Bank Julius Baer, a Category 1 Bank, Enters Deferred Prosecution Agreement with Payment of $547 Million (2/4/16)

DOJ announced, here, that Bank Julius Baer (sometimes "BJB") has entered a deferred prosecution Agreement.  I provide certain key excerpts from the press release and deferred prosecution agreement below.  Except for the headings, the bold face is supplied by me to draw the readers attention to the information bold-faced.  Please note that this is a very quick summary due to the press of time.  I may add more later.

Key excerpts from the press release are:

Acting Assistant Attorney General Ciraolo and U.S. Attorney Bharara also announced a deferred prosecution agreement with Julius Baer (the agreement) under which the company admits that it knowingly assisted many of its U.S. taxpayer-clients in evading their tax obligations under U.S. law.  The admissions are contained in a detailed Statement of Facts attached to the agreement.  The agreement requires Julius Baer to pay a total of $547 million by no later than Feb. 9, 2016, including through a parallel civil forfeiture action also filed today in the Southern District of New York. 

* * * *  

The criminal charge is contained in an Information (the information) alleging one count of conspiracy to (1) defraud the IRS, (2) to file false federal income tax returns and (3) to evade federal income taxes.  If Julius Baer abides by all of the terms of the agreement, the government will defer prosecution on the Information for three years and then seek to dismiss the charges. 

In addition, two Julius Baer client advisers, Daniela Casadei and Fabio Frazzetto, pleaded guilty in Manhattan federal court today.   Casadei and Frazzetto were originally charged in 2011 and remained at large until Feb. 1, when they each made initial appearances before the Honorable Gabriel W. Gorenstein, U.S. Magistrate Judge for the Southern District of New York.  

Casadei and Frazzetto each pleaded guilty to an Information (collectively, with the Julius Baer information, the informations) before U.S. District Judge Laura Taylor Swain charging them with conspiring with U.S. taxpayer-clients and others to help U.S. taxpayers hide their assets in offshore accounts and to evade U.S. taxes on the income earned in those accounts.  

* * * * 

The Offense Conduct 

From at least the 1990s through 2009, Julius Baer helped many of its U.S. taxpayer-clients evade their U.S. tax obligations, file false federal tax returns with the IRS and otherwise hide accounts held at Julius Baer from the IRS (hereinafter, undeclared accounts).  Julius Baer did so by opening and maintaining undeclared accounts for U.S. taxpayers and by allowing third-party asset managers to open undeclared accounts for U.S. taxpayers at Julius Baer.  Casadei and Frazzetto, bankers who worked as client advisers at Julius Baer, directly assisted various U.S. taxpayer-clients in maintaining undeclared accounts at Julius Baer in order to evade their obligations under U.S.  law.  At various times, Casadei, Frazzetto and others advised those U.S. taxpayer-clients that their accounts at Julius Baer would not be disclosed to the IRS because Julius Baer had a long tradition of bank secrecy and no longer had offices in the United States, making Julius Baer less vulnerable to pressure from U.S. law enforcement authorities than other Swiss banks with a presence in the United States.    

In furtherance of the scheme to help U.S. taxpayers hide assets from the IRS and evade taxes, Julius Baer undertook, among other actions, the following: 

• Entering into “code word agreements” with U.S. taxpayer-clients under which Julius Baer agreed not to identify the U.S. taxpayers by name within the bank or on bank documents, but rather to identify the U.S. taxpayers by code name or number, in order to reduce the risk that U.S. tax authorities would learn the identities of the U.S. taxpayers.
• Opening and maintaining accounts for many U.S. taxpayer-clients held in the name of non-U.S. corporations, foundations, trusts, or other legal entities (collectively, structures) or non-U.S. relatives, thereby helping such U.S. taxpayers conceal their beneficial ownership of the accounts.

Julius Baer was aware that many U.S. taxpayer-clients were maintaining undeclared accounts at Julius Baer in order to evade their U.S. tax obligations, in violation of U.S. law.  In internal Julius Baer correspondence, undeclared accounts held by U.S. taxpayers were at times referred to as “black money,” “non W-9,” “tax neutral,” “unofficial,” or “sensitive” accounts.

