WASHINGTON – Mellon Bank, N.A., has agreed to pay an additional $16.5 million to settle claims related to the destruction of tens of thousands of individual tax returns and checks in 2001 that the bank was supposed to process as an agent for the Treasury Department, the Justice Department announced today.
The settlement resolves claims that Mellon violated the False Claims Act when it falsely reported to the Internal Revenue Service (IRS) that it had completed a special program to process the tax returns and checks received during the peak April 2001 tax period when, in fact, Mellon never completed the program because it destroyed approximately 77,000 tax returns and checks.
According to the settlement agreement, Mellon contracted with the Treasury Department to process individual tax returns and checks on behalf of the IRS. Mellon was required to complete the task by midnight on April 29, 2001. Failure by Mellon to comply with this deadline would have constituted a breach of its agreement with the IRS. At 3:11 p.m. on April 29, 2001, a Mellon vice president falsely notified the IRS that Mellon had met the deadline. Instead, Mellon employees destroyed tens of thousands of tax returns and checks it had received from taxpayers, all in an effort to deceive the government about Mellon’s timely completion of the 2001 tax program.
“The government must be able to rely on the integrity of its agents, especially those who handle tax receipts,” said Peter D. Keisler, Assistant Attorney General of the Civil Division. "This settlement resolves the financial harm caused by Mellon’s conduct in destroying the tax returns.”
As part of today’s announcement, U.S. Attorney for the Western District of Pennsylvania Mary Beth Buchanan noted that seven former Mellon employees had previously been charged in connection with the destruction of the tax returns and have entered guilty pleas in their cases. “This resolution of the United States’ civil claims represents an additional step in the Department of Justice’s campaign to restore corporate accountability.”
The civil settlement announced today is the third agreement between Mellon and the government to address the problems created by Mellon’s destruction of the tax returns.
In 2002, Mellon paid approximately $18 million as part of a separate administrative settlement with the Treasury Department to reimburse the government for the value of the interest lost on the destroyed checks until replacement checks were received from taxpayers as well as the costs incurred by the government in obtaining the replacement checks.
In an agreement with the U.S. Attorney’s Office in 2006, Mellon agreed to amend its policies and procedures to strengthen its compliance and ethics programs, and to the appointment of a monitor to oversee Mellon’s corporate compliance program for three years.
The settlement announced today resolves Mellon’s potential liability to the government under the civil False Claims Act. The False Claims Act imposes triple damages and civil penalties of up to $11,000 for each violation of the Act. Combined with the prior payments made by Mellon to the government, the additional $16.5 million announced today brings Mellon’s total payments to more than $34 million.
The False Claims Act case was investigated by the Department of Treasury Inspector General for Tax Administration (TIGTA).