Basler Reported to Pay $42.1 Million to Settle with Germany Over Undeclared Accounts (5/29/15)

Reuters reports that Basler Kantonalbank wil pay $42.1 million to settle a German probe into undeclared assets.  Katharina Bart, Basler Kantonalbank says to pay 38.6 million euros in German tax probe (Reuters 5/28/15), here.  

Excerpt (bold-face supplied by JAT):

The Basel-based lender is the fourth Swiss bank -- after Credit Suisse, Julius Baer and UBS -- to settle similar probes with German officials, which resolves the matter for both the bank and its employees. 

Basler, one of a host of local government-backed lenders in Switzerland, is still on the hook in a U.S. probe investigating how Swiss banks helped wealthy Americans dodge or cheat on taxes.

Note that the U.S. DOJ program for Swiss banks does not resolve the matter for the bank employees.

Impact of Credit Suisse Guilty Plea on Resolution of Other Swiss Bank U.S. Tax Issues (5/21/14)

A Swiss web report has a good discussion of comments from various parts of the Swiss bank community regarding the effect of the Credit Suisse guilty plea.  Credit Suisse Deal Seen Paving Way for Swiss Banks to Settle (swissinfo.ch 5/210/14), here.  Excerpts that caught my attention are:

The Department of Justice reached the [Credit Suisse] deal after years investigating more than a dozen Swiss firms, including Julius Baer Group Ltd., the nation’s third-largest wealth manager. Many of the companies are close to settlements, said Andreas Brun, an analyst with Zuercher Kantonalbank in Zurich. 

“I expect resolutions in the next couple of weeks,” he said. 

* * * * 

'Speedy Resolution’ 

Julius Baer, which had 264 billion francs ($296 billion) of client assets worldwide at the end of April, may achieve a better deal than Credit Suisse as it has no business operations in the U.S.
“I can now see Julius Baer settling rapidly as well,” said Alevizos Alevizakos, a London-based analyst with Mediobanca SpA. In this bank’s case, four analysts polled by Bloomberg News estimated fines ranging from 400 million francs to 2 billion francs. 

Julius Baer dropped 0.8 percent to 39.4 francs as of 3:21 p.m. in Zurich today, extending the stock’s decline this year to 9 percent. 

“Removing the overhang of these tax disputes will be beneficial for any Category 1 bank,” Alevizakos said, using a Justice Department term for Swiss banks under investigation before it opened a voluntary disclosure program. “A speedy resolution in the coming weeks or months would be marginally positive for Julius Baer.” 

* * * *

Swiss Cantonal Banks and the U.S. Tax Juggernaut (12/18/13)

I am currently supplementing my master spreadsheet to include the banks entering the U.S. / Swiss initiative.  Within the past week, a number of Swiss Cantonal Banks have announced that they will join the initiative as "Category 2" Banks.  Category 2 Banks are as announced in the agreement (emphasis supplied):

A. Any Swiss Bank
1. as to which the Tax Division has not authorized a formal criminal investigation concerning its operations as of August 29, 2013 (i.e., that is not a Category 1 Bank);
2. that is not a Category 4 Bank; and
3. that has reason to believe it may have committed 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,

So, assuming that these banks are honest at this stage, they are admitting that they have "reason to believe" that they committed U.S. tax related and monetary transaction offenses.

So, what exactly are Swiss Cantonal Banks?

The main web pages for those banks as a group is here.  Another page on that site, here, provides the following description (emphasis supplied):

Cantonal Banks 

The 24 Cantonal Banks are modern, independent institutions that are required to be managed in  accordance with proper business principles. They are either 100% or majority-owned by the cantons. Consequently, they differ from one another in their legal and organisational structure.  

The history of the Cantonal Banks goes back more than a hundred years. They have been offering low-cost loans and secure investment opportunities since the 19th century. The individual Cantonal Banks operate primarily in the market of their home canton, where many of them are the market leaders. 

The Cantonal Banks recognise their social and economic responsibility towards their customers, employees and sponsoring cantons. All the Cantonal Banks together account for around 30% of banking business in Switzerland and have a combined balance sheet total about 420 billion Swiss francs.

