Four More Banks Reach Resolutions with U.S. Government for NPAs

Four More Banks Reach Resolutions with U.S. Government for NPAs

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On May 28, 2015, the Department of Justice announced the addition of four banks to its Swiss Bank Program. They are as follows:


For those unfamiliar with the Department of Justice’s Swiss Bank Program, a slight digression may be in order. The Swiss Bank Program was unveiled on August 29, 2013. It provides a path for Swiss banks to resolve potential criminal liabilities in the United States. In order to participate, Swiss banks had to take the “bull by its horns” and notify the Department of Justice by December 31, 2013 that they had reason to believe that they had committed tax-related criminal offenses in connection with unreported U.S.-related accounts. In other words, they had to “eat crow.” Banks already under criminal investigation relating to their Swiss-banking activities (along with any individuals who work for such banks) are ineligible from participating in the program.

According to the Department of Justice, in order to be eligible for a non-prosecution agreement, banks must satisfy the following requirements:

  • 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.

According to the terms of the non-prosecution agreements signed on May 28, 2015, each bank agreed, albeit reluctantly, to each of the aforementioned requirements. First, they agreed to cooperate in any related criminal or civil proceedings. Second, they agreed to demonstrate their implementation of controls to stop misconduct involving unreported U.S. accounts. And third, they agreed to pay penalties in exchange for DOJ’s agreement not to prosecute them for tax-related criminal offenses.

What does this mean for noncompliant U.S. taxpayers with unreported foreign accounts at these banks? In accordance with the terms of the program, each bank must encourage its 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 reported 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. And that increase is not just a “slight” one, but a “significant” one.

What do I mean by a dramatic increase in the price of such disclosure? And what the heck is the Offshore Voluntary Disclosure Program (OVDP)? For starters, the Offshore Voluntary Disclosure Program is an amnesty program operated by the IRS to help noncompliant taxpayers resolve their undisclosed offshore accounts with the least amount of risk possible. How so? Taxpayers who open up their financial Kimonos and are fully transparent when it comes to disclosing the subtleties and nuances of their foreign assets become virtually immune to criminal prosecution. If you’re a Harry Potter fan, this is analogous to Harry snooping around (or, as Harry would put it, “exploring”) the cavernous halls of Hogwarts in his “Invisibility Cloak” after hours. In addition, OVDP allows taxpayers to determine their miscellaneous penalty to the very penny, instead of being subjected to draconian FBAR penalties that could catapult their liability into the penalty stratosphere. The possibility of the IRS asserting the dreaded FBAR penalty is agonizing enough. But what is even more agonizing is the possibility that the IRS “stacks” them up — one on top of the other — like a short stack of pancakes. Unfortunately, this has become a reality in the current climate that we live in. One need only peruse the IRS’s recent guidance pertaining to FBAR reporting to see it in “black and white.”

Most U.S. taxpayers who enter the IRS Offshore Voluntary Disclosure Program will pay a penalty equal to 27.5 percent of the high value of their accounts. On August 4, 2014, the IRS increased this penalty to 50 percent under certain circumstances. With DOJ’s recent announcement of the non-prosecution agreements that it struck with these banks, noncompliant U.S. accountholders at each of these banks must now pay that 50 percent penalty if they wish to enter the IRS Offshore Voluntary Disclosure Program.

If there is any doubt in your mind that the IRS will continue to play the role of Caesar when it comes to following the money trail to find those who evade offshore disclosure laws and hold them responsible, one need only read the comments of Richard Weber, Chief for the IRS-Criminal Investigation (CI). Mr. Weber said:

“These four additional bank agreements signal a change in terrain for offshore banking. No longer is it safe to hide money offshore and expect that it will not be discovered. ‎IRS CI Special Agents will continue to follow the money to find those who circumvent the offshore disclosure laws and hold them accountable.”