Julius Baer also advised its bankers to take certain steps to avoid scrutiny from U.S. authorities when travelling to the United States, as well as steps to avoid U.S. law enforcement identifying Julius Baer clients.  In a memo entitled “U.S. Clients Do’s & Don’ts,” circulated internally in 2006, a Julius Baer employee provided client advisers with advice regarding travel to the United States, including: 

• “At Immigration . . . When asked by Officer what will you do while in the USA, say Business and of course some leisure, trying to take some time to enjoy your beautiful country. Proud government employees usually love this type of statement.One can throw in skydiving or another fun sport/activity. This tends to shift the questioning away from the business purpose to the ‘fun time’ part of the trip (carrying a tennis racket also puts the emphasis on “fun and games,” and not on business).”
• In regard to communicating while in the U.S.:“Only use mobile phone[s] registered in and operating from Switzerland. Avoid phone calls from hotel to clients.It is recommended to purchase a telephone calling card from the post office, grocery stores, or electronic shops. This allows you to use practically any phone with no specific link left behind. The best is to pay for the calling card in cash. For ex: a 400 minutes local calling card costs less than $50, but the rates can vary.Most cards can also be used to call anywhere abroad.”

At its high-water mark in 2007, Julius Baer had approximately $4.7 billion in assets under management relating to approximately 2,589 undeclared accounts held by U.S. taxpayer-clients.  From 2001 through 2011, Julius Baer earned approximately $87 million in profit on approximately $219 million gross revenues from its undeclared U.S. taxpayer accounts, including accounts held through structures.  

Julius Baer’s Blocked Effort to Self-Report, Acceptance of Responsibility, and Cooperation in the Government Investigation 

Notwithstanding its lucrative criminal conduct, by at least 2008, Julius Baer began to implement institutional policy changes to cease providing assistance to U.S. taxpayers in violating their U.S. legal obligations.  For example, by November 2008, the company began an “exit” plan for U.S. client accounts that lacked evidence of U.S. tax compliance.  In that same month, Julius Baer imposed a prohibition on opening accounts for any U.S. clients without a Form W-9. 

Additionally, in November 2009, before Julius Baer became aware of any U.S. investigation into its conduct, Julius Baer decided proactively to approach U.S. law enforcement authorities regarding its conduct relating to U.S. taxpayers.  Prior to self-reporting to the Department of Justice, Julius Baer notified its regulator in Switzerland of its intention to contact U.S. law enforcement authorities.  This Swiss regulator requested that Julius Baer not contact U.S. authorities in order not to prejudice the Swiss government in any bilateral negotiations with the United States on tax-related matters.  Accordingly, Julius Baer did not, at that time, self-report to U.S. law enforcement authorities. 

After ultimately engaging with U.S. authorities, Julius Baer has taken exemplary actions to demonstrate acceptance and acknowledgement of responsibility for its conduct.  Julius Baer conducted a swift and robust internal investigation, and furnished the U.S. government with a continuous flow of unvarnished facts gathered during the course of that internal investigation.  As part of its cooperation, Julius Baer also, among other things, (1) successfully advocated in favor of a decision provided by the Swiss Federal Council in April 2012 to allow banks under investigation by the U.S. Department of Justice to legally produce employee and third-party information to the department, and subsequently produced such information immediately upon issuance of that decision; and (2) encouraged certain employees, including specifically Frazzetto and Casadei, to accept responsibility for their participation in the conduct at issue and cooperate with the ongoing investigation.      

*         *        *         * 

Casadei, 52, a Swiss citizen, and Frazzetto, 42, an Italian and Swiss citizen, each pleaded guilty to one count of conspiracy to defraud the IRS, to evade federal income taxes and to file false federal income tax returns.  Casadei and Frazzetto each face a statutory maximum sentence of five years in prison.  The statutory maximum sentence is prescribed by Congress and is provided here for informational purposes only, as any sentences imposed on the defendants will be determined by the judge.  

Casadei and Frazzetto are each scheduled to be sentenced before Judge Swain on Aug. 12, 2016.

JAT Comment on press release:

1.  Note the following:

At its high-water mark in 2007, Julius Baer had approximately $4.7 billion in assets under management relating to approximately 2,589 undeclared accounts held by U.S. taxpayer-clients.  From 2001 through 2011, Julius Baer earned approximately $87 million in profit on approximately $219 million gross revenues from its undeclared U.S. taxpayer accounts, including accounts held through structures. 

 Of course, BJB likely had been doing this far earlier than 2001, but the $547 million payment now certainly took all the profit and more for the period from 2001 through 2011.

DPA and Related Documents, here.

These documents include the following:

• Verified Complaint
• Information (Exhibit A)
• Deferred Prosecution Agreement (Exhibit B)
• \Statement of Facts (Exhibit C)
• Verified Complaint (Exhibit D)

Key excerpts from the DPA:

Acceptance of Responsibility 

2. Julius Baer admits and stipulates that the facts set forth in the Statement of Facts, attached hereto as Exhibit C and incorporated herein, are true and accurate. In sum, Julius Baer admits that it knowingly and willfully agreed to assist, and did assist, certain of its U.S. taxpayer-clients to hide overseas bank accounts from the IRS and to evade these clients' tax and reporting obligations under U.S. law.

