Three More Swiss Banks Enter NPAs Under US DOJ Swiss Bank Program (7/30/15)

On July 30, 2015, DOJ announced here three other Swiss Banks have entered NPA resolutions under the DOJ program for Swiss banks.  The Swiss banks are PKB Privatbank AG, Falcon Private Bank AG and Credito Privato Commerciale in liquidazione SA (CPC).  The penalties are  $6.328 million,  $1.806 million, and  $348,900, respectively. Key excerpts from the press release:

PKB Privatbank AG was founded in 1958 and has its head office in Lugano, Switzerland.  It also maintained offices in Bellinzona, Zurich, Geneva and Lausanne, Switzerland.  PKB was aware that some U.S. taxpayers who had opened and maintained accounts at PKB were not complying with their U.S. income tax and reporting obligations.  PKB offered a variety of traditional Swiss banking services that it knew would, and in certain instances did, assist U.S. clients in concealing assets and income from the Internal Revenue Service (IRS).  These services included code name or numbered accounts and hold mail services, pursuant to which PKB would hold all mail correspondence for a particular client.  These services allowed U.S. clients to conceal their identities and minimize the paper trail associated with the undeclared assets and income they held at PKB in Switzerland. 

PKB also employed a variety of other means or conduct that it knew or should have known would assist U.S. taxpayers in concealing their PKB accounts, including:
referring U.S. taxpayers to an outside service provider to establish an offshore structure for purposes of holding an undeclared account at PKB; 

• assisting U.S. taxpayers in transferring assets from accounts being closed at PKB to other PKB accounts held by a non-U.S. relative or other non-U.S. parties; 
• assisting U.S. beneficial owners in transferring assets from accounts being closed at PKB to accounts at other banks in Switzerland;
• opening accounts for U.S. taxpayers who had left other banks being investigated by the department, including UBS; and
• providing credit cards or debit cards linked to undeclared accounts held in the name of an offshore trust, foundation or company that was beneficially owned by one or more U.S. taxpayers.

In certain cases, U.S. clients of PKB, with the assistance of their advisors, would create an entity, such as a Liechtenstein foundation, a Panamanian corporation or a British Virgin Islands corporation, and pay a fee to third parties to act as corporate directors.  Those third parties, at the direction of the U.S. client, would then open a bank account at PKB in the name of the entity or transfer assets from an account at another Swiss or other foreign bank.  In such cases involving a non-U.S. entity, PKB was aware that a U.S. client was the true beneficial owner of the account.  Despite this, PKB would obtain from the entity’s directors an IRS Form W-8BEN or equivalent bank document that falsely declared that the beneficial owner of the PKB account was not a U.S. taxpayer.  In some cases, the U.S. client or a related party also held a power of attorney or other signature authority with respect to the PKB account, thereby permitting the U.S. client to act directly with respect to the account and assets held therein, notwithstanding the corporate form of the accountholder.  Ultimately, the use of such offshore structures by U.S. taxpayer clients provided an additional layer of confidentiality and further assisted them in concealing their beneficial ownership of their PKB accounts and evading their U.S. tax and information reporting obligations. 

Since Aug. 1, 2008, PKB had 244 U.S.-related accounts, both declared and undeclared, with an aggregate maximum balance of approximately $328.8 million.  PKB will pay a penalty of $6.328 million.

Falcon Private Bank AG was founded in 1965 by American International Group Inc. (AIG), and is headquartered in Zurich.  Falcon has branches in Geneva, Hong Kong and Singapore, and representative offices in Abu Dhabi, Dubai and London.  Since April 2009, Falcon has been owned by aabar Investments.  The majority shareholder of aabar is the International Petroleum Investment Company, a sovereign wealth fund owned by the government of Abu Dhabi. 

Through its managers, employees and others, Falcon knew that some U.S. taxpayers who had opened and maintained accounts at Falcon were not complying with their U.S. income tax and reporting obligations.  Falcon offered a variety of standard Swiss banking services, including hold mail and code name or numbered account services, which it knew could assist, and did assist, its U.S. clients in the concealment of assets and income from the IRS. 

The majority of Falcon’s U.S.-related accounts held since Aug. 1, 2008, were held in the names of entities or structures.  Those accounts were almost entirely held by non-U.S. structures, such as offshore corporations or trusts.  Typically, the beneficial owners of these structures created a legal entity, such as a Panamanian corporation, and paid third parties to act as the corporate “directors.”  Those third parties would then open a bank account at Falcon in the name of the entity, allowing clients the ability to conceal their undeclared accounts from the IRS. 

