Swiss private bank BSI has avoided prosecution for suspected tax-related offenses by paying a $211 million penalty, becoming the first bank to reach a deal in a voluntary disclosure program being run by the U.S. Department of Justice.
The program, launched in 2013, allows Swiss banks to avoid prosecution by coming clean about their cross-border business in undeclared U.S.-related accounts, though it excluded banks already under criminal investigation in relation to their Swiss activities.
According to a non-prosecution agreement signed on Monday, BSI had for decades up to 2013 helped thousands of U.S. clients in opening accounts in Switzerland and hiding the assets and income held in the accounts from tax authorities.
BSI, which had actively welcomed clients that other banks had distanced themselves from as the U.S. began to tighten its net on tax evaders in 2009, admitted to letting clients use fake identities, anonymous debit cards and coded language to ensure their transactions were untraceable.
The bank went to egregious lengths to allow clients to cover their tracks. In some instances, U.S. clients would tell their bankers that their “gas tank is running empty” as code to indicate that they needed more cash on their cards.
BSI has now agreed to cooperate in any related criminal or civil proceedings and put better controls in place, in what lawyers expect to be the first of a flood of settlements by Swiss banks, which have come under intense pressure to give up their traditional secrecy.
The agreement prompted a stinging rebuke from Swiss finance blog Inside Paradeplatz, which wrote that BSI had betrayed Swiss banks and wealth managers “to save its own skin”, in reference to the fact that BSI provided the names of employees who had committed misconduct.
The blog said that as part of the settlement, BSI had also revealed the names of other counterparties which its clients had used to hide their assets, such as financial advisers, asset managers, accountants, lawyers and foundations.
“As such, the breach in the dam is complete,” Inside Paradplatz said. “Swiss banking secrecy is now nothing but a dead letter.”
In addition to the DoJ’s voluntary disclosure program, a smaller group of Swiss-based private banks have faced criminal investigations by U.S. authorities for allegedly helping wealthy Americans evade taxes.
BSI held and managed approximately 3,500 U.S. client accounts, including declared and undeclared accounts, with peak assets under management since August 2008 of $2.78 billion, the DoJ said. BSI’s fine corresponds to around 7.5% of this peak U.S. asset base of declared and undeclared accounts.
Italian insurance giant Assicurazioni Generali SpA (ARZGY), parent of BSI, said it had provisioned for the $211 million fine in its 2014 results. The agreement paves the way for Generali to complete its sale of BSI to Brazil’s Banco BTG Pactual SA, as agreed in July.
BSI, one of Switzerland’s largest private banks, apparently had more U.S. account holders than many other banks in the program, a reason for the sizeable penalty, according to Washington, D.C., attorney Scott Michel, who represents banks and individuals who have made voluntary disclosures.
Sixty or 70 other Swiss banks are expected to strike similar agreements with the Justice Department in the coming months, Michel said.
The BSI agreement also has substantial implications for account holders, the lawyer noted.
If a U.S. taxpayer has an unreported account at a Swiss bank and enters the offshore disclosure program, the account holder has to pay a penalty equal to 27.5% of the high balance in the account, he said.
However, once a bank becomes the publicly announced subject of an investigation or enforcement action, including the execution of a non-prosecution agreement, the penalty facing a taxpayer who holds an undisclosed account rises to 50%.
“For any American with an unreported account at BSI, their effective cost has essentially doubled today,” Michel said.
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