Hypothekarbank Lenzburg AG Reaches Resolution under Justice Department's Swiss Bank Program
The Department of Justice announced today that Hypothekarbank Lenzburg AG (HBL) has reached a resolution under the department’s Swiss Bank Program.
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 U.S.-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 accountholders who fail to come into compliance with U.S. reporting obligations; and
Pay appropriate penalties.
Swiss 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, HBL 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 penalties in return for the department’s agreement not to prosecute the bank for tax-related criminal offenses.
HBL was founded in 1868 and is headquartered in Lenzburg, Switzerland. Its principal business, focused on the Canton of Aargau, Switzerland, is issuing mortgages on real property and lending to businesses.
HBL offered a variety of traditional Swiss banking services that it knew could assist, and that did assist, U.S. clients in the concealment of assets and income from the Internal Revenue Service (IRS). For example, HBL, upon client request, did not send mail associated with some U.S.-related accounts to the United States. In addition, HBL offered numbered accounts to its clients, a service by which access to information about an account, including the identity of the accountholder, was limited to only certain employees of HBL. In a handful of instances, the accountholders of U.S.-related accounts who refused to provide a Form W-9 or who admitted that they were not tax compliant withdrew significant amounts of cash or physical assets when HBL forced these accounts to be closed.
In or about 2008, Swiss bank UBS AG publicly announced that it was the target of a criminal investigation by the IRS and the department, and that it would be exiting and no longer accepting certain U.S. clients. In a later deferred prosecution agreement, UBS admitted that its cross-border banking business used Swiss privacy law to aid and assist U.S. clients in opening accounts and maintaining undeclared assets and income from the IRS. HBL opened one account for a U.S. person who exited UBS. For another long-standing holder of a U.S.-related account, HBL received a transfer of funds from an account held at UBS into a pre-existing account at HBL.
Another accountholder who resided in the United States for many years had two accounts, one of which was a numbered account. In 2012, the accountholder’s relationship manager requested a Form W-9 for the numbered account and the accountholder refused to provide one. As a result, the relationship manager directed the accountholder to close the numbered account. Thereafter, the accountholder came to Lenzburg to close the numbered account. The accountholder withdrew 240,000 Swiss francs and 12,000 euros and purchased precious metals in the amount of 318,000 Swiss francs.
Since Aug. 1, 2008, HBL had 96 U.S.-related accounts with an aggregate value of $69.8 million. HBL’s average annual revenue attributable to U.S.-related accounts in the form of fees, commissions and earnings on client funds that were loaned out by HBL was $198,000, or a total of $1.2 million since Aug. 1, 2008. HBL will pay a penalty of $560,000.
In accordance with the terms of the Swiss Bank Program, HBL mitigated its penalty by encouraging U.S. accountholders to come into compliance with their U.S. tax and disclosure obligations. While U.S. accountholders at HBL who have not yet declared their accounts to the IRS may still be eligible to participate in the IRS Offshore Voluntary Disclosure Program, 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 this non-prosecution agreement, noncompliant U.S. accountholders at HBL must now pay that 50 percent penalty to the IRS if they wish to enter the IRS Offshore Voluntary Disclosure Program.
Acting Assistant Attorney General Caroline D. Ciraolo of the Justice Department’s Tax Division thanked the IRS, and in particular, IRS-Criminal Investigation and the IRS Large Business and International Division for their substantial assistance. Ciraolo also thanked Brian D. Bailey, who served as counsel on this matter, as well as Senior Counsel for International Tax Matters and Coordinator of the Swiss Bank Program Thomas J. Sawyer and Senior Litigation Counsel Nanette L. Davis of the Tax Division.
Additional information about the Tax Division and its enforcement efforts may be found on the division’s website.