Zurich Life Enters NPA with DOJ Tax (4/25/19)

DOJ Tax announced here that it has reached a nonprosecution agreement ("NPA") with Zurich Life Insurance Company Ltd (Zurich Life), headquartered in Zurich, Switzerland, and Zurich International Life Limited (Zurich International Life), headquartered in the Isle of Man (collectively Zurich).  Zurich will pay a penalty of $5,115,000 and agrees to cooperate in any related criminal or civil proceedings.

The description of the conduct is long, but I just cut and paste:

From Jan. 1, 2008, through June 30, 2014, Zurich issued or had certain insurance policies and accounts of U.S. taxpayer customers, who used their policies to evade U.S. taxes and reporting requirements. In particular, Zurich had approximately 420 U.S. related policies, 127 with Zurich Life and 293 with Zurich International Life, with an aggregate maximum value of approximately $102 million, for which the U.S. taxpayer customers did not provide evidence that they had declared their policies to U.S. tax authorities. 

To qualify for favorable tax treatment under the U.S. tax code, insurance must meet certain minimal requirements. The policies offered by Zurich Life and Zurich International Life did not meet these requirements. The increase of the principal in these policies was therefore subject to taxation, and the policies were required to be disclosed to the Internal Revenue Service (IRS) on FinCEN Form 114 Foreign Bank Account Report, commonly referred to as an FBAR. In issuing or having undeclared U.S. related policies, Zurich knew or should have known that they were helping U.S. taxpayers conceal from the IRS ownership of undeclared assets, maintained as insurance policies or accounts. 

Zurich International Life, in particular, sold insurance products to U.S. taxpayers that were “unit linked,” meaning the cash surrender value and death benefit amount were linked to the value of specified investments. With such policies, the U.S. taxpayer had a suite of specialized investment options, allowing them to access potentially higher returns by taking on the market risk associated with the policies. Some of these unit-linked policies offered a base death benefit that was nearly equivalent to the cost of the policy itself, and in some instances was fully funded by transfers from offshore bank accounts. Upon redemption, the U.S. taxpayer would receive the premium amount plus any investment earnings on the policy less a very small percentage for putative risk and fees. 

Despite knowing that some of these policies, which had minimal-to-no risk mitigation function and specialized investment options, were held by U.S. taxpayers, Zurich International Life failed to act appropriately to ensure timely compliance by the policyholders with U.S. tax laws. In at least one instance, uncovered during the course of Zurich Life’s internal review, a former U.S. citizen, who pled guilty to a federal fraud offense after purchasing a Zurich International Life policy, used that insurance policy to hide substantial assets, despite owing approximately $900,000 in restitution to his victims. 

Following the commencement of the Department’s Swiss Bank Program, the Zurich Group initiated a global review of the life insurance, savings and pension business sold by all of its non-U.S. operating companies to identify policies or accounts with U.S. indicia. This review prompted an extensive customer outreach to current and former customers with a possible nexus to the United States to confirm the customers’ status as U.S. taxpayers, assess their compliance with applicable U.S. tax and reporting rules, and encourage participation in an IRS voluntary disclosure program. 

In July 2015, Zurich contacted the Department to inform it of the initial findings of the self-review. Prior to the self-reporting, Zurich was neither a subject nor a target of any investigation being conducted by the Tax Division. Since this self-disclosure, Zurich has conducted a thorough investigation and reported substantial findings to the Tax Division, including dozens of detailed summaries of account information and comprehensive reports for the U.S. related policies. 

In addition to these efforts, the Companies have worked closely with non-U.S. regulators to ensure full disclosure to the Department. For instance, in 2016, Zurich Life applied to the Swiss Federal Department of Finance and received approval to waive Article 271 of the Swiss Criminal Code, which restricted the disclosures that Zurich Life could make to the Department, thereby facilitating Zurich Life’s production of certain information that would have otherwise been prohibited.

DOJ Tax Targeting Swiss Life Insurance Companies Offering Insurance Wrappers to Help U.S. Taxpayers Evade Tax (9/16/17)

DOJ Tax is reportedly looking at Swiss life insurance companies who participated in providing so-called insurance wrappers to hide U.S. taxpayer's investments.  I offer a recent article and then two other older items for more information.

John Revill, Oliver Hirt, UPDATE 1-Swiss Life speaks to DOJ about possible tax evasion by U.S. clients (Reuters 9/14/17), here.

Swiss Life could face a fine in the United States after it was contacted by the U.S. Department of Justice (DOJ) about whether it helped U.S. clients avoid tax, Switzerland’s biggest life insurer said on Thursday. 

The disclosure comes as U.S prosecutors have been widening their probe of Swiss banks who have been helping wealthy American clients dodge taxes to include insurance companies. 

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The Zurich-based company started selling the products in 2006, but stopped selling them in the United States in 2012. Swiss Life returned funds to hundreds of American clients who had invested in insurance wrappers linked to bank accounts at Bank Frey in 2013, The Wall Street Journal has reported.

Reuters Staff, U.S. looks at Swiss insurers in offshore probe: WSJ (Reuters 2/24/2014), here.

Insurers in Switzerland have been preparing for months for U.S. officials to investigate products known as insurance wrappers - life insurance policies into which the very wealthy place stocks, private equity holdings and other bankable assets, allowing them to lower their tax rate.

Justice Department Announces Resolution under Swiss Bank Program with Union Bancaire Privée, UBP SA (DOJ Tax 1/6/16), here.

UBP maintained undeclared accounts at UBP for U.S. clients in the nominee names of non-U.S. insurance companies.  Such accounts, known commonly as insurance wrappers, were titled in the names of insurance companies but were funded with assets that were transferred to the accounts for the beneficial owners of the insurance products.  Insurance wrappers were marketed to Swiss Banks by third-party providers in the wake of the UBS investigation as a means of disguising the beneficial ownership of U.S. clients.  For example, in November 2009, UBP worked with a third-party service provider to assist a U.S. beneficial owner in restructuring three existing ac=counts he held at UBP in the names of nominee Panamanian entities into three accounts owned by the insurance company. 

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Effective January 2001, UBP entered into a Qualified Intermediary (QI) Agreement with the IRS.  The QI Agreement was designed to help ensure that, with respect to U.S. securities held in an account with UBP, non-U.S. persons were subject to the proper U.S. withholding tax rates and U.S. persons were properly paying U.S. tax.  As a consequence of UBP entering into a QI Agreement with the IRS, UBP allowed U.S. clients to create and open accounts in the name of sham offshore entities and insurance wrappers.  Certain UBP employees caused UBP to certify compliance with the QI Agreement event though the true beneficial owners were not reflected in the IRS Forms W-8BEN in the account files.  UBP also divested U.S. securities from its undeclared U.S. accounts for the purpose of subverting its QI Agreement.