Swiss Asset Manager and DOJ Enter Nonprosecution Agreement (8/15/17 8/18/17)

DOJ Tax and USAO SDNY announced here  and here that it has reached a nonprosecution agreement ("NPA") with Prime Partners SA (“Prime Partners”), a Swiss asset management firm,  The plea agreement and attached Statement of Facts ("SOF") are here.

The cost to Prime Partners is $5 million, consisting of $4.32 million in forfeiture (representing a portion of the gross revenue it earned with respect to the undeclared accounts for 2001-2010) and $0.068 million in restitution to the IRS (representing the approximate unpaid taxes from Prime Partners' clients).  Key excerpts from the press release are:

As part of the NPA, Prime Partners admitted various facts concerning its wrongful conduct and the remedial measures that it took to cease that conduct. Specifically, Prime Partners admitted that it knew certain U.S. taxpayers were maintaining undeclared foreign bank accounts with the assistance of Prime Partners in order to evade their U.S. tax obligations, in violation of U.S. law. Prime Partners acknowledged that it helped certain U.S. taxpayer-clients conceal from the IRS their beneficial ownership of undeclared assets maintained in foreign bank accounts by, among other things: (i) creating sham entities, which had no business purpose, that served as the nominal account holders for the accounts; (ii) advising U.S. taxpayer-clients not to retain their account statements, to call Prime Partners collect from pay phones, and to destroy any faxes they received from Prime Partners; (iii) providing U.S. taxpayer-clients with prepaid debit cards, which were funded with money from the clients’ undeclared accounts; and (iv) facilitating cash transfers in the United States between U.S. taxpayer-clients with undeclared accounts. 

The NPA recognizes that, in early 2009, Prime Partners voluntarily implemented a series of remedial measures to stop assisting U.S. taxpayers in evading federal income taxes. The NPA further recognizes the extraordinary cooperation of Prime Partners, including its voluntary production of approximately 175 client files for non-compliant U.S. taxpayers, which included the identities of those U.S. taxpayers.

This NPA is not part of the Swiss Bank Program.  So the question one must ask is why did DOJ even do this?  Well, the press release sets forth DOJ Tax's public explanation in the press release:

The U.S. Attorney’s Office entered into the NPA based on factors including:

• Prime Partners’ voluntary and extraordinary cooperation, including its voluntary production of account files containing the identities of U.S. taxpayer-clients;
• Prime Partners’ voluntary implementation of various remedial measures beginning in or around early 2009, before the investigation of its conduct began;
• Prime Partners’ willingness to continue to cooperate to the extent permitted by applicable law; and
• Prime Partners’ representation – based on an investigation by outside counsel, the results of which have been reviewed by the U.S. Attorney’s Office and the Tax Division – that the misconduct under investigation did not, and does not, extend beyond that described in the Statement of Facts.

The NPA requires Prime Partners to continue to cooperate with the United States for at least three years from the date of the agreement. In the event that Prime Partners violates the NPA, the U.S. Attorney’s Office may prosecute Prime Partners.

Addendum 8/18/17 10:30 am:

I just received the guilty plea and SOF and have these comments:

1.  The USAO SDNY signs for the Government with the approval of DOJ Tax.

2.  The agreement cites "extraordinary cooperation and voluntary implementation of remedial measures" as the reason for the agreement.  The agreement later cites "voluntary and extraordinary cooperation," including

production of approximately 175 unredacted account files relating to the U.S. taxpayer-clients who maintained undeclared assets overseas with the assistance of Prime Partners, including documents that provide the identities of these U.S. taxpayer-clients; (ii) Prime Partners’ voluntary implementation of various remedial measures beginning in or about early 2009; (iii) Prime Partners’ willingness to continue to cooperate with this Office, the Tax Division, and the IRS to the extent permitted by applicable law; and (iv) Prime Partners’ representation, based on an internal investigation, the results of which have been shared with this Office, that the misconduct under investigation did not, and does not, extend beyond that described in the Statement of Facts.

JAT Comment: The use of the word "approximately" for the number of accounts is odd, since they should have been easy to count.  See also the SOF which says that "In total, Prime Partners managed approximately 175 undeclared accounts for U.S. taxpayer-clients who were evading their tax obligations under U.S. law."

3.  For the 175 accounts, as noted, the SOF says that the U.S. taxpayers "were evading their tax obligations under U.S. law."