Wikipedia Entry here:

Cantonal banks (German: Kantonalbank, French: banque cantonale, Italian: banca cantonale) are Swiss government-owned commercial banks, which are provided by the canton in which they are based with a guarantee for the assets held there. Currently they are in the process of being partially privatised. The cantonal banks are organised and regulated by the Association of Swiss Cantonal Banks, with its office in Basel. As a group, the cantonal banks account for about 30% of the banking sector in Switzerland, with a network of over 800 branches and 16 000 employees in Switzerland. 

There are 24 cantonal banks, one in each canton of the country, except for the cantons of Appenzell Ausserrhoden, which sold its bank to banking rival UBS, and Solothurn, which privatised its bank in 1995 after a scandal. Each bank uses a distinctive motif as the logo, with a cantonal colour on white used as the colours of the bank, e.g. light blue for Zürcher Kantonalbank (Zurich Cantonal Bank). Despite appearances, cantonal banks are not small private banks: in fact two of them, Zürcher Kantonalbank and Banque Cantonale Vaudoise, are the third and fourth biggest banks in Switzerland (after UBS AG and Credit Suisse).

The following Swiss Cantonal Banks are reported to be under criminal investigation and thus are Category 1 banks: Basler Kantonalbank and Zürcher Kantonalbank.

Addendum 12/19/13 12:30pm:

I am a little surprised that, as of this point, there have been no comments on these developments with respect to the Cantonal Banks.  I left unsaid what I thought was noteworthy, so I will make some comments.

The Cantonal Banks are government-owned banks which claim to recognize social responsibility.  Yet, two are under criminal investigation, which in the context, means that they are considered among the more serious U.S. tax offenders.  Another 10, according to my list, have indicated that they will join the initiative under Category 2 which, as I noted above is the category designed for the banks who believe they have committed U.S. tax and money transaction offenses.  I don't think Category 2 is intended banks having the isolated, rogue bankers acting independently.  The only banks at risk of criminal prosecution and thus having need of Category 2 protection are banks with sufficient common activity that the activity could implicate the corporate responsibility of the banks.  In the U.S. entities are not prosecuted for independent, rogue actions of employees, otherwise all entities would be subject to criminal prosecution.  Only when the actions of employees reach critical mass are then deemed to represent the organization and can and should subject the criminal organization to prosecution.

Given that banks joining the program with the counsel of sophisticated U.S. lawyers, they must recognize that they had in their banks systemic issues that reached significantly high up that the banks were at risk of criminal prosecution.

My point was that these were government owned banks which claim to "recognise their social and economic responsibility towards their customers, employees and sponsoring cantons."  If the actions were sufficient to raise a risk of criminal prosecution, those at high levels must have known or, to use the common phrase, had reason to know of these activities.

Of course, these cantonal banks were not the only offenders.  There were others.  It is just that it strikes me as particularly telling that government-owned banks allowed this type of misbehavior.

Swiss Prosecutors Investigating Gadola, Swiss Banker, Who Cooperated with U.S. (11/12/12)

Reuters has this news article:  Swiss prosecutors probe former UBS banker turned U.S. informant (Reuters 11/12/13)., here.  Key excerpts:

Switzerland's prosecutor said it is investigating former UBS banker Renzo Gadola, who received a light sentencing in the U.S. two years ago in return for becoming a informant on wealthy American tax cheats. 

The investigation centers on industrial espionage, according to Swiss media, and it raises the spectre of more Swiss bankers who have cooperated with foreign officials being pursued by prosecutors for violating the country's strict banking secrecy laws. 

* * * * 

Gadola, who was not immediately available for comment, would be the first Swiss banker to be pursued in Switzerland on charges of industrial espionage for the United States over the tax spat, although Swiss authorities have charged other bankers for passing on confidential files to Germany. 

Almost immediately after his arrest in 2010, Gadola started cooperating with U.S. officials, providing insight into other bankers and Swiss financial institutions offering offshore banking services, according to prosecutors at the time of his sentencing in 2011. 

He turned over fellow bankers' names and participated in recorded conversations with clients, according to a document released in the run up to his sentencing. 

That cooperation entailed disclosing to U.S. prosecutors for the first time the role of Swiss cantonal banks, including Basler Kantonalbank, in helping Americans to evade U.S. taxes on at least hundreds of millions of dollars in assets. 

