Justice Department Announces Two Banks Reach Resolutions under Swiss Bank Program
The Department of Justice announced today that St. Galler Kantonalbank AG (SGKB) and E. Gutzwiller & Cie, Banquiers, have reached resolutions under the department’s Swiss Bank Program. These banks will collectively pay penalties totaling more than $11 million.
“Today’s agreements signify the clear recognition by Swiss financial institutions of the need to resolve their criminal exposure in the United States in order to successfully operate in the global marketplace,” said Acting Assistant Attorney General Caroline D. Ciraolo of the Justice Department’s Tax Division. “Banks reaching agreements with the department understand that they must accept full responsibility for their criminal conduct, pay appropriate penalties in accordance with the established terms of the Swiss Bank Program, and provide full, complete and timely cooperation with respect to those individuals and other entities who facilitated the concealment of U.S.-related accounts and the evasion of U.S. tax obligations.”
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 agreements signed today, each bank 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 these banks for tax-related criminal offenses.
St. Galler Kantonalbank AG (SGKB) has its headquarters in the Canton of St. Gallen, Switzerland. It was founded in 1868 to provide credit services to Cantonal residents and to assist in the development of the regional economy. By Cantonal law, the Canton of St. Gallen is SGKB’s majority shareholder, owning 54.8 percent of SGKB’s shares.
SGKB offered a variety of traditional Swiss banking services that it knew could assist, and that did in fact assist, U.S. clients in the concealment of assets and income from the Internal Revenue Service (IRS). These services included hold mail, as well as code name or numbered account services. These services helped U.S. clients eliminate the paper trail associated with the undeclared assets and income they held at SGKB in Switzerland. By accepting and maintaining such accounts, SGKB assisted some U.S. taxpayers in evading their U.S. tax obligations.
SGKB agreed to open accounts for at least 58 U.S. taxpayers who had left other banks being investigated by the department without ensuring that each such account was compliant with U.S. tax law from their inception at SGKB. SGKB also issued checks, including series of checks, in amounts of less than $10,000 that were drawn on accounts of U.S. taxpayers or structures in at least nine cases, totaling $3 million. For example, one U.S. taxpayer made 31 wire transfers for just less than $10,000 between June 2012 and December 2012. SGKB further processed large cash withdrawals totaling approximately $5.8 million for at least 14 U.S. taxpayers at or around the time the clients’ accounts were closed, even though SGKB knew, or had reason to know, the accounts contained undeclared assets.
Since Aug. 1, 2008, SGKB held accounts for 41 entities or structured accounts. Eight of these accounts came to SGKB as part of the acquisition of business from Hyposwiss Privatbank AG, of which SGKB formerly was the parent company. Of the remaining 33 entities, 18 were incorporated at or around the time their SGKB accounts were opened. These entities were incorporated in Switzerland, Liechtenstein, St. Vincent and the Grenadines, the United States, Ireland, Panama, Haiti and Belize.
In August 2008, SGKB mandated that no new funds would be accepted from U.S. residents without a signed IRS Form W-9. However, certain executives had full discretion and authority to make exceptions to this policy, in keeping with SGKB’s general bank policy of permitting flexibility in its directives. One executive first requested the authority to make a specific exception because he already had agreed to accept a “pipeline” of problematic U.S.-related accounts from UBS and wanted to keep his word to his former UBS colleague. This “pipeline” consisted of six U.S.-related accounts with approximately $9.2 million in assets under management. This executive granted another significant exception from this policy in connection with clients of an external asset manager. At least 72 accounts with approximately $150 million in assets under management were opened at an SGKB subsidiary between late October and December 2008 without a Form W-9 as an exception to SGKB’s policy. The majority of these accounts were transferred from UBS.
Since Aug. 1, 2008, SGKB held a total of 626 U.S.-related accounts with approximately $303 million in assets under management. SGKB will pay a penalty of $9.481 million.
E. Gutzwiller & Cie, Banquiers, was founded in 1886 and is headquartered in Basel, Switzerland. This entity is affiliated with two asset managing entities in Geneva and Zurich, Gutzwiller SA Geneve and Gutzwiller AG Zurich, respectively (collectively Gutzwiller).
Of the 128 U.S.-related accounts at Gutzwiller, approximately 96 used hold mail services. Gutzwiller also opened and maintained 11 U.S.-related accounts held by non-U.S. entities, such as a Panama foundation or a British Virgin Islands corporation, with the knowledge that a U.S. person was the true beneficial owner of assets. With respect to some of those 11 accounts, the entity properly identified the U.S. beneficial owners of the assets for Swiss “Know Your Customer” rules, but Gutzwiller’s IRS Forms W-8BEN falsely declared that the beneficial owner of the account was not a U.S. person. The false Forms W-8BEN thus allowed the true ownership of the accounts to be concealed.
In addition, Gutzwiller accepted an account from a U.S. citizen and resident who presented a U.S. passport at the account opening in 1992. At various times, the U.S. client refused to sign a Form W-9, prohibited anything relating to the account from being reported to the IRS or other U.S. governmental authority, and refused to respond to Gutzwiller’s questions about whether the account was declared to the IRS. Although Gutzwiller did not use code names or numbers to communicate with clients, the U.S. client communicated with Gutzwiller by signing communications with an identifying number. Beginning in 2009, Gutzwiller began to urge the U.S. client to close the account. Over approximately the next year, the U.S. client began liquidating the account by withdrawing large amounts of cash in person in the form of U.S. dollars, Swiss francs, Euros and U.S. travelers checks. Gutzwiller also honored the U.S. client’s requests to prepare numerous checks written in amounts below $10,000, which the U.S. client then picked up at Gutzwiller. In late 2010, Gutzwiller declined a request to liquidate remaining funds in the account in a similar manner and informed the U.S. client that it would only close the account through a single payment in the form of a cash withdrawal, a single check or a wire transfer. The account was closed in 2011 with a wire transfer of more than $3 million to another Swiss bank, without the U.S. client coming into compliance with U.S. tax obligations. The U.S. client later voluntarily disclosed the account at Gutzwiller and the other Swiss bank to the IRS.
Since Aug. 1, 2008, Gutzwiller held a total of 128 U.S.-related accounts with a high value of approximately $271 million. Gutzwiller will pay a penalty of $1.556 million.
In accordance with the terms of the Swiss Bank Program, each bank 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 these banks 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 these non-prosecution agreements, noncompliant U.S. accountholders at these banks must now pay that 50 percent penalty to the IRS if they wish to enter the IRS Offshore Voluntary Disclosure Program.
“The cumulative penalties the Swiss Bank Program has generated to date are extraordinary,” said Chief Richard Weber of IRS-Criminal Investigation (CI). “However, a significant element of the program is the highly-detailed account and transactional data that has been provided to IRS specifically for law enforcement purposes. We will continue to use this information to vigorously pursue U.S. taxpayers who may still be trying to illegally conceal offshore accounts, ensuring we are all playing by the same rules.”
Acting Assistant Attorney General Ciraolo thanked the IRS, and in particular, IRS-CI and the IRS Large Business & International Division for their substantial assistance. Ciraolo also thanked Kimberle E. Dodd and Kathleen E. Lyon, who served as counsel on these matters, 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.