The Tax Division of the Department of Justice today strongly encouraged Swiss banks that want to seek non-prosecution agreements to resolve past cross-border criminal tax violations to submit letters of intent by the Dec. 31, 2013 deadline required by the Program for Non-Prosecution Agreements or Non-Target Letters for Swiss Banks (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.
“The Program offers Swiss banks a unique opportunity to resolve criminal issues relating to their offshore banking activities that will not be available after the deadline,” said Assistant Attorney General Kathryn Keneally. “Banks that facilitated U.S. tax evasion but do not come forward by the December 31 deadline bear significant risks that information provided by others may cause the bank to be targeted and prosecuted. As the Program and our ongoing investigations provide the U.S. government a wealth of additional information, the risk for those that have engaged in or facilitated U.S. tax evasion grows by the day. The Program offers Swiss banks that engaged in this wrongdoing their best chance to resolve outstanding criminal issues.”
The Program provides a framework that permits every Swiss bank not currently under formal criminal investigation concerning offshore activities to provide the cooperation necessary to resolve potential criminal matters with the department. Currently, the department is actively investigating the Swiss-based activities of 14 banks. Those banks, referred to as Category 1 banks in the Program, are expressly excluded from the Program. The Swiss Federal Department of Finance has released a model order and guidance note that will allow all other Swiss banks to cooperate with the Department of Justice and fulfill the requirements of the Program.
Swiss banks that have committed violations of U.S. tax laws and wish to cooperate and receive a non-prosecution agreement under the Program, known as Category 2 banks, must submit a letter of intent by Dec. 31, 2013. 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 Tax Division has committed that it will not authorize formal criminal investigations of any additional Swiss banks prior to the Dec. 31, 2013, deadline. However, the Tax Division continues to aggressively pursue those who attempt to evade the law by hiding income and assets outside the United States and those who assist them. In the last six months, the Tax Division has secured two convictions after trial and six guilty pleas of defendants who maintained, or assisted others in maintaining, undeclared bank accounts in foreign countries. Some of those cases include:
· In October 2013, Dr. Patricia Lynn Hough of Englewood, Fla., was convicted by a jury in Fort Myers, Fla., of conspiring to defraud the IRS and of filing false individual income tax returns. According to evidence presented at trial, Hough concealed millions of dollars in assets and income in offshore bank accounts at UBS and other foreign banks, and filed tax returns that failed to report the existence of those foreign accounts or the income earned in those accounts.
· In October 2013, Ashvin Desai, the owner of a medical device company in San Jose, Calif., was convicted of filing false tax returns, aiding and assisting in the preparation of false tax returns and failing to file Reports of Foreign Bank and Financial Accounts (FBARs) following a three-week trial. According to evidence presented at trial, Desai, his wife and two adult children maintained bank accounts worth more than $7 million with The Hongkong and Shanghai Banking Corporation Ltd. (HSBC) in India. Desai prepared and filed income tax returns for his family members that failed to report the accounts or over $1.1 million in interest generated by them over three years.
· In August 2013, Edgar Paltzer, a former partner at a Swiss law firm, pleaded guilty to conspiring with U.S. taxpayer-clients and others to help U.S. taxpayers hide millions of dollars from the IRS in offshore accounts and to evade U.S. taxes on the income earned in those accounts.
· In August 2013, Henry Seggerman of New York and Los Angeles pleaded guilty to charges related to his participation in a scheme with family members to hide over $12 million in secret Swiss bank accounts inherited upon their father’s death. Seggerman’s siblings Suzanne Seggerman, Yvonne Seggerman and Edmund Seggerman each previously pleaded guilty to one count of conspiracy to defraud the United States and two counts of subscribing to false and fraudulent tax returns.
In addition, in July 2013, Liechtensteinische Landesbank AG, a bank based in Vaduz, Liechtenstein, entered into a non-prosecution agreement and agreed to pay more than $23.8 million stemming from its offshore banking activities, and turned over more than 200 account files of U.S. taxpayers who held undeclared accounts at the bank.
The Tax Division is committed to using every tool available to identify, investigate and prosecute those who hide income and assets in offshore bank accounts. Two court orders entered in November 2013 in a New York federal court will further aid these investigations by authorizing the IRS to serve what are known as “John Doe” summonses on five banks to obtain information about possible tax fraud by individuals whose identities are unknown. The John Doe summonses direct the five banks to produce records identifying U.S. taxpayers holding interests in undisclosed accounts at Zurcher Kantonalbank (ZKB) and its affiliates in Switzerland and at The Bank of N.T. Butterfield & Son Limited (Butterfield) and its affiliates in Switzerland, the Bahamas, Barbados, Cayman Islands, Guernsey, Hong Kong, Malta and the United Kingdom. The summonses also direct the five banks to produce information identifying foreign banks that used ZKB’s and Butterfield’s correspondent accounts at the five banks to service U.S. clients.
The Program also provides that Swiss banks that did not engage in wrongful acts with U.S. taxpayers, but nonetheless want a resolution of their status, may apply for a non-target letter. Those banks may not submit a letter of intent until July 1, 2014.