Gadola, who continued to cooperate as a condition of his probation, was in 2011 sentenced to five months' probation from a Florida federal judge and a fine of $100.

DOJ Tax Announcement on U.S. Swiss Deal (8/29/13; Updated 8/30/13)

DOJ Tax Press Release is here.  The press release links to two documents -- Joint Statement and Program, here, and Signed Joint Statement and Program, here.

Key excerpts from the press release (emphasis supplied) are:

“This program will provide us with additional information to prosecute those who used secret offshore bank accounts and those here and abroad who established and facilitated the use of such accounts,” said Deputy Attorney General James M. Cole.  “Now is the time for all U.S. taxpayers who hid behind Swiss bank secrecy laws or have undeclared offshore accounts in other foreign countries to come forward and resolve their outstanding tax issues with the United States.” 

Under the program, which is available only to banks that are not currently under criminal investigation by the department for their offshore activities, participating Swiss banks will be required to: 

• Agree to pay substantial penalties 
• Make a complete disclosure of their cross-border activities
• Provide detailed information on an account-by-account basis for accounts in which U.S. taxpayers have a direct or indirect interest
• Cooperate in treaty requests for account information
• Provide detailed information as to other banks that transferred funds into secret accounts or that accepted funds when secret accounts were closed
• Agree to close accounts of account holders who fail to come into compliance with U.S. reporting obligations

The program holds banks to a higher degree of responsibility for opening secret accounts after it became publicly known that the department was actively investigating offshore tax evasion in Switzerland.  Under the penalty provisions of the program, banks seeking a non-prosecution agreement must agree to a penalty in an amount equal to 20 percent of the maximum aggregate dollar value of all non-disclosed U.S. accounts that were held by the bank on Aug.1, 2008. 

 The penalty amount will increase to 30 percent for secret accounts that were opened after that date but before the end of February 2009 and to 50 percent for secret accounts opened later than that.     

The program will significantly assist the department’s efforts to investigate and prosecute U.S. taxpayers who, when faced with the risk of detection, chose to move funds away from banks under investigation to banks that they believed might be better havens for tax secrecy.  A key component of the program requires cooperating banks to provide information that will enable the United States to follow the money to other Swiss banks and to banks located in other countries.

S&P Downgrades Basler Kantonalbank's Senior Unsecured Debt because of U.S. / Swiss Bank Spat (8/7/13)

S&P has downgraded Basler Kantonalbank's  "senior unsecured debt rating" because of the ongoing Swiss bank spat with the U.S., citing "the risk of a 'material' one-time legal cost."  Giles Broom, Swiss Cantonal Bank Cut by S&P Amid Risk of U.S. Legal Costs (BloombergBusinessweek 8/6/13), here.  Key excerpts:

“We foresee ongoing elevated reputational and legal risk at BKB from pending legal actions by the U.S. Department of Justice against Swiss banks,” S&P said after meeting with the management of the company. “We have factored into our assessments a material one-time legal cost for BKB.” 

The Department of Justice is investigating banks, including Credit Suisse Group AG (CSGN) and Julius Baer Group Ltd. (BAER), after last year indicting Wegelin & Co. UBS AG, Switzerland’s largest bank, avoided prosecution in 2009 by paying $780 million, admitting it aided U.S. tax evasion and handing over data on 4,500 accounts. S&P didn’t disclose a figure for Basler’s legal costs, which the ratings company said would be offset by earnings.

Swiss Banks and Swiss Government Move to Resolve Their Spat with the U.S. (7/12/13)

I provide below some links to and excerpts from article describing key aspects of the current state of play in the Swiss / U.S. spat over Swiss banks' participation in lost U.S. tax revenue.  The key point is that the Swiss banks know something bad is in the offing unless they get the UBS result (with or without a DPA, but with no criminal conviction) and without the Wegelin result (prosecution and demise as an entity).

Katharina Bart, Swiss banks seek permission to send data in U.S. probe: sources (Reuters 7/12/13), here.  Excerpts (bold-faced supplied by JAT):

Credit Suisse and Julius Baer are among five Swiss banks which have sought government approval to hand data to U.S. prosecutors in a bid to reach settlements in a long-running tax dispute, four sources familiar with the matter said. 

The requests represent a push towards sealing a final deal for some of the dozen Swiss banks in the crosshairs of U.S. prosecutors for helping wealthy Americans evade taxes through hidden accounts. 

