Tuesday, August 14, 2018

Zürcher Kantonalbank (ZKB) Reaches DPA for Conspiracy Charge; Two ZKB Employees Plead to Misdemeanor Conspiracy (8/14/18)

USAO SDNY announced here the deferred prosecution agreement (DPA) with Zürcher Kantonalbank, (ZKB) along with guilty pleas for two of its bankers.

Key points from the press release and linked documents:

1. "ZKB is charged with conspiring to help U.S. taxpayer-clients evade their U.S. tax obligations, file false federal tax returns, and otherwise hide hundreds of millions of dollars in offshore bank accounts held at ZKB."  "The criminal charge against ZKB is contained in an Information (the “Information”) alleging one count of conspiracy to willfully and knowingly (1) defraud the IRS, (2) file false federal income tax returns, and (3) evade federal income taxes."  Some of the conduct forming the basis for the charge is set forth in the press release and linked document.

2.  Under the DPA, "ZKB admitted to its unlawful conduct in assisting U.S. taxpayer-clients in violating their legal duties." "If ZKB 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. "

3.  The DPA requires ZKB to pay a total of $98,533,560, broken down as follows (DPA par. 4):
Restitution $39,142,000
Forfeiture   $24,266,300
Penalty       $35,125,260
  • Per DPA par. 5, the restitution is for lost U.S. tax.  ZKB will get no credit for tax, if any, otherwise paid by the U.S. taxpayers.
  • Per DPA par. 6, forfeiture is "a substitute res for gross fees paid to ZKB by U.S. taxpayers with undeclared accounts at ZKB from January 1, 2002, through approximately December 31, 2013."
  • Per DPA par. 9, the penalty amount is based on the facts and "the factors set forth in 18 U.S.C. § 3553(a) and 18 U.S.C. § 3572(a)."
4.  ZKB was given cooperation credit, but the credit " was reduced by the Government due to ZKB’s actions, as described in the Statement of Facts, in dissuading two indicted ZKB bankers from cooperating with U.S. authorities for years after their indictment."  That reduction in credit is describe as follows:
Indictment of ZKB Employees and ZKB’s Response to the Indictment 
Despite ZKB’s cooperation with the Government in this case, the Government views the actions of ZKB with respect to indicted bankers FELLMANN and REIST, described in the Statement of Facts, as inconsistent with a policy of full cooperation.  Those actions, accordingly, have reduced the amount of cooperation credit afforded by the Government to ZKB. 
In December 2012, three ZKB bankers – FELLMANN, REIST, and Otto Hüppi – were charged in the Southern District of New York with conspiracy to defraud the United States and the IRS for their role in ZKB’s offense.  Although ZKB retained independent U.S. counsel for the bankers, beginning in 2013 and continuing through 2015, ZKB’s in-house counsel and, at times, ZKB employees from the Human Resources department and other departments, regularly met with FELLMANN and REIST.  At those meetings, which were not attended by FELLMANN and REIST’s independent U.S. counsel, ZKB, among other things, made statements that caused FELLMANN and REIST to feel dissuaded from reaching out to the U.S. Attorney’s Office in order to explore the possibility of cooperating.  In addition, ZKB’s in-house counsel suggested to FELLMANN that he did not have any information of value to contribute to the U.S. Attorney’s Office’s ongoing investigation.  Furthermore, based on conversations with ZKB, FELLMANN and REIST felt that their continued employment at ZKB and ZKB’s ongoing payment of their legal fees would be threatened should they take steps that were viewed by ZKB as inconsistent with the bank’s own interests.  Due in part to these discussions with ZKB, FELLMANN and REIST did not seek to cooperate with the investigation until the summer of 2015, approximately two and a half years after being indicted.
5.  Two ZKB employees (Fellman and Reist) pled to "one count of conspiracy to willfully fail to file returns, supply information, or pay tax."  Conspiracy is normally a five-year felony, but by pleading to an conspiracy to commit a misdemeanor offense, the punishment is one-year rather than five years.  The conspiracy statute (18 USC 371) says:  "If, however, the offense, the commission of which is the object of the conspiracy, is a misdemeanor only, the punishment for such conspiracy shall not exceed the maximum punishment provided for such misdemeanor."  (Note: criminal defense attorneys often try to negotiate for their clients to be given misdemeanor counts for tax crimes, but rarely can do successfully.)

6.  ZKB agreed to cooperate further, including information about U.S. accounts and the sources and destinations of the flow of funds.

7.  The list of linked documents is:

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