks Obtain NPAs Under DOJ Program (5/28/15)

In a news release today, here, DOJ Tax announces that the following banks have reached NPAs under the DOJ Swiss Bank Program, here:
  • Société Générale Private Banking (Lugano-Svizzera)
  • MediBank AG
  • LBBW (Schweiz) AG
  • Scobag Privatbank AG
The NPAs are available by link in the press release.

Key excerpts (emphasis supplied by JAT):
Société Générale Private Banking (Lugano-Svizzera) SA (SGPB-Lugano) was established in 1974 and is headquartered in Lugano, Switzerland.  Through referrals and pre-existing relationships, SGPB-Lugano accepted, opened and maintained accounts for U.S. taxpayers, and knew that it was likely that certain U.S. taxpayers who maintained accounts there were not complying with their U.S. reporting obligations.  Since Aug. 1, 2008, SGPB-Lugano held and managed approximately 109 U.S.-related accounts, with a peak of assets under management of approximately $139.6 million, and offered a variety of services that it knew assisted U.S. clients in the concealment of assets and income from the Internal Revenue Service (IRS), including “hold mail” services and numbered accounts.  Some U.S. taxpayers expressly instructed SGPB-Lugano not to disclose their names to the IRS, to sell their U.S. securities and to not invest in U.S. securities, which would have required disclosure and withholding.  In addition, certain relationship managers actively assisted or otherwise facilitated U.S. taxpayers in establishing and maintaining undeclared accounts in a manner designed to conceal the true ownership or beneficial interest in the accounts, including concealing undeclared accounts by opening and maintaining accounts in the name of non-U.S. entities, including sham entities, having an officer of SGPB-Lugano act as an officer of the sham entities, processing cash withdrawals from accounts being closed and then maintaining the funds in a safe deposit box at the bank and making “transitory” accounts available, thereby allowing multiple accountholders to transfer funds in such a way as to shield the identity and account number of the accountholder.  SGPB-Lugano will pay a penalty of $1.363 million. 
Created in 1979 and headquartered in Zug, Switzerland, MediBank AG (MediBank) provided private banking services to U.S. taxpayers and assisted in the evasion of U.S. tax obligations by opening and maintaining undeclared accounts.  In furtherance of a scheme to help U.S. taxpayers hide assets from the IRS and evade taxes, MediBank failed to comply with its withholding and reporting obligations, providing “hold mail” services and offering numbered accounts, thus reducing the ability of U.S. authorities to learn the identity of the taxpayers.  After it became public that the Department of Justice was investigating UBS, MediBank hired a relationship manager from UBS and permitted some of that person’s U.S. clients to open accounts at MediBank.  Since Aug. 1, 2008, MediBank had 14 U.S. related accounts with assets under management of $8,620,675.  MediBank opened, serviced and profited from accounts for U.S. clients with the knowledge that many likely were not complying with their U.S. tax obligations.  MediBank will pay a penalty of $826,000. 
LBBW (Schweiz) AG (LBBW-Schweiz) was established in Zurich in 1995.  Since August 2008, LBBW-Schweiz held 35 U.S. related accounts with $128,664,130 in assets under management.  After it became public that the department was investigating UBS, LBBW-Schweiz opened accounts from former clients at UBS and Credit Suisse.  Despite its knowledge that U.S. taxpayers had a legal duty to report and pay tax on income earned on their accounts, LLB permitted undeclared accounts to be opened and maintained, and offered a variety of services that would and did assist U.S. clients in the concealment of assets and income from the IRS.  These services included following U.S. accountholders instructions not to invest in U.S. securities and not reporting the accounts to the IRS and agreeing to hold statements and other mail, causing documents regarding the accounts to remain outside the United States.  LBBW-Schweiz will pay a penalty of $34,000. 
Headquartered in Basel, Switzerland, Scobag Privatbank AG (Scobag) was founded in 1968 to provide financial and other services to its founders, and obtained its banking license in 1986.  Since August 2008, Scobag had 13 U.S. related accounts, the maximum dollar value of which was $6,945,700.  Scobag offered a variety of services that it knew could and did assist U.S. clients in the concealment of assets and income from the IRS, including “hold mail” services and numbered accounts.  Scobag will pay a penalty of $9,090. 
In accordance with the terms of the program, each bank mitigated its penalty by encouraging U.S. accountholders to come into compliance with their U.S. tax and disclosure obligations.  While U.S. accountholders at these banks who have not yet declared their accounts to the IRS may still be eligible to participate in the IRS Offshore Voluntary Disclosure Program, 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 these non-prosecution agreements, noncompliant U.S. accountholders at these banks must now pay that 50 percent penalty to the IRS if they wish to enter the IRS Offshore Voluntary Disclosure Program.
The list of banks subject to the 50% penalty for U.S. taxpayers joining OVDP, called the Foreign Financial Institutions or Facilitators, is here.  As of this writing, the four banks discussed above have not been added.