Some of the five, which also include local government-backed banks Zuercher Kantonalbank and Basler Kantonalbank and the Swiss arm of Britain's HSBC, expect the government to approve their request in the coming days, two sources said. 

* * * * 

The five banks have already handed over data on their U.S. dealings as well as staff involved in the offshore business, but the U.S. authorities still want information on where clients closing their accounts moved their money. 

The Swiss government paved the way for the banks to comply last week, saying it would grant them individual permission to deliver exit lists [JAT Note, apparently called "leaver lists in other sources], information which will help investigators pursue tax evaders and their bankers. 

Swiss Finance Minister Eveline Widmer-Schlumpf said last week the move should allow the dozen banks to settle.

Swiss Settlement May Be Near (5/28/13)

Lynnley Browning, Switzerland Weighs Deal in Tax Cases (NYT DealBook 5/28/13), here, reports that a deal between the U.S. and Swiss may be near that might cover most of the outstanding issues.  Excerpts are:

The Swiss government is considering a proposal to disclose bank client names and pay a multibillion-dollar fine to the United States to help resolve a long-running dispute between the two countries over the handling of tax-evasion cases, American and Swiss sources briefed on the matter said on Tuesday. 

The fine, which could reach at least $7 billion to $10 billion according to these people, could be paid in part by the Swiss government, which would then seek reimbursement from the banks. 

* * * * 

The Swiss banks that have been the targets of investigations include Credit Suisse, which disclosed in July 2011 that it had received a letter saying it was under a grand jury investigation; the Zurich-based Julius Bär; two cantonal, or regional, banks; the Swiss operations of HSBC Holdings; and three Israeli banks, Hapoalim, Mizrahi-Tefahot Bank and Bank Leumi. 

* * * * 

Members of the top echelon of the Swiss government known as the Federal Council are expected to discuss the matter as early as Wednesday, according to people briefed on the talks. These people asked to be unidentified because the discussions were continuing.
Hans Kaufmann, a Swiss parliamentarian and member of the conservative Swiss People’s Party, said that various levels of Parliament would be informed of the Federal Council’s decision in stages over the next 10 days or so.

Swiss Banks Rat Out Their Employees to U.S. (8/18/12; revised 8/21/12)

Reports are that the Swiss banks are ratting out their employees.  See Giles Brown, HSBC, Credit Suisse Sacrifice Employees To U.S., Lawyers Say (Bloomberg 8/16/12), here.

Here are some excerpts:

Swiss banks are turning over thousands of employee names to U.S. authorities as they seek leniency for their alleged role in helping American clients evade taxes, according to lawyers representing banking staff. 

At least five banks supplied e-mails and telephone records containing as many as 10,000 names to the U.S. Department of Justice, according to estimates by Douglas Hornung, a Geneva- based lawyer representing 40 current and former employees of HSBC Holdings Plc’s Swiss unit, Credit Suisse Group AG (CSGN) and Julius Baer Group Ltd. (BAER) The data handover is illegal, said Alec Reymond, a former president of the Geneva Bar Association, who is representing two Credit Suisse staff members. 

“The banks are burning their own people to try and cut deals with the DOJ,” said Hornung. “This violation of personal privacy is unprecedented in the Swiss banking industry.” 

* * *

Swiss Government and Swiss Banks Continue to Play Games (2/1/12)

The U.S., exercising its heavy hammer on the Swiss, set a deadline for more disclosures from 11 Swiss banks by January 30, 2011.  The Swiss apparently turned over data purportedly in response to the demand, but the Swiss encrypted the data so that the U.S. is unable to use the data without the encryption key.  The Swiss posture that the encryption key will not be disclosed until the IRS gives something on the unmitigated demands (probably some assurance that Swiss banks and all except the worst individual enablers won't be indicted).

The Swiss banks involved included Credit Suisse, Julius Baer and Basler Kantonalbank.

The transferred data is reported to "between 4 million and 6 million e-mails between Swiss bankers and their U.S. clients, including the names of those involved."  Randall Jackson, Swiss Banks Turn Over Encrypted Data to U.S. Officials, 2012 TNT 21-6 (2/1/12).