JAT Comment:  The representation being made by the U.S. and Prime Partners, therefore, is that those U.S. taxpayers committed tax evasion, a serious charge indeed.  Those U.S. account holders should be concerned now that they have been labeled as tax evaders, although the Government has yet to prove that allegation.  [Update: a very knowledgeable reader just advised me that the statement was not that these U.S. taxpayers were evading tax but that they were evading their "tax obligations," suggesting that it could just mean, I suppose, that they were evading their obligations to report the income on the 1040 or check the box on Schedule B, which would be the tax perjury crime under § 7206(1), so that the statement could be read as so limited and is not a statement the the U.S. taxpayers evaded tax; that may well have been the intent of the drafters in the choice of wording; I can't speak to their intent;  I do know that the word evading is one commonly associated with tax evasion and not with tax perjury; and, although tax perjury can exist without tax evasion, the tax perjury cases worthy of prosecution will have tax evasion involved because that is what is required to find a tax loss for sentencing; and, of course, if the parties meant tax perjury, they could have said it rather than using language so closely associated with tax evasion.]

4.  The agreement is that USAO SDNY and DOJ Tax will not prosecute Prime Partners

for its participation in a conspiracy to (1) defraud the Internal Revenue Service (“IRS”), (2) file false federal income tax returns, and (3) evade federal income taxes in connection with services that it provided to U.S. taxpayers from in or about 2001 through in or about 2010."  

JAT Comment:  The crime(s) involved are offense conspiracy (items (2) and (3)) and defraud / Klein conspiracy (item 1).  Oddly, there is no specific agreement not to prosecute for other tax crimes.  For example, at least in theory, on the facts stated, Prime Partners could be charged with tax evasion or tax perjury through the aiding and abetting statute (18 U.S.C. § 2) or even could have been charged directly with tax evasion.  See John A. Townsend, Theories of Criminal Liability for Tax Evasion (SSRN May 15, 2012), here.  Since I think the agreement was intended to cover other tax crimes (although it does not say that), I doubt that those crimes would be prosecuted, but still it seems to me that the agreement could have foreclosed that risk specifically.

4.  Among the commitments Prime Partners makes as to future cooperation (for a period of the later of 3 years or the date of finality for all prosecutions resulting from the conduct have beceom final), Prime Partners commits that it "shall commit no crimes whatsoever."  And, if it does commit a crime or even be subject to criminal investigation, Prime Partners must bring it to the attention of DOJ Tax.

JAT Comment:  The commitment not to commit "any crimes" is a pretty sweeping commitment and, as written, seems to cover all crimes of any jurisdiction (Switzerland or its Cantons or any other country or local laws).  Crimes is not defined, but presumably could include felonies or misdemeanors or their equivalents under other jurisdictions' laws.  Further the period in which future cooperation is required suggests that other criminal prosecutions may be forthcoming.

5.  Prime Partners agrees to forfeit "$4,320,000, representing certain gross fees paid to Prime Partners by U.S. taxpayers with undeclared accounts with Prime Partners from January 1, 2001 through approximately December 31, 2010."

JAT Comment:  If Prime Partners had cleaned up its act in early 2009, why would there be gross fees paid after that?  Does that suggest that Prime Partners did not really clean up its act in early 2009? Apparently.  If Prime Partners merely started the process to clean its act up in early 2009, there is no indication why the offensive conduct continued through 2010.

6.  Prime Partners agrees to pay $680,000 for Tax Restitution, which is

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 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.  

JAT Comment:  There is no indication as to the time period covered by the Tax Restitution.  Just focusing on the concept of restitution that could be imposed in a conspiracy by court could have been all of the tax loss during the conspiracy which could, in theory, have reached back to the founding of Prime Partners in 1998 if the conduct reached back that far.  The SOF says that the conduct commenced at least as early as 2001 and went through 2010.  In that light, the $680,000 amount seems fairly low.  In this regard, the SOF says the high value of the accounts was $270 million in 2009.  I suppose there may have been a momentary spike to get to the $270 million, but if that amount were constant in the year, at a 3% taxable interest assumption, the unreported taxable income would be $8.1 million.  Assuming a good portion of that was ordinary income (interest, dividends, etc.), the indicated unreported tax would be perhaps 20% of the $8.1 million, or $1.62 million.  And that is for one year alone.  I have no indication that the $680,000 amount stated in the agreement is not correct, but I do note that it looks odd to me.  One interesting aspect is that, although Prime Partners is given no reduction for tax paid by taxpayers in the IRS's offshore disclosure programs, should it get credit for tax paid outside those programs -- say quiet disclosures or even tax paid incident to prosecutions?  Indeed, if Prime Partners is paying the unpaid taxes, then if a U.S. taxpayer is prosecuted, should his restitution amount be reduced by the tax that Prime Partners paid attributable to his taxes?  And, if not, should that taxpayers' restitution then be refunded to Prime Partners.  It seems to me that the intent of the agreement is to make the $680,000 a one-time payment without any reduction whatever, but that is not what it says.

7.  Although the SOF is relatively sparse, it does establish that Prime Partners was an active player in U.S. tax evasion through offshore accounts for which Swiss institutions were the most prominent players.