Wednesday, February 15, 2006

German Bank Enters Into a Deferred Prosecution Agreement Related to KPMG Tax Shelter Sales

Bayerische Hypo und Vereinsbank (HVB), which is headquartered in Munich, Germany, and its U.S. subsidiary, HVB U.S. Finance Inc., entered into a deferred prosecution agreement related to the bank's financing of transactions used for some of the tax shelter transactions sold by KPMG to wealthy individuals to help avoid significant tax liabilities.  HVB's involvement in the shelters comes through its former senior vice president at its structured finance group, Domenick DeGiorgio, who got the bank to finance KPMG shelters known as BLIPS and CARDS (don't ask for a translation, it's not worth it) from 1996 through 2002.  In August 2005, DeGiorgio entered a guilty plea to four counts of tax evasion arising from his work arranging financing through HVB for loans to the individuals purchasing the tax shelters, as described in a press release issued by the U.S. Attorney's Office for the Southern District of New York (here):

According to DEGIORGIO, the loan proposed and put in place by the BLIPS promoters was a sham because among other things, as designed, no money ever left the bank and because HVB never set aside any of its own money or procured funds from the banking market in order to fund any of these loans. DEGIORGIO admitted that, at the time he participated in BLIPS, he was well aware of these facts. DEGIORGIO also admitted that he had reviewed the draft BLIPS tax opinion letter and knew that BLIPS was falsely described as involving, as an important part of the transaction, these purported loans, and he also knew that this false description was created in order that BLIPS clients would claim BLIPS tax losses and keep for themselves money that they should have paid in taxes. DEGIORGIO further admitted that he agreed to participate in these transactions, and in furtherance of the scheme, he and others caused HVB to prepare and execute various false documents that made it appear that HVB was providing real loans, when in reality, it was not.

The Statement of Facts (available below) notes that DeGiorgio used two different law firms who provided form opinion letters to support the transactions.

The Deferred Prosecution Agreement (available below), which lasts for eighteen months, is not as wide-ranging as that entered into with KPMG, which played a much greater role in the tax shelter sales.  HVB agrees to adopt a compliance program, with no outside monitor, and to cooperate in the government's prosecution of the former KPMG tax partners.  Unlike other such agreements, there is no mention of a waiver of the attorney-client privilege or work product, perhaps because the case involves only bank documents that would not otherwise be subject to a privilege/protection claim.  HVB will pay $29 million in disgorgement, penalties, and fines. (ph)

Download hvb_deferred_prosecution_agreement.pdf

Download hvb_dpa_exhibit_c_statement_of_facts.pdf

http://lawprofessors.typepad.com/whitecollarcrime_blog/2006/02/german_bank_ent.html

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