This new Swiss gambit of complying but not complying is apparently an attempt to show good faith on their part.  I doubt that compliance without compliance will be perceived by the U.S. as any form of good faith.  In  truth, it appears just a way to stall the process.  If the U.S. was really serious about the 1/30/12 deadline, the deadline has now been passed without any semblance of good faith compliance.  The ball is in the U.S. Court.  I suspect the U.S. knows how to parry that thrust and thrust back (to mix the metaphors).

Oh, we might all shrug, this is just the Swiss being the Swiss.  That is the point.  (In an analogous context, we might just say "Oh, with a shrug, it is just the Somali pirates being Somali pirates," but we take measures when feasible to move them into compliance or make them suffer if they do not.)

The Noose Tightens: Swiss Banks Deliver Up Data (9/11/11)

Ten of the more significant Swiss bank players in assisting U.S. taxpayers hide their income from U.S. tax authorities have delivered statistical data to the U.S. The data is sufficiently broad that it does not identify individual taxpayers but almost certainly could give the U.S. ways to sharpen its focus on the information and documents that it might ultimately demand from the banks.

An article in Tax Notes (Randall Jackson, Swiss Banks Turn Over Statistical Data in Tax Evasion Investigation, 2011 TNT 177-3 (9/13/11)) reports:
The banks include the following:

HSBC
Wegelin
Julius Baer
Basler Kantonalbank
Zürcher Kantonalbank

Eveline Widmer-Schlumpf, chief of the Swiss Federal Department of Finance, on September 10 also stated that statistical data had been turned over to U.S. officials. However, she added that no personal data had been disclosed. "That would be a violation of banking secrecy," she said, as quoted in a September 11 Agence France-Presse report.
Widmer-Schlumpf stressed that reaching a mutually acceptable outcome between the United States and Switzerland over the latest tax argument is of vital importance, but that it would not require an emergency law or separate treaty.
"The fact is that we are working with a lot of commitment for a solution that Switzerland can deliver within the existing legal framework of administrative assistance in the case of tax fraud and tax evasion. This is happening in accordance with the government and in conjunction with the involved banks. There is no need for an emergency law or separate treaty," she said, as quoted in a September 11 interview with NZZ am Sonntag.

Katie Reid, U.S. Obtains Data From 10 Swiss Banks In Tax-Dodging Probe (Huffington Post/Reuters 9/10/11), here.

Breaking News 9/13/11:

As the commenter notes below, the reports are that the Swiss are caving for all banks by now allowing what I call John Doe Treaty requests as follows (US client data to be provided based on activity (swissinfo.ch), here):

In cases where US authorities are able to supply enough details to justify a suspicious pattern of behaviour, Swiss banks will hand over the names and account details of US clients suspected of tax fraud – which happened to 4,500 UBS clients in 2009.

Of course, the U.S. will only be able to supply very general characteristics, such as use of foreign entities between the swiss account and the U.S. taxpayer, failure to supply the required forms, perhaps some minimum dollar amount (say $50,000).  Many of the characteristics might be discernible from the aggregate data discussed above, and were a key component of the UBS requests.

I will post more on this as more details are known.

New Swiss Enabler Indictment (8/2/11)

Today brings a new Swiss enabler Indictment in the Southern District of Florida, a hotbed of the DOJ juggernaut against banks and enablers. Martin Lack, a citizen and resident of Switzerland, was indicted for the defraud / Klein conspiracy. The indictment is here. 

Lack operates Lack & Partner Asset Management AG in Zurich and is a confederate of Renzo Gadola, previously indicted and blogged here.

As is the way with defraud / Klein conspiracy indictments, Lack's indictment is flowered up with a lot of detailed allegations of skullduggery presented as overt acts. These are just variations on the themes of how far the -- at least some -- Swiss bankers went to accommodate the U.S. clients' needs to hide their tax evasion (for a share of the ill-gotten gains, of course). For example, it is alleged that Lack solicited cash deposits in the U.S. in furtherance of the scheme and further failing to file the required Form 8300.  Thus, the following allegation:

26. It was further a part of the conspiracy that defendant MARTIN LACK and his conspirators would and did assist United States customers with undeclared Swiss accounts at Cantonal Bank in structuring the transfer of funds, including cash, within the United States without disclosing such transfers to the United States government on a Form 8300 as required by law.

