Swiss Banks to Pay $1.36bn Penalties to US, Sign “Non Prosecution”
Agreements with US
· 50% Penalty for those who Disclose
Late
The Justice Department executed its 80th and
final agreement with HSZH Verwaltungs AG, which
agreed to pay a civil penalty of more than $49 million. All told, the 80
Category 2 Swiss banks which resolved their criminal tax exposure with the U.S.
government will pay more than $1.36 billion in penalties. More importantly, every
Category 2 bank in the Swiss Bank Program is required to cooperate in any
future related criminal or civil proceedings to as the U.S. government pursues
leads throughout the world.
The U.S. government has never before offered an amnesty
program to the entire banking industry in a particular country. Given the
success of the Swiss Bank Program, the Justice Department may offers a similar
program to banks in other countries or regions.
“The
Department of Justice is committed to aggressively pursuing tax evasion, and
the Swiss Bank Program has been a central component of that effort,” Attorney
General Loretta E. Lynch. “Through this initiative, we have uncovered those who
help facilitate evasion schemes and those who hide funds in secret offshore
accounts. We have improved our ability to return tax dollars to the United
States. And we have pursued investigations into banks and individuals.”
The department’s Swiss Bank Program has been a successful,
innovative effort to get the financial institutions that facilitated fraud on
the American tax system to come forward with information about their
wrongdoing.
An official of the Justice Department’s Tax Division said.
“Using the flood of information flowing from various sources, the department is
investigating this criminal conduct, referring appropriate matters to the
Internal Revenue Service for civil enforcement and pursuing leads in
jurisdictions well beyond Switzerland.”
More than 54,000 taxpayers have come forward to voluntarily
disclose their previously-undisclosed offshore assets:
The Swiss Bank Program, which was announced on Aug. 29, 2013,
provides a path for Swiss banks to resolve potential criminal liabilities in
the United States. Swiss banks eligible to enter the program were required to
advise the department by Dec. 31, 2013, that they had reason to believe that
they had committed tax-related criminal offenses in connection with undeclared
U.S.-related accounts. Banks already under criminal investigation related to
their Swiss-banking activities and all individuals were expressly excluded from
the program.
Under
the program, banks are required to:
• 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; and
• Pay appropriate penalties.
Swiss banks meeting all of the above requirements are
eligible for a non-prosecution agreement.
Taxpayers who have still not “come clean” and declared their
offshore assets may still take advantage of various IRS programs, such as the
Offshore Voluntary Disclosure Program or the Streamlined Filing Compliance
Procedures, but the price of admission has now increased if they had accounts
at HSZH:
Most U.S. taxpayers who enter the IRS Offshore Voluntary
Disclosure Program to resolve undeclared offshore accounts will pay a penalty
equal to 27.5 percent of the high value of the accounts. On Aug. 4, 2014, the
IRS increased the penalty to 50 percent if, at the time the taxpayer initiated
their disclosure, either a foreign financial institution at which the taxpayer
had an account or a facilitator who helped the taxpayer establish or maintain
an offshore arrangement had been publicly identified as being under
investigation, the recipient of a John Doe summons or cooperating with a
government investigation, including the execution of a deferred prosecution
agreement or non-prosecution agreement.With today’s
announcement of this non-prosecution agreement, noncompliant U.S.
accountholders at HSZH must now pay that 50 percent penalty to the IRS if they
wish to enter the IRS Offshore Voluntary Disclosure Program.
The
bank’s deferred-prosecution agreement with the U.S. Department of Justice is
part of a broad probe of tax evasion and undeclared offshore accounts by U.S.
citizens helped by Swiss banks. Julius Baer follows larger rivals UBS Group AG
and Credit Suisse Group AG in resolving U.S. tax probes.
UBS resolved its tax probes by agreeing in 2009 to pay
$780 million; Credit Suisse, by agreeing to pay $2.6 billion in 2014. A
dozen or so Swiss banks, such as Pictet & Cie.
Group SCA and the Swiss unit of HSBC Holdings Plc, are still waiting to end
criminal tax investigations by the U.S.
Another 80 Swiss banks avoided prosecution by voluntarily
disclosing their wrongdoing in the past year as part of a Justice Department
disclosure program. BSI SA and Union Bancaire, which
weren’t placed under criminal investigation, paid $211 million and $188 million
respectively.
More than three dozen offshore bankers, lawyers and advisers
have been charged since 2008 as part of a broad probe of tax evasion and
undeclared offshore accounts. Several bankers have come to the U.S. to plead
guilty, including those who worked at UBS and Credit Suisse.
The bank has grown through acquisitions in the past six years
under Chief Executive Officer Boris Collardi,
including the 2012 purchase of Bank of America Corp.’s non-U.S. wealth units.
The U.S. couldn’t extradite the Swiss bankers because tax
evasion isn’t considered a crime in Switzerland.
Casadei
and Frazzetto, accused of helping more than 180 U.S.
clients hide at least $600 million in assets from the Internal Revenue Service,
face as long as five years in prison. They made their first appearance Tuesday
in a Manhattan federal court, where they pleaded not guilty to a conspiracy
charge, and were released on a $1 million bond secured by $250,000 in cash.
Julius
Baer, Switzerland’s third-largest wealth manager, has agreed to the
deferred-prosecution agreement to resolve the investigation. Under such an
agreement, a company is charged with a crime that is later dismissed if the
firm makes a payment, complies with specified conditions and makes a detailed
statement of facts about its wrongdoing.
Julius Baer advisers Daniela Casadei
and Fabio Frazzetto were indicted in 2011 on a
conspiracy charge. They are expected to enter their pleas on the same day the
U.S. presents the deferred-prosecution pact for the bank to a judge in New
York, said the people, who aren’t authorized to discuss the matter because it
isn’t public.
The bank, founded in 1890, will not plead guilty or have
a monitor installed, and none of its senior executives will be prosecuted,
according to one of the people. The bank will admit that it helped Americans
hide money from the Internal Revenue Service through sham offshore entities and
other means.
Julius Baer said it had set aside $547 million to cover the
U.S. penalty and expected an agreement in the first quarter. The bank said
Monday that its gross margin fell in the second half of 2015 to the worst since
Collardi took the helm in 2009.
Net income slumped 67 percent to 121 million francs in 2015,
mainly due to the expected cost of the U.S. case, the company said in a
statement. Operating income rose to 2.69 billion francs from 2.55 billion
francs a year earlier, missing an average estimate of 2.73 billion francs by 20
analysts.
The company was managing 297 billion francs ($292 billion)
for wealthy individuals and families at the end of October and reported a 78
percent decline in first-half profit in July, mainly due to the initial
provision for the U.S. tax settlement.