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WBK Industry News - Federal Regulatory Developments

DOJ $5mm Non-Prosecution Agreement with Swiss Bank over Tax Reporting

The Tax Division of the Justice Department recently announced that it has agreed not to prosecute a small Swiss private bank for any tax-related or monetary transaction offenses in exchange for the bank’s agreement to pay a $5 million penalty, cooperate in any related criminal or civil proceedings, and implement procedures to prevent further misconduct.

Until 2012, the bank operated a cross-border banking business through which it helped U.S. clients conceal assets and income from the IRS in undeclared accounts by providing clients with external asset managers and offering Swiss banking services such as numbered accounts and hold-mail services.  The bank entered into a Qualified Intermediary Agreement with the IRS in 2001, which required the bank to obtain and report certain IRS forms for new and existing U.S. clients transacting with U.S. securities.

The bank had formed an incorrect belief that the agreement did not apply to clients who were not trading in U.S.-based securities or to accounts that were nominally held by non-U.S. legal structures.  This view led the bank for years not only to continue to service its existing U.S. clients without requiring that their identities be disclosed to the IRS, but also to take over U.S. taxpayer bank accounts that were being closed by other Swiss banks without requiring those accounts to be tax compliant.

In cooperation with the DOJ’s investigation, the bank has identified its U.S. taxpayer clients and made many of its executives available for the DOJ to interview.  The bank has also increased its efforts to encourage U.S. account holders to declare their accounts and participate in the IRS Offshore Voluntary Disclosure program, which allows U.S. taxpayers to avoid criminal prosecution if they voluntarily disclose their previously undeclared offshore accounts and pay a penalty equal to 50 percent of the highest value of the accounts.

The non-prosecution agreement is available here.