U.S. Is Reported to Have Abandoned Negotiations with Swiss (7/18/11)

Rumors previously circulated that the Swiss Government and the U.S. were negotiating to reach their own version of the "grand bargain" over Swiss skullduggery in secret bank accounts for U.S. depositors. See U.S. Swiss Negotiations for Multi-Bank Settlement on Swiss Bank Enabled U.S. Tax Evasion (6/11/11). Now the rumors are that U.S. terminated the negotiations. (One could have speculated as much from the announcement that the U.S. is stepping up its investigation of Credit Suisse. See DOJ Investigating Credit Suisse (7/15/11) .

The following are excerpts from a Reuters report (Swiss-US tax talks flounder as CS probed-paper (Reuters 7/17/11)) which cites a Swiss newspaper.  The key points are (although I remind readers that this is probably the Swiss spin on matters):

1. "Citing unnamed banking sources, the Tages-Anzeiger daily said that negotiations between Switzerland and the United States had stalled because the U.S. Department of Justice was not particularly interested in a deal."

IRS Ratchets Up Its Focus on the Enablers (6/2/11)

Observers of the IRS offshore financial account initiative have known for a long time that the IRS had its sights on enablers (persons who promoted and enabled taxpayers into offshore accounts for U.S. tax evasion purposes). In the template letter required in the two programs, participants were required to identify enablers. Then IRS then took that information and built databases of names and relationships that could identify the signficiant enablers. At least anecdotally, practitioners observed that the IRS seemed to be particularly interested in enablers who had some U.S. presence -- particularly, as in the case of the UBS enablers, those who moved into and out of the country in stealth mode to sell their evasion services. This is probably not new to most of the professional readers of this blog.

In a very good article, a Bloomberg Business Week reporter discusses some of the IRS's efforts. The article is David Voreacos,The IRS Grills Taxpayers on Offshore Accounts, Bloomberg Businessweek (6/2/11). It is not a long article and is well-written, so I just link to it for you. 

Rumors that Offshore Bank Inquiry Expands to Other Swiss Banks and even to Wall Street

Lynnley Browning of The New York Times today here passes on rumors -- presumably from a reliable unnamed source -- that

1. "federal authorities are looking at Wall Street banks that provide banking services to the regional companies, known as cantonal banks."

2. "the Wall Street banks might have been used by the regional banks to pool client money so that individual clients could not be identified by the United States authorities." The article does caution that "There is no indication that the Wall Street banks, which the two people declined to identify, have knowingly engaged in wrongdoing."

3. "The new investigation centers on Basler Kantonalbank, one of the larger regional companies, but includes other cantonal banks as well, the people briefed on the investigation said, declining to identify them." Readers will recall that Renzo Gadola worked with (not for, perhaps) Basler Kantonalbank. I blogged previously on his original charge here and on his guilty plea just two days ago here.

Swiss Enabler for Offshore Accounts Pleads Guilty (12/23/10)

I reported last weekend on criminal charges against Renzo Gadola, a Swiss person, previously a UBS banker who served as an intermediary between U.S. depositors and at least one Swiss bank. The blog is here. The charges were presented by criminal information which often presages a plea agreement. The criminal information is here. Yesterday, Gadola pled guilty. The guilty plea and statement of facts are here and here. Just a few comments:

1. The guilty plea document itself is mostly standard fare. The plea is to the one conspiracy count charged in the criminal information. The parties' agreements as to the sentencing factors do strike me as unusual, so I will comment on them below.
2. The Statement of Facts appears to be a restatement, perhaps verbatim of most or all of the allegations in the criminal information. I summarized certain of the key allegations in my prior post.