Below are excerpts from the DOJ press release pertaining to the details of the specific NPAs that the U.S. government struck with each bank:

“Société Générale Private Banking (Lugano-Svizzera) SA (SGPB-Lugano) was established in 1974 and is headquartered in Lugano, Switzerland.  Through referrals and pre-existing relationships, SGPB-Lugano accepted, opened and maintained accounts for U.S. taxpayers, and knew that it was likely that certain U.S. taxpayers who maintained accounts there were not complying with their U.S. reporting obligations.  Since Aug. 1, 2008, SGPB-Lugano held and managed approximately 109 U.S.-related accounts, with a peak of assets under management of approximately $139.6 million, and offered a variety of services that it knew assisted U.S. clients in the concealment of assets and income from the Internal Revenue Service (IRS), including “hold mail” services and numbered accounts.  Some U.S. taxpayers expressly instructed SGPB-Lugano not to disclose their names to the IRS, to sell their U.S. securities and to not invest in U.S. securities, which would have required disclosure and withholding.  In addition, certain relationship managers actively assisted or otherwise facilitated U.S. taxpayers in establishing and maintaining undeclared accounts in a manner designed to conceal the true ownership or beneficial interest in the accounts, including concealing undeclared accounts by opening and maintaining accounts in the name of non-U.S. entities, including sham entities, having an officer of SGPB-Lugano act as an officer of the sham entities, processing cash withdrawals from accounts being closed and then maintaining the funds in a safe deposit box at the bank and making “transitory” accounts available, thereby allowing multiple accountholders to transfer funds in such a way as to shield the identity and account number of the accountholder.  SGPB-Lugano will pay a penalty of $1.363 million.”

“Created in 1979 and headquartered in Zug, Switzerland, MediBank AG (MediBank) provided private banking services to U.S. taxpayers and assisted in the evasion of U.S. tax obligations by opening and maintaining undeclared accounts.  In furtherance of a scheme to help U.S. taxpayers hide assets from the IRS and evade taxes, MediBank failed to comply with its withholding and reporting obligations, providing “hold mail” services and offering numbered accounts, thus reducing the ability of U.S. authorities to learn the identity of the taxpayers.  After it became public that the Department of Justice was investigating UBS, MediBank hired a relationship manager from UBS and permitted some of that person’s U.S. clients to open accounts at MediBank.  Since Aug. 1, 2008, MediBank had 14 U.S. related accounts with assets under management of $8,620,675.  MediBank opened, serviced and profited from accounts for U.S. clients with the knowledge that many likely were not complying with their U.S. tax obligations.  MediBank will pay a penalty of $826,000.”

“LBBW (Schweiz) AG (LBBW-Schweiz) was established in Zurich in 1995.  Since August 2008, LBBW-Schweiz held 35 U.S. related accounts with $128,664,130 in assets under management.  After it became public that the department was investigating UBS, LBBW-Schweiz opened accounts from former clients at UBS and Credit Suisse.  Despite its knowledge that U.S. taxpayers had a legal duty to report and pay tax on income earned on their accounts, LLB permitted undeclared accounts to be opened and maintained, and offered a variety of services that would and did assist U.S. clients in the concealment of assets and income from the IRS.  These services included following U.S. accountholders instructions not to invest in U.S. securities and not reporting the accounts to the IRS and agreeing to hold statements and other mail, causing documents regarding the accounts to remain outside the United States.  LBBW-Schweiz will pay a penalty of $34,000.”

“Headquartered in Basel, Switzerland, Scobag Privatbank AG (Scobag) was founded in 1968 to provide financial and other services to its founders, and obtained its banking license in 1986.  Since August 2008, Scobag had 13 U.S. related accounts, the maximum dollar value of which was $6,945,700.  Scobag offered a variety of services that it knew could assist, and that did assist, U.S. clients in the concealment of assets and income from the IRS, including “hold mail” services and numbered accounts.  Scobag will pay a penalty of $9,090.”

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