Restitution, Forfeiture and Penalty Obligations 

4. As a result of the conduct described in the Information and the Statement of Facts, Julius Baer agrees to make payments in total of $547.25 million to the United States. Specifically, Julius Baer agrees to (1) make a payment of restitution in the amount of $247 million (the "Tax Restitution Amount"), (2) forfeit to the United States $219.25 million (the "Forfeiture Amount"), and (3) pay a penalty of $81 million (the "Penalty Amount") to the U.S. Department of Justice (the "Department"), as set forth below. 

5. In regard to the Tax Restitution Amount, Julius Baer admits that the Tax Restitution Amount represents the approximate unpaid pecuniary loss to the United States as a result of the conduct described in the Statement of Facts. The Tax Restitution Amount shall not be further reduced by payments that have been made or may be made to the United States by U.S. taxpayers through the Offshore Voluntary Disclosure Initiative and similar programs (collectively, "OVDI") before or after the date of this Agreement. Julius Baer agrees to pay the Tax Restitution Amount to the IRS by wire transfer within seven (7) days of the date of the execution of this Agreement. If Julius Baer fails to timely make the payment required under this paragraph, interest (at the rate specified in 28 U.S.C. § 1961) shall accrue on the unpaid balance through the date of payment, unless the Office, in its sole discretion, chooses to reinstate prosecution pursuant to Paragraphs 19 and 20, below. 

6. In regard to the Forfeiture Amount, Julius Baer agrees, pursuant to Title 18, United States Code, Section 981(a)(1)(C) that it will forfeit to the United States the Forfeiture Amount.  

7. The Forfeiture Amount of $219.25 million represents gross fees paid to Julius Baer by U.S. taxpayers with undeclared accounts at Julius Baer from January 1, 2001 through approximately December 31, 2011. 

8. The Forfeiture Amount shall be sent by wire transfer to a seized asset deposit account maintained by the United States Department of the Treasury within seven (7) days of the execution of this Agreement. If Julius Baer fails to timely make the payment required under this paragraph, interest (at the rate specified in 28 U.S.C. § 1961) shall accrue on the unpaid balance through the date of payment, unless the Office, in its sole discretion, chooses to reinstate prosecution pursuant to Paragraphs 19 and 20, below. 

9. Julius Baer agrees this Agreement, the Information, and the Statement of Facts may be attached and incorporated into a civil forfeiture complaint (the "Civil Forfeiture Complaint"), a copy of which is attached hereto as Exhibit D, that will be filed against the Forfeiture Amount. By this Agreement, Julius Baer expressly waives service of that Civil Forfeiture Complaint and agrees that a Final Order of Forfeiture may be entered against the Forfeiture Amount. Julius Baer also agrees that the facts contained in the Information and Statement of Facts are sufficient to establish that the Forfeiture Amount is subject to civil forfeiture to the United States.  

10. The Office and Julius Baer agree that, consistent with the factors set forth in 18 U.S.C. § 3553(a) and 18 U.S.C. § 3572(a), and in light of the Forfeiture Amount and the Tax Restitution Amount, the Penalty Amount of $81 million is an appropriate penalty in this case. Julius Baer agrees to pay the Penalty Amount as directed by the Office within seven (7) business days of the date of the execution of this Agreement. The Penalty Amount represents a reduction of approximately 85% from the low end of the fine range that the parties agree would be applicable under the United States Sentencing Guidelines if Julius Baer had been convicted and sentenced for its criminal conduct. The Office and Julius Baer agree that the Penalty Amount is appropriate given the facts and circumstances of this case, including the nature and seriousness of Julius Baer's conduct as set forth in the Statement of Facts, and also, in mitigation of a higher penalty, among other things: (1) Julius Baer's blocked efforts to self-report to U.S. authorities as set forth in the Statement of Facts, and (2) Julius Baer's thorough internal investigation and concomitant efforts to provide extensive infmmation and materials derived from that investigation to U.S. authorities. The Penalty Amount is fmal and shall not be refunded. Furthermore, nothing in this Agreement shall be deemed an agreement by the Office that the Penalty Amount is the maximum penalty that may be imposed in any future prosecution,and the Office is not precluded from arguing in any future prosecution that the Court should impose a higher penalty. 

11. Upon payment of the Forfeiture Amount, Julius Baer shall release any and all claims it may have to such funds and execute such documents as necessary to accomplish the forfeiture of the funds. Julius Baer agrees that it will not file a claim with the Court or otherwise contest the civil forfeiture of the Forfeiture Amount or the payment of the Penalty Amount and will not assist a third party in asserting any claim to the Forfeiture Amount or the Penalty Amount. 

