US DOJ Swiss Bank Program Categories 3 and 4 Comments (2/4/16; 2/7/16)

As readers know, DOJ has just announced the final NPA under the DOJ Swiss Bank Program for so-called Category 2 banks.  Category 2 was designed to resolve potential criminal issues for banks who had committed criminal acts with respect to U.S. depositors, provided that they were not under criminal investigation at the time (the latter banks are called Category 1 banks).  The DOJ Swiss Bank Program had two other categories, Categories 3 and 4.  Banks qualifying under Categories 3 and 4 were banks who had not committed criminal acts (thus not being in the scope of Category 2) but who desired to obtain "Non-Target Letters" ("NTLs")

Thus, one condition for a Category 3 bank was (par. III.A.3.):

3. that [it] has not committed any 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 (i.e., that is not a Category 2 Bank).

A condition for a Category 4 bank was (par. IV.A.2.):

2. that is a "Deemed Compliant Financial Institution" as a "Financial Institution with Local Client Base" under the FATCA Agreement, Annex II Paragraph II.A.1, as if the FATCA Agreement were in force during the Applicable Period (except that the Swiss Bank must meet the terms of Annex II, Paragraph II.A.1.e on December 31, 2009, and the date of the announcement of this Program),

I won't parse that Category 4 condition; suffice it to say that these banks would not be Category 2 banks because they did not commit criminal acts in the "Applicable Period."

A Swiss bank within the scope of Categories 3 and 4 had until October 31 to provide a letter to DOJ Tax of its intent to seek an NTL and then meet certain requirements as to an Independent Examiner, recordkeeping, and waiver of the defense of the statute of limitations and preindictment delay if DOJ were to discover that they had indeed committed criminal misconduct.

I have received inquiries about whether any banks within the scope of Categories 3 and 4 actually completed the requirements and obtained NTLs.  Unlike NPAs for Category 2 banks, DOJ Tax makes no announcement of issuing NTLs under Categories 2 and 3, just as it makes no public announcement when and if it issue such or similar letters in grand jury investigations generally.  So, this raises two questions.

1. Why would any Swiss bank have seen a benefit in obtaining a Non-Target Letter.
2. Did any actually seek and obtain Non-Target Letters.

Why would Any Swiss Bank Seek NTLs?

I must confess that this baffles me.  An NTL is not an agreement of any sort.  Rather, it is a statement that, at the moment in time that it is issued, the bank is not a target of a DOJ criminal investigation (presumably a grand jury investigation).  There is always the possibility that DOJ Tax could receive information or discover information already in its possession that would make the bank a target.  And, if it were to do so, the NTL would have achieved absolutely nothing for the bank.  Note in this regard that the bank has to waive all defenses related to the statute of limitations or delays in indictment.  (I am not sure how important the statute of limitations waiver is because among the panoply of crimes that could be charged are tax crimes for which the statute is suspended while the person is out of the country).  Even worse, the process of seeking and obtaining an NTL requires representations of the type that would like constitute a criminal offense (e.g., false statements under § 1001) if the bank should have been in Category 2.

I asked some colleagues who were closer to the Swiss banks than I am.  The only response I got was that some Swiss banks felt that obtaining an NTL would be good for reputational and marketing purposes.  As to reputation, since most Swiss banks were doing it at the time, I suspect that the reputation of a bank that did not do it was problematic (reputation for stupidity), but in the long run it was pretty smart.  As to marketing, I am not sure customers and potential customers would particularly care, but they are closer to the needs of their markets than I am.  In any event, I hope it is evident from the above that the NTL is not a statement that the DOJ has declared the bank innocent or blameless or anything else; it is simply a statement that the bank is not a target at that time.  (Most criminal defense practicioners know or at least believe, that regardless of how much information a prosecutor has, he or she does not make the determination of target status until about 15 seconds before the prosecutor asks the grand jury to approve the indictment that the prosecutor has previously prepared.)

Now, I have sought and obtained letters from prosecutors of grand jury investsigations that my client was not a target.  Further, at the start of a proffer session with the prosecutor assigned to a grand jury, I always seek and received oral assurances that my client is not a target.  (If I don't get that assurance, the proffer session concludes post haste.)  In one case where the prosecutors gave the assurance of nontarget status, the tone of the questioning clearly established that my client was indeed a target despite the oral assurances.  So, whether written or oral, such statements of Non=Target status provide no protection, except perhaps if a strong case could be made that the prosecutor was untruthful in the proffer session as to the witness's status, in any subsequent prosecution, the witness might be able to exclude any of the statements made in the proffer session (provided that the client did not lie in the session, since such inducements do not give license to the witness to lie).

Finally, merely asking for an NTL invites DOJ Tax to take a hard look at the bank.  DOJ Tax may have other information and read the facts differently than the bank.  The mere process of applying and processing could turn the bank into a Target because it should have joined as a Category 2 bank but did not.

I urge readers to comment on what I may be missing here.  Was it a smart move or not for Swiss Banks to seek Category 3 or 4 NTLs?

Did Any Swiss Banks Seek or Obtain Category 3 or Category 4 NTLs?

A web site titled U.S. Tax Program, here, catalogues the following banks as having indicated that they would seek NTLs:

Financial Institution	US Swiss Category
Acrevis Bank AG	4
AEK Bank 1826 Genossenschaft	4
Alpha Rheintal Bank AG	3
Baloise Bank SoBa AG	3
Bank Vontobel AG	3
Banque de Commerce et de Placements SA	3
Burgergemeinde Bern, DC Bank Deposito-Cassa der Stadt Bern	4
Cembra Money Bank AG	3
Notenstein Privatbank AG	3 or not participating
Raiffeisen Group as well as Raiffeisen banks	3
Swissquote Bank SA	3 or not participating
Thurgauer Kantonalbank	3
VP Bank (Schweiz) AG	was 2, but left Program

My own statistics derived from anecdotal information that they might join as Category 3 or 4 is:

Financial Institution	US Swiss Category
acrevis Bank AG	4
AEK Bank 1826	4
Alpha Rheintal Bank AG	3
Appenzeller Kantonalbank	4
Baloise Bank SoBa	3
Bank am Bellevue	3
Banque de Commerce et de Placements SA	3
Basellandschaftliche Kantonalbank	3
Burgergemeinde Bern, DC Bank Deposito-Cassa der Stadt Bern	4
Cembra Money Bank AG	3
DC Bank (Switzerland)	3
Glarner Kantonalbank	3
Glarus Bank	4
Notenstein Privatbank Ltd.	3
Obwaldner Kantonalbank	4
Raiffeisen Schweiz	3
Schwyzer Kantonalbank	4
Swissquote Bank SA	3
Thurgauer Kantonalbank	3
Urner Kantonalbank	4
Vontobel Holding AG	3

I would love to hear from readers as to the banks actually getting NTLs, along, if possible, with a source for the information (preferably a publicly available source.

Addendum 2/7/16:

So, far, from various sources, I have been able only to confirm that the following bank did join:

• Vantobel - Category 3, here at p. 25 (where it is mentioned under the topic success in attracting top talent, which means that the bank was focused on the reputational concerns.

I have not confirmed that any bank joined as Category 4.