Addendum 5/29/15 8:00 am:

In the Société Générale Private Banking NPA, here, the following paragraph appears (par. 2, p. 5):
2. Société Générale Private Banking (Lugano-Svizzera) SA agrees to close as soon as practicable, and in no event later than two years from the date of this Agreement, any and all accounts of recalcitrant account holders, as defined in Section 1471(d)(6) of the Internal Revenue Code; has implemented, or will implement, procedures to prevent its employees from assisting recalcitrant account holders to engage in acts of further concealment in connection with closing any account or transferring any funds; and will not open any U.S. Related Accounts except on conditions that ensure that the account will be declared to the United States and will be subject to disclosure by Société Générale Private Banking (Lugano-Svizzera) SA.
The same paragraph appears in the other NPAs.

The point is that these banks are not required to decline U.S. depositors so long as the banks comply with the law.  Some readers have claimed that some banks refuse to serve U.S. customers, perhaps from fear of inadvertent errors that could lead to prosecution (in U.S. law inadvertent errors do not lead to prosecution for tax crimes) or not willing to bear the compliance costs of FATCA.  Those would be business decisions that some banks could conceivably make.  But, since all significant sized banks will become FATCA compliant, the additional cost of servicing U.S. customers would not, from a cost perspective, motivate profit-oriented banks to turn away the business.  So, subject to perhaps some temporary disruptions in service as banks get comfortable with FATCA, it would seem to me that U.S. customers with legitimate foreign banking needs will likely be able to have those needs met.


  1. These are all small potatoes in the lines of accounts, but I suspect will be the average cases for most of the Category 2. Meaning, it is going to become clear to the US DOJ that UBS was the biggest (obviously) and these smaller banks simply did not have much in the lines of US clientele. Under 20 accounts per bank or less is going to be interesting to watch play out.

    Of further note:

    MediBank - Closed all US accounts in 2009:

    15. In 2009, the Management Board, with participation of the then-Chairman of the
    Board, decided to terminate all U.S. account relationships in response to the issues at UBS.
    Starting in 2009, the Management Board requested that the Relationship Manager brought to
    MediBank from UBS close his U.S. accounts.

    Société Générale Private Banking - Closed all accounts for US domiciled persons/entities/UBOs starting 2008.

    19. Following implementation of the Dodd-Frank Act in 2012, SGPB-Lugano decided to
    cease providing financial services to U.S. residents, companies registered in the United
    States, or non-U.S. "domiciliary" companies when at least one beneficial owner was a
    U.S. person domiciled in the United States. Any person who established a permanent
    address in the United States could no longer remain a client ofthe Bank. In 2012, the
    Bank issued a directive (the "2012 directive") concerning its cross-border activities.
    The 2012 directive generally required that all services be rendered in compliance with
    local laws and regulations. Additionally, in 2012, the Bank reinforced the 2008 policy
    and established a new policy prohibiting the provision of financial services to U.S.
    residents, companies registered in the United States, or non-Ll.S, "domiciliary"
    companies having a U.S. resident as at least one beneficial owner. At the direction of
    SGPB-Suisse, the Bank began to close pre-existing accounts that fell into one of those
    categories. (snip)

    20. The Bank closed 101 U.S. Related Accounts with a total of assets under management
    of $95,680,588 since August 1, 2008.

  2. It may be that rather than letting a less or non-culpable bank transition to category 3, they are keeping them in category 2 with a small(in some cases insignificant) fine. Is it preferable from a banks point of view to have an NPA rather than a category 3 letter? Scobag paid $9,090 for their NPA. Of course, they did have other legal and compliance costs.
    A few days ago, Jack posted a comment with a link to an article where someone from the IRS said they had issued 7 John Doe Summons. Now exactly 7 private banks have obtained their NPA agreement. Maybe that is just a coincidence?
    I'm not sure why the hold mail is such a big deal. I hold my mail on all bank statements. I can just get them online if I want which is more convenient for many reasons. What is the threat of mailing a bank statement to the US? Does the IRS read your mail? There may be other reasons why you don't want statements mailed to your house. Maybe you don't want your wife or cleaning person to see what you are worth.
    If the facts of the case with these 4 banks is typical of the remaining cases, then I don't think anybody is going to be impressed. The amount of the fines is trending down as are the number of accounts. Will the total of all the category 2 fines even cover the DOJ/IRS's costs to administer the program? Wouldn't their time be better spent fighting fraudulent tax returns, ID theft or earned income tax credit fraud? Given the fact that over 100,000 returns were recently hacked, you would think that would be the greater threat to the US tax system. I don't think there is anywhere near 100,000 US related accounts in Switzerland. Plus the 100,000 hacked returns is just the tip of the iceberg.

  3. Someone who started reporting foreign accounts several years ago (or who closed them) may only have one year open under the FBAR SOL (After 6/30/2015, years 2009-2014 are still open under the six year SOL.) The worst case scenario would be a 50% willful penalty, which would be the same as the 50% FBAR penalty for those with accounts at the named banks. So one possible course of action would be OVDI and opt out (opt out result cannot be worse than the in-program 50%, and would likely save money because some tax years would be outside SOL) or even QD or doing nothing (continuing the go-forward that started years ago. Such options would be more attractive to those with relatively good facts or accounts less likely to fall under the John Doe Treaty Assistance request.)


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