12. Julius Baer agrees that the Tax Restitution Amount, the Forfeiture Amount and the Penalty Amount shall be treated as non-tax-deductible amounts paid to the United States government for all tax purposes under United States law. Julius Baer agrees that it will not claim, assert, or apply for, either directly or indirectly, a tax deduction, tax credit, or any other offset with regard to any United States federal, state, or local tax, for any portion of the $547.25 million that Julius Baer has agreed to pay to the United States pursuant to this Agreement.

* * * * 

 Deferral of Prosecution and Duration of the Agreement

15. The actions Julius Baer has taken to date demonstrate acceptance and acknowledgment of responsibility for its conduct, including, among other things: 

• Making a Board-level decision in 2009 to self-report its conduct to the Department;
• Implementing remedial measures before it became aware it was the subject of a U.S. law enforcement investigation; 

• Conducting a thorough internal investigation and providing the Office with the facts, including unfavorable ones, discovered during the course of that internal investigation; 

• Advocating in favor of a decision provided by the Swiss Federal Council in April 2012 to allow banks under investigation by the Department to legally produce employee and third-party information to the Department and subsequently producing such information almost immediately upon issuance of that decision; and 

• Encouraging and facilitating certain employees, including specifically charged defendants Fabio Frazzetto and Daniela Casadei, to accept responsibility for their participation in the conduct set forth in the Statement of Facts and to cooperate with the investigation being conducted by the Department and the IRS. Julius Baer has also made a commitment to: (a) accept and acknowledge responsibility for its conduct, as described in the Statement of Facts and the Information; (b) cooperate with the Department and the IRS; (c) make the payment specified in this Agreement; (d) comply with the federal criminal laws of the United States (as provided herein in Paragraph 14); and (e) otherwise comply with all of the terms of this Agreement. In consideration of the foregoing, the Office shall recommend to the Court that prosecution of Julius Baer on the Information be deferred for three years from the date of the signing of this Agreement. Julius Baer shall expressly waive indictment and all rights to a speedy trial pursuant to the Sixth Amendment of the United States Constitution, Title 18, United States Code, Section 3161, Federal Rule of Criminal Procedure 48(b ), and any applicable Local Rules of the United States District Court for the Southern District of New York for the period during which this Agreement is in effect.\ 

21. Julius Baer, having truthfully admitted to the facts in the Statement of Facts, agrees that it shall not, through its attorneys, agents, or employees, make any statement, in litigation or otherwise, contradicting the Statement of Facts or its representations in this Agreement. Consistent with this provision, Julius Baer may raise defenses and/or assert affirmative claims in any civil proceedings brought by private parties as long as doing so does not contradict the Statement of Facts or such representations. Any such contradictory statement by Julius Baer, its present or future attorneys, agents, or employees shall constitute a violation of this Agreement and Julius Baer thereafter shall be subject to prosecution as specified in paragraphs 19 and 20, above, or the deferral-of-prosecution period shall be extended pursuant to paragraph 18, above. The decision as to whether any such contradictory statement will be imputed to Julius Baer for the purpose of determining whether Julius Baer has violated this Agreement shall be within the sole discretion of the Office. Upon the Office's notifying Julius Baer of any such contradictory statement, Julius Baer may avoid a finding of violation of this Agreement by repudiating such statement both to the recipient of such statement and to the Office within forty-eight ( 48) hours after having been provided notice by the Office. Julius Baer consents to the public release by the Office, in its sole discretion, of any such repudiation. Nothing in this Agreement is meant to affect the obligation of Julius Baer or its officers, directors, agents or employees to testify truthfully to the best of their personal knowledge and belief in any proceeding.

Bank Julius Baer will be added to the IRS's Foreign Financial Institutions or Facilitators, here.  As indicated in the last quoted paragraph, accountholders in the listed banks joining OVDP after one of their banks are listed will be subject to the 50% penalty in OVDP (provided that they do not opt out, in which case, who knows).

My updated statistics for all payments from Swiss Banks are:

US DOJ Swiss Bank Program	Number	Number Resolved	Total Costs
U.S. / Swiss Bank Initiative Category 1 (Criminal Inv.) *	16	5	$4,017,800,000
U.S. / Swiss Bank Initiative Category 2 **	98	81	$1,363,683,990
U.S. / Swiss Bank Initiative Category 3	14		$0
U.S. / Swiss Bank Initiative Category 4	8		$0
Swiss Bank Program Results	136		$5,381,483,990
* 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.