Non-prosecution Agreements Galore

Non-prosecution Agreements Galore: Two More Banks Ink NPAs with the Justice Department

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On June 3, 2015, the Department of Justice announced that two banks, Rothschild Bank AG and Banca Credinvest SA, had reached resolutions under the department’s Swiss Bank Program.

For those unfamiliar with the Swiss Bank Program, it “provides a path for Swiss banks to resolve potential criminal liabilities in the United States.” Banks contemplating such an agreement had until December 31, 2013 to notify the Department of Justice that they had reason to believe that they had committed “tax-related criminal offenses in connection with undeclared U.S.-related accounts.” Banks that were already under criminal investigation (as well as any individuals who worked for these banks) were, to put it mildly, up a creek without a paddle. Very simply, they were ineligible to participate in the program.

According to the terms of the non-prosecution agreements, both banks agreed to cooperate in any related criminal or civil proceedings, demonstrate their implementation of controls to stop misconduct involving undeclared U.S. accounts, and pay penalties in return for the department’s promise (one which many have referred to as, “illusory”) not to prosecute them for tax-related criminal offenses.

Does this affect U.S. taxpayers who hold undisclosed accounts at Rothschild or Banca Credinvest? Yes. As part of the NPA agreement reached with the government, each bank agreed to prod its U.S. accountholders to come into compliance with their U.S. tax and disclosure obligations.

Below is specific information relating to the NPAs struck between the government and each bank:

“Rothschild Bank AG (Rothschild) was founded in 1968 and is headquartered in Zurich, Switzerland.  Rothschild offered services that it knew could and did assist U.S. taxpayers in concealing assets and income from the Internal Revenue Service (IRS), including code-named accounts, numbered accounts and hold mail service, where Rothschild would hold all mail correspondence for a particular client at the bank.  These services allowed certain U.S. taxpayers to minimize the paper trail associated with the undeclared assets and income they held at Rothschild in Switzerland.  For a number of years, including after Swiss bank UBS AG announced in 2008 that it was under criminal investigation, and following instructions from certain U.S. taxpayers, Rothschild serviced certain U.S. customers without disclosing their identities to the IRS.  Some of Rothschild’s U.S. clients had accounts that were nominally structured in the names of non-U.S. entities.  In some such cases, Rothschild knew that a U.S. client was the true beneficial owner of the account but nonetheless obtained a form or document that falsely declared that the beneficial owner was not a U.S. taxpayer.  Since Aug. 1, 2008, Rothschild had 66 U.S.-related accounts held by entities created in Panama, Liechtenstein, the British Virgin Islands, the Cayman Islands or other foreign countries with U.S. beneficial owners.  At least 21 of these accounts had false IRS Forms W-8BEN in the file, which are used to identify the beneficial owner of an account.  Rothschild knew it was highly probable that such U.S. clients were engaging in this scheme to avoid U.S. taxes but permitted these accounts to trade in U.S. securities without reporting account earnings or transmitting any withholding taxes to the IRS, as Rothschild was required to do.  Rothschild also opened accounts for U.S. taxpayers who had left other Swiss banks that the Department of Justice was investigating, including UBS.  Since Aug. 1, 2008, Rothschild had 332 U.S.-related accounts with an aggregate maximum balance of approximately $1.5 billion.  Of these 332 accounts, 191 accounts had U.S. beneficial owners and an aggregate maximum balance of approximately $836 million.  Rothschild will pay a penalty of $11.51 million.”

“Located in Lugano, Switzerland, Banca Credinvest SA (Credinvest) started operations as a fully licensed bank in 2005.  Credinvest offered a variety of services that it knew could assist, and that did assist, U.S. clients in concealing assets and income from the IRS, including hold mail service and numbered accounts.  Credinvest did not set up any formalized internal reporting regarding U.S. clients and did not adopt any procedures to ascertain or monitor the compliance of its U.S. clients with their U.S. tax obligations.  In late 2008, an external asset manager referred 11 accounts to Credinvest, all of which were for U.S. clients who had left UBS.  The bank delegated to that external asset manager the primary management of those accounts and failed to ascertain the compliance of those clients with their U.S. tax obligations.  The bank thus aided and assisted those clients in concealing their accounts from U.S. authorities.  Since Aug. 1, 2008, Credinvest had 31 U.S.-related accounts with just over $24 million in assets.  Credinvest will pay a penalty of $3.022 million.”

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