Falcon also: 

• accepted instructions in connection with one U.S.-related account not to invest in U.S. securities and not to disclose the names of U.S. taxpayer-clients to U.S. tax authorities, including the IRS;
• issued checks, including series of checks, in amounts of less than $10,000, in seven cases, that were drawn on accounts of U.S. taxpayers or structures even though Falcon knew or had reason to know that the withdrawals were made to avoid triggering scrutiny; and
• provided cash (310,000 Swiss francs and $250,000) at account closure in July 2011 to a U.S. citizen with signatory authority over an account held in the name of a British Virgin Island nominee company. 

Falcon maintained accounts for four British Virgin Islands nominee companies and two Panamanian nominee companies when Falcon knew or should have known that the Forms W-8BEN and Forms A associated with those accounts were contradictory, that the beneficial owners were U.S. citizens or residents, and that the structures were used by the U.S. taxpayer-clients to help conceal their identities from the IRS. 

Since Aug. 1, 2008, Falcon also maintained three insurance segregated accounts for which it was aware that the policy holder or premium payer was a U.S. person.  By placing and maintaining their assets in accounts held in the names of insurance companies and not the actual beneficial owner of the funds (a procedure known colloquially as an “insurance wrapper”), Falcon was aware that by operation of Swiss bank secrecy laws, the U.S. client’s ownership would not be disclosed to U.S. authorities, including the IRS. 

Since Aug. 1, 2008, Falcon maintained a total of 84 U.S.-related accounts with an aggregate value of approximately $134 million.  Falcon will pay a penalty of $1.806 million. 

CPC is located in Lugano.  It was established in 1973 as a trust company and received its Swiss banking license in 2004.  On June 8, 2012, CPC’s Italian parent decided to exit the banking industry in Switzerland for reasons unrelated to U.S. tax issues and entered CPC into voluntary liquidation.  Ernst & Young AG, Zurich (Ernst & Young) was appointed as liquidator.  As of that date, with the assistance of three administrative personnel, Ernst & Young has engaged solely in carrying out the liquidation of CPC, including closing client accounts and disposing of assets pursuant to client instructions. 

CPC offered a variety of traditional Swiss banking services, including numbered accounts and hold mail service.  CPC also employed other means to assist U.S. taxpayers in concealing their undeclared accounts, including: 

• opening an account for a U.S. taxpayer who had left UBS, which was being investigated by the department;
• opening an account for two U.S. taxpayers who had left a bank in Luxembourg because, according to their later voluntary disclosures, their external asset manager was concerned about bank secrecy in Luxembourg and indicated it would be safer to maintain an undeclared account in Switzerland; and
• providing a cash card linked to an undeclared account.

After March 13, 2012, and considering the implementation of the U.S. Foreign Account Tax Compliance Act (FATCA), CPC decided to discontinue all of its relationships with its U.S. customers and closed its last U.S.-related account in April 2013. 

In the period between Aug. 1, 2008, and CPC’s liquidation, CPC had 16 U.S.-related accounts with an aggregate maximum balance of approximately $71 million.  CPC will pay a penalty of $348,900. 

In accordance with the terms of the Swiss Bank 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.

These banks will be added to the IRS's Foreign Financial Institutions or Facilitators, here (not added as of 7/30/15 5:00pm).  As indicated in the last quoted paragraph, accountholders in the listed banks will be subject to the 50% penalty in OVDP (provided that they do not opt out, in which case, who knows).

 The updated statistics are:

US DOJ Swiss Bank Program	Number	Number Resolved	Total Costs
U.S. / Swiss Bank Initiative Category 1 (Criminal Inv.) *	17	5	$3,470,550,000
U.S. / Swiss Bank Initiative Category 2 **	75	25	$289,499,690
U.S. / Swiss Bank Initiative Category 3	15		$0
U.S. / Swiss Bank Initiative Category 4	8		$0
Swiss Bank Program Results	115		$3,760,049,690
* Includes subsidiary or related entities counted as separate entities, so the numbers may exceed the numbers the IRS and DOJ posted numbers which combine some of the entities.
** DOJ says original total was 106 but that it expects about 80 to complete the process.