BSI SA of Lugano, Switzerland, is First Bank to Reach Resolution Under Justice Department’s Non Prosecution Agreement Program

The Department of Justice announced that BSI SA, one of the 10 largest private banks in Switzerland, is the first bank to reach a resolution under the Department of Justice’s Swiss Bank Program.  106 Swiss banks have sought non-prosecution agreements.

“We are using the information that we have learned from BSI and other Swiss banks in the program to pursue additional investigations into both banks and individuals,” said Acting Deputy Attorney General Sally Quillian Yates. 

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 United States-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.

Banks meeting all of the above requirements are eligible for a non-prosecution agreement.

According to the terms of the non-prosecution agreement signed today, BSI agrees to cooperate in any related criminal or civil proceedings, demonstrate its implementation of controls to stop misconduct involving undeclared U.S. accounts, and pay a $211 million penalty in return for the department’s agreement not to prosecute BSI for tax-related criminal offenses.

BSI helped its U.S. clients create sham corporations and trusts that masked the true identity of its U.S. accountholders.  Many of its U.S. clients also opened “numbered” Swiss bank accounts that shielded their identities, even from employees within the Swiss bank.  BSI acknowledged that in order to help keep identities secret, it issued credit or debit cards to many U.S. accountholders without names visible on the card itself. 

BSI not only helped U.S. clients shield their identity from the Internal Revenue Service (IRS) but helped them repatriate cash as well.  BSI admitted that its relationship managers and their U.S. clients used code words in emails to gain access to funds.  BSI disclosed instances where its U.S. clients would use coded language, such as asking their private bankers, “can you download some tunes for us?” or note that their “gas tank is running empty” when they required additional cash to be loaded to their cards.

From the beginning of the Swiss Bank Program, the department has emphasized the importance of the banks’ helping to identify individuals who facilitate U.S. tax evasion and U.S. accountholders.  BSI provided substantial assistance in this regard. 

“An individual is not culpable simply because he or she is identified by a bank within the program,” said Acting Assistant Attorney General Caroline D. Ciraolo of the department’s Tax Division.  “With that said, the department strongly encourages those individuals and entities currently under indictment, under investigation, or who have concerns regarding their potential criminal liability to contact and fully cooperate with the department to reach a final resolution.”

Since 2009, the department has charged more than 100 offshore bank accountholders, dozens of facilitators, and financial institutions.  The department’s offshore enforcement efforts have reached far beyond Switzerland, as evidenced by publicly announced actions involving banking activities in India, Luxembourg, Liechtenstein, Israel and the Caribbean.

BSI had more than 3,000 active United States-related accounts after 2008, many of which it knew were not disclosed in the United States.  In resolving its criminal liabilities under the program, BSI provided extensive cooperation and encouraged hundreds of U.S. accountholders to come into compliance.  BSI is also assisting with ongoing treaty requests.

“This action under the Swiss Bank Program shows just how far we’ve come in our efforts to stop offshore tax avoidance,” said Deputy Commissioner Douglas O’Donnell of IRS’s Large Business and International Division (LB & I).  “The IRS and DOJ remain committed to aggressively enforce our nation's tax laws regardless of how sophisticated or complicated the schemes may be.”

While BSI’s U.S. accountholders who have not yet declared their accounts to the IRS may still be eligible to participate in the IRS’s offshore voluntary disclosure programs, the price of such disclosure has increased.

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 BSI’s non-prosecution agreement, its noncompliant U.S. accountholders must now pay that 50 percent penalty to the IRS if they wish to enter the IRS’ program. 

BSI and other banks in the Swiss Bank Program are also providing detailed information to the department about transfers of money from Switzerland to other countries.  The Tax Division and the IRS intend to follow that money to uncover additional tax evasion schemes.

The department has emphasized the importance of identifying U.S. accountholders who have undeclared foreign bank accounts, and BSI has provided assistance in that task.  Because of the information provided to the department under the program, the Tax Division has already begun the process of identifying noncompliant U.S. accountholders who have maintained accounts at many Swiss banks participating in the Swiss Bank Program. 

BSI NPA Exhibit A Statement of Facts

BSI NPA Exhibit B Resolution

BSI NPA

 

What is the Program for Non-Prosecution Agreements or Non-Target Letters for Swiss Banks?

The Tax Division of the Department of Justice released a statement on December 12 strongly encouraging Swiss banks wanting to seek non-prosecution agreements to resolve past cross-border criminal tax violations to submit letters of intent by a Dec. 31, 2013 deadline required by the Program for Non-Prosecution Agreements or Non-Target Letters (the “Program“).  The Program was announced on Aug. 29, 2013, in a joint statement signed by Deputy Attorney General James M. Cole and Ambassador Manuel Sager of Switzerland (See the Swiss government’s explanation of the Program).  Switzerland’s Financial Market Supervisory Authority (FINMA) has issued a deadline of Monday, December 16, 2013 for a bank to inform it with its intention to apply for the DOJ’s Program.

The DOJ statement described the framework of the Program for Non-Prosecution Agreements: every Swiss bank not currently under formal criminal investigation concerning offshore activities will be able to provide the cooperation necessary to resolve potential criminal matters with the DOJ.  On November 5, 2013 the Tax Division of the DOJ had released comments about the Program for Non-Prosecution Agreements or Non-Target Letters for Swiss Banks.

Swiss banks that have committed violations of U.S. tax laws and wished to cooperate and receive a non-prosecution agreement under the Program, known as Category 2 banks, had until Dec. 31, 2013 to submit a letter of intent to join the program, and the category sought. 

To be eligible for a non-prosecution agreement, Category 2 banks must meet several requirements, which include agreeing to pay penalties based on the amount held in undeclared U.S. accounts, fully disclosing their cross-border activities, and providing detailed information on an account-by-account basis for accounts in which U.S. taxpayers have a direct or indirect interest.  Providing detailed information regarding other banks that transferred funds into secret accounts or that accepted funds when secret accounts were closed is also a stipulation for eligibility. The Swiss Federal Department of Finance has released a model order and guidance note that will allow Swiss banks to cooperate with the DOJ and fulfill the requirements of the Program.