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.

Credit Suisse, UBS in the Dock

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.

U.S. Clients

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

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.