The Tax Times: More Swiss Banks Cave and Turn Over Names to the DOJ Bring the Total to 25 Banks!

We have previously posted Thursday, June 11, 2015, 2 More Swiss Banks Cave and Turn Over Names to the DOJ Bring the Total to 23 Banks! that the Department of Justice DoJ announced on June 9, 2015 that two banks, Société Générale Private Banking (Suisse) SA (SGPB-Suisse) and Berner Kantonalbank AG (BEKB), have reached resolutions under the department’s Swiss Bank Program.

Now the Department of Justice DoJ announced on June 9, 2015 that
that two more banks, Bank Linth LLB AG (Bank Linth) and Bank Sparhafen Zurich AG (BSZ), have reached resolutions under the department’s Swiss Bank Program.

“The days of safely hiding behind shell corporations and numbered bank accounts

are over,”
said Acting Assistant Attorney General Caroline D. Ciraolo
of the Department of Justice’s Tax Division.

“As each additional bank signs up under the Swiss Bank Program, More and More Information Is Flowing to the IRS Agents and Justice Department Prosecutors going after Illegally Concealed Offshore Accounts and the Financial Professionals who help U.S. Taxpayers Hide Assets Abroad.”

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.

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 (a/k/a Levers List);

Agree to close accounts of account holders who fail to come into compliance with U.S. reporting obligations; and

Pay appropriate penalties.

Banks meeting all of the above requirements are eligible for a non-prosecution agreement.

Bank Linth, one of the largest regional banks in Eastern Switzerland, was founded in 1848. It is headquartered in Uznach, Switzerland, which is approximately 35 miles southeast of Zurich. Bank Linth provided private banking and asset management services to U.S. taxpayers through private bankers based in Switzerland. It opened, serviced and profited from accounts for U.S. clients with the knowledge that many were likely not complying with their tax obligations.

Bank Linth’s cross-border banking business aided and assisted U.S. clients in opening and maintaining undeclared accounts in Switzerland and concealing the assets and income they held in these accounts. Bank Linth provided this assistance to U.S. clients in a variety of ways, including the following:

Opening and maintaining accounts in the names of sham entities;
Providing U.S. taxpayers with numbered accounts that hid the taxpayers’ identities;
Facilitating U.S. taxpayers’ withdrawal of cash from undeclared accounts; and
Agreeing to hold bank statements and other mail relating to accounts rather than sending them to U.S. taxpayers in the United States.

On several occasions, Bank Linth opened accounts for U.S. taxpayers through an external asset manager, and one of these accounts was opened in the name of a sham foundation. In that instance, Bank Linth knowingly accepted and included in account records forms provided by the directors of the sham foundation that falsely represented the ownership of the assets in the account for U.S. federal income tax purposes.

In accordance with the terms of the Swiss Bank Program, Bank Linth described in detail the structure of its banking business, including its management and supervisory structure, and provided the names of management and legal and compliance officials. Bank Linth further provided detailed and specific information related to its illegal U.S. cross-border business, including the bank’s misconduct, policies that contributed to that misconduct and the names of the relationship managers overseeing the bank’s U.S.-related business. Bank Linth also obtained affidavits from bank employees regarding the bank’s conduct and related matters.

Since Aug. 1, 2008, Bank Linth held 126 U.S.-related accounts, with over $102 million in assets. Bank Linth will pay a penalty of $4.15 million.

BSZ was founded in 1850 and has its sole office in Zurich. BSZ knew that U.S. persons had a duty under U.S. law to report their income to the Internal Revenue Service (IRS) and to pay taxes on that income, including all income earned in accounts that BSZ maintained in Switzerland. Despite this knowledge, BSZ opened, maintained and serviced accounts for U.S. persons that it knew or had reason to know were likely not declared to the IRS or the U.S. Treasury, as required by U.S. law.

After Aug. 1, 2008, U.S. persons opened 32 U.S.-related accounts at BSZ, and only one of them provided a Form W-9 to BSZ upon opening an account. In most cases, the U.S. persons who opened accounts at BSZ during this period had been required to close their accounts at other Swiss banks, and BSZ knew or had reason to know that most of these accounts were likely not declared to the IRS. Moreover, 22 of the U.S.-related accounts opened during this period were funded by transfers from banks that were or are the targets of Justice Department criminal investigation.

Two relationship managers at BSZ were responsible for managing most of its U.S.-related accounts in the period since Aug. 1, 2008, and one of those managers directly reported to BSZ’s chief executive officer. BSZ relationship managers assisted U.S. persons in executing waiver forms that directed the bank not to acquire U.S. securities in their accounts. BSZ knew that the purpose and effect of these forms was to avoid disclosing the identities of the U.S. persons to the IRS.

Until 2012, BSZ provided its U.S. clients with an option for hold-mail agreements, even though it understood that providing these agreements upon request could allow U.S. persons to keep evidence of their accounts outside of the United States in order to conceal assets and income from the IRS. One U.S. client told his BSZ relationship manager by email that the hold-mail fee was “cheap insurance against having my dealings with you come to the attention of the government revenue authorities.”

BSZ also offered travel cash cards to its clients, including U.S. persons. A client could instruct BSZ to load up to 10,000 Swiss francs, U.S. dollars or euros from his or her BSZ bank account onto a travel cash card. The client could then use the card for purchases or remit unused balances back to the BSZ account. U.S. persons’ use of these cards facilitated access to or use of undeclared funds on deposit at BSZ. One BSZ relationship manager sent a brochure about travel cash cards to a U.S. client who did not wish to transfer money to the United States because of “surveillance” concerns.

In accordance with the terms of the Swiss Bank Program, BSZ described in detail the structure, operation and supervision of its U.S. cross-border business, including the names of relevant individuals and entities. It also encouraged existing and prior holders of U.S.-related accounts to disclose their accounts to the IRS through the Offshore Voluntary Disclosure Program.

Since Aug. 1, 2008, BSZ held 91 U.S.-related accounts, with over $25 million in assets. BSZ will pay a penalty of $1.81 million.

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