The agreement does not give us the Base Offense Level or the tax loss which drives the Base Offense Level. The Base Offense Level, of course, is the starting point for Guidelines calculations. The agreement does, however, give information from which the starting point can be derived, so let's see what the agreement says. Paragraph 10 provides:

10 The United States and the defendant agree that, although not binding on the probation office or the Court, they will jointly recommend that the Court make the following findings and conclusions as to the sentence to be imposed:
   a. Adjusted Offense Level: 12 (U.S.S.G §§ 2Tl.l(b))(2), 2Tl.9)
   b. Abuse of Position of Trust or Use of Special Skill: 2 (U.S.S.G. §3B1.3)
   c. Total Offense Level: 14

The Guidelines and its earlier iterations require that the Base and Adjusted Offense Levels be determined for conspiracies either under first under § 2T1.9.  However, the § 2T1.1 calculation may apply if it (i) "most closely addresses the harm that would have resulted had the conspirators succeeded" in the Klein conspiracy and (ii) produces an Adjusted Offense Level in excess of 10. The agreement does not spell out exactly how the Adjusted Offense Level of 12 was reached, but it appears that number was likely reached by applying § 2T1.1 (a signal may be the reference to 2T1.1 in paragraph 10.a. of the Plea Agreement). So, focusing on § 2T1.1, an adjusted offense level of 12 would mean that the Base Offense Level was 10, because the use of foreign accounts would require a sophisticated means enhancement of 2 under § 2T1.1(b)(2). (Actually, that is not technically correct, for the Base Offense Level could have been less than 10 and § 2T1.1(b)(2) would increase the adjusted offense level to 12, but bear with me on the assumption that the Base Offense Level is 10.) Now, what is the tax loss under the tax table, § 2T4.1, that produces a level of 10? It is between $5,000 and $12,500. (If the Base Offense Level were less than that range, of course, so would the Base Offense Level be less than 10, but § 2T1.1(b)(2) would then kick up the Adjusted Offense Level to 12.) So, we can conclude that the tax loss assumed in the Adjusted Offense Level was $12,500 or less.

That number -- $12,500 -- is very low for the type of conspiracy alleged in the criminal information and repeated in the Statement of Facts. Even just considering the family mentioned in the conspiracy, an intended tax evasion of only $12,500 or less would hardly have justified the efforts alleged and admitted. Moreover, Gadola was doing it for other U.S. Swiss bank depositors and their achieved and intended tax evasion would far exceed that number and would -- at least should -- be considered as relevant conduct. So, what does this mean? It means that the prosecutors and Gadola's lawyer gerrymandered the Guideline's factors in order to produce a sentencing range that would induce Gadola to plead. At least that is how I read the tea leaves; others may read them differently, and if so I hope they will comment.

Of course, there is the standard disclaimer that the Probation Office and the Court are not bound by their agreements as to the Guideline factors.  (Plea Agreement paragraph 10.)

Now, looking at the agreed Total Offense Level of 14, the defendant will likely qualify for the acceptance of responsibility downward adjustment of 2 (3 only if above 16). (The prosecutors agreed to recommend the acceptance of responsibility adjustment in paragraph 6 of the Plea Agreement.) So the sentencing level for applying the Sentencing Table in Chapter 5, Part A contemplated by the Plea Agreement is 12 which is a Zone C range of 10-16 months, requiring some actual incarceration. The Government agreed to recommend sentencing at the low end of the range. (Plea Agreement paragraph 6.) But the parties have agreed that they may argue for variance (Plea Agreement paragraph 3), so, presuming that Gadola does not stub his toe in this process, his lawyer may be able to make serious variance arguments.  Still, one has to wonder whether courts will find the enablers are attractive for mercy as the depositors who they enabled.

Another Swiss Bank Enabler is Charged with Tax / Klein Conspiracy

On December 15, 2010, another Swiss Bank enabler, one Renzo Gadola, was charged with a tax / Klein conspiracy to defeat the lawful functioning of the IRS by assisting United States clients evade U.S. taxes through the use of Swiss banks. The U.S. Attorney Press Release (containing a link to the criminal information is here).

At all relevant times, Gadola was a citizen and resident of Switzerland and a registered investments advisor with the U.S. SEC. He was employed as a private banker by UBS from 1995 through August 2008. In February 2009, he began working as an independent investment adviser under the business name of RG Investment Partner AG. For the matters alleged in the indictment, he partnered with an unindicted co-conspirator names in the indictment under the pseudonym SWISS BANKER, who is alleged to have been executive director UBS's North American business until 2003 and then an investment advisor in Switzerland after that. Gadola and SWISS BANKER assisted U.S. clients in establishing and maintaining undeclared accounts (i.e., accounts not declared to the U.S. in the tax returns or FBARs). Gadola and SWISS BANKER had numerous U.S. clients and met frequently with some of these clients in the U.S.