Tuesday, August 6, 2019

Swiss Category 1 Bank Enters NPA (8/6/19)

On August 5, 2019, DOJ Tax announced here another nonprosecution agreement (NPA) with a Category 1 Swiss Bank, LLB Verwaltung (Switzerland) AG, formerly known as “Liechtensteinische Landesbank (Schweiz) AG” (LLB-Switzerland).  The announcement has links to the NPA, here, and the Statement of Facts, here.

Key features of this NPA are:

1.  LLB Verwaltung must pay the Tax Division a penalty of $10,680,554.64.  According to the NPA, the penalty is in lieu of restitution, forfeiture or criminal fine.

2.  LLB Verwaltung must "cooperate in any related criminal or civil proceedings in return for the Department’s agreement not to prosecute the company for tax-related criminal offenses committed by LLB-Switzerland."

3.  A related Liechtenstein bank, Liechtensteinische Landesbank AG (LLB-Vaduz), earlier in 2013 reached a separate NPA.  See DOJ Tax Press Release, here.  LLB-Vaduz paid restitution of $7,525,542.  See also Liechtensteinische Landesbank Enters NPA (Federal Tax Crimes Blog 7/30/13), here.

4.  The bad behavior, variations on a theme for many Swiss banks, is described in the press release:
According to the statement of facts agreed to by the parties, LLB-Switzerland and some of its employees, including members of the bank’s management, conspired with a Swiss asset manager and U.S. clients to conceal those U.S. clients’ assets and income from the Internal Revenue Service (IRS) through various means, including using Swiss bank secrecy protections and nominee companies set up in tax haven jurisdictions. At its peak, LLB-Switzerland had approximately one hundred U.S. clients holding nearly $200 million in assets. The majority of those accounts were in the names of nominee entities. 
In 1997, Liechtensteinische Landesbank AG (LLB-Vaduz), a bank headquartered in Liechtenstein, acquired LLB-Switzerland (LLB-Vaduz reached a separate agreement with the Justice Department in 2013 that excluded LLB-Switzerland from the resolution). At that time, LLB-Switzerland provided banking and asset management services to individuals and entities, including citizens and residents of the United States, principally through private bankers based in Zurich, Geneva and Lugano, Switzerland. LLB-Switzerland also acted as a custodian of assets managed by third-party external investment advisers. 
In 2003, LLB-Switzerland began a relationship with a Swiss asset manager. The asset manager offered to create nominee structures, including corporations, foundations, and trusts, to conceal accounts owned by his U.S. clients at Swiss financial institutions. LLB-Switzerland delegated to the Swiss asset manager the authority to prepare account opening and “know your customer” (KYC) documents.  
The Swiss asset manager provided prospective customers with a sales letter, pitching his ability to conceal a client’s assets and income from taxing authorities through the use of multiple layers of sham offshore entities and nominee directors in countries or regions that the Swiss asset manager thought would resist requests for information and assistance from foreign law enforcement, including law enforcement in the United States. LLB-Switzerland and its management knew that the Swiss asset manager was marketing structures to clients as a means of tax evasion as the bank kept a copy of the manager’s sales letter in the bank’s files. 
In 2008, after it became publicly known that UBS AG, Switzerland’s largest bank, was the target of a U.S. criminal investigation focusing on tax and other violations, the amounts that LLB-Switzerland held for U.S. clients swelled. At the end of 2007, the Bank had 72 U.S. clients with almost $80 million in assets. By the end of the next year, the number of U.S. clients increased to 107, but the assets more than doubled to over $176 million. LLB-Switzerland’s management knew that many of the U.S. clients coming to LLB‑Switzerland were bringing undeclared funds with them.  
Although LLB-Switzerland’s management monitored the United States’ investigation of UBS, LLB-Switzerland failed to take actions to cease assisting U.S. taxpayers to evade their taxes. While in August 2008, LLB-Vaduz prohibited U.S. persons from becoming clients of the Liechtenstein bank, LLB-Switzerland did not implement a similar policy. Despite press reports, indicating the Swiss asset manager was under investigation for helping clients evade U.S. taxes, LLB-Switzerland waited two years – until a grand jury had indicted the Swiss asset manager - to close the accounts he managed.
5.  Among the Bank's acts of penance:
LLB-Switzerland’s remediation efforts since 2012 have been comprehensive. It halted and terminated all U.S. cross-border business with U.S. clients. All of LLB-Switzerland’s U.S. clients and its relationship with the Swiss asset manager ended. It also dismissed its managers and employees implicated in the Department’s investigation of the bank’s U.S. cross-border business, and LLB-Vaduz has shut down the operations of LLB-Switzerland. In 2013, LLB-Vaduz closed LLB-Switzerland and returned LLB-Switzerland’s banking license to the Swiss Financial Market Supervisory Authority.
5.  Presumably, the Bank will be added to the IRS list of Foreign Financial Institutions or Facilitators, here, with the attendant consequences to U.S. taxpayers.

Here are updated figures from my spreadsheet which may be downloaded from the page in the right column titled Offshore Charges / Convictions Spreadsheet, here.  (Please note the caveats on that page as to the figures as to incomplete data and possible formula errors).

Financial Institution Summary
Treaty requests 15
John Doe Summonses 14
Criminal Matters
   Criminal (incl Investigations and Prosecutions) 28
   Guilty Plea 5
   Forfeiture 8
   Deferred Prosecution Agreement ("DPA") 9
   NonProsecution Agreement ("NPA") 88
IRS Financial Institution List (OVDP Offshore 50%) * 121
Total Costs (Fines, Restitution, Other Penalties, etc.) $6,060,283,647
US DOJ Swiss Bank Program Number Resolved Total Costs
   U.S. / Swiss Bank Initiative Category 1 (Criminal Inv.) * 19 10 $4,387,414,115
   U.S. / Swiss Bank Initiative Category 2  87 81 $1,368,983,990
   U.S. / Swiss Bank Initiative Category 3 13 $0
   U.S. / Swiss Bank Initiative Category 4 8 $0
Swiss Bank Program Results 127 $5,756,398,105
* Number and Number Resolved may not be same as DOJ and IRS numbers because counting related entities 
Recoveries from Swiss Financial and Related Institutions (per above) $5,756,398,105
Recoveries from NonSwiss Offshore Financial and Related Institutions $303,885,542
Recoveries from All Offshore Financial and Related Institutions $6,060,283,647
Foreign Bank & Bank Related Other than Swiss
    Bank Leumi & Related $270,000,000
   Liechtensteinische Landesbank AG  (LLB-Vaduz) $7,525,542
   Cayman National Securities Ltd. $3,000,000
   Cayman National Trust Co. Ltd. $3,000,000
Total $277,525,542
Sum of Swiss Bank Program and Other $6,033,923,647

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