International Financial Law Prof Blog

Editor: William Byrnes
Texas A&M University
School of Law

Thursday, August 6, 2015

Swiss Banks Folding Like a House of Cards - Four More Go Down But One Receives Get Out Of Jail for Free Card

A couple days ago Bank EKI Genossenschaft (Bank EKI) entered into a non prosecution agreement Justice logo with the US Department of Justice, admitting it assisted US taxpayer with tax evasion.  Privatbank Reichmuth & Co., Banque Cantonale du Jura SA and Banca Intermobiliare di Investimenti e Gestioni (Suisse) SA then today announced their non-prosecution agreements. One bank will pay no penalty, while the other three will pay penalties $400,000, $2.6 million, and $970,000 respectively, and turn over client records.  

The banks started with 201 clients among them in 2008, but one bank closed its non-compliant accounts and thus has been received a "get out of jail" free.

Since Aug. 1, 2008, Bank EKI held a total of 64 U.S.-related accounts with just over $21 million in aggregate assets.  Bank EKI will pay a penalty of $400,000.  Reichmuth maintained and serviced 103 U.S.-related accounts with an aggregate value of approximately $281 million, including both declared and undeclared accounts.  Reichmuth will pay a penalty of $2.592 million.  BCJ had 18 U.S. clients with a total of 118 U.S.-related accounts.  The aggregate amount of assets under management of all accounts associated with U.S. taxpayers at BCJ was approximately $10 million.  BCJ will pay a penalty of $970,000.   

BUT between Aug. 1, 2008, and May 2015, BIM Suisse closed 13 of its 16 U.S.-related accounts.  As of July 2015, BIM Suisse maintains only three U.S.-related accounts, and none of those accounts remain undisclosed to the U.S. tax authorities.  Under the terms of the agreement signed today, BIM Suisse will not pay a penalty.

Bank EKI was founded in 1852 and has its headquarters in the tourist resort town of Interlaken, Switzerland.  It also operates small branch offices in Bönigen, Wilderswil, Grindelwald and Lauterbrunnen, Switzerland.

Bank EKI opened, serviced and profited from accounts for U.S. clients with the knowledge that many were likely not complying with their tax obligations.  Many of the U.S.-related accounts were transferred from other Swiss financial institutions that were closing such accounts, and Bank EKI knew or had reason to know that a portion of these accounts were likely undeclared.

Bank EKI provided traditional Swiss banking services that it knew could assist, and that did in fact assist, certain U.S. taxpayers in concealing their Bank EKI accounts from the Internal Revenue Service (IRS).  One such service was hold mail: for a fee, Bank EKI would hold all mail correspondence for a particular client at the bank.  By accepting and maintaining such accounts, Bank EKI thus ensured that documents reflecting the existence of the accounts remained outside the United States, beyond the reach of U.S. tax authorities and protected by Swiss banking secrecy laws.

Due in part to the means provided by Bank EKI and its personnel, and with the knowledge that Swiss banking secrecy laws would prevent Bank EKI from disclosing their identities to the IRS, many of the U.S. clients of Bank EKI filed false and fraudulent U.S. Individual Income Tax Returns, or IRS Forms 1040, that failed to report their respective interests in their undeclared accounts and the related income.  Moreover, many of the U.S. clients of Bank EKI also failed to file and otherwise report their undeclared accounts on Reports of Foreign Bank and Financial Accounts (FBARs).

Bank EKI did not sufficiently implement an effective system of supervisory policies, procedures or controls over its relationship managers to increase its U.S.-related clients’ tax compliance.  Moreover, Bank EKI’s relationship managers too readily accepted representations and directions from the accountholders without adequately investigating questionable information.

Since Aug. 1, 2008, Bank EKI held a total of 64 U.S.-related accounts with just over $21 million in aggregate assets.  Bank EKI will pay a penalty of $400,000.

Tax Compliance | Permalink


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