Another Swiss Bank Discloses Customer Names to the US

The Department of Justice announced today that BSI SA, one of the 10 largest private banks in Switzerland, is the first bank to reach a resolution under the Department of Justice’s Swiss Bank Program.  Swiss private bank BSI SA avoided prosecution for suspected tax-related offenses by paying a $211 million penalty, becoming the first bank to reach a deal in the U.S. Department of Justice’s voluntary disclosure program, the department said on Monday.

The U.S. government program allows Swiss banks to avoid prosecution by coming clean about their cross-border business in undeclared U.S.-related accounts before they are investigated.

For decades up to 2013, BSI assisted thousands of U.S. clients in opening accounts in Switzerland and hiding the assets and income held in the accounts from tax authorities, according to a non-prosecution agreement signed on Monday. As part of the deal, BSI agreed to cooperate in any related criminal or civil proceedings and put better controls in place.

The agreement is expected to be the first of a flood of settlements by Switzerland’s banks, which have come under intense pressure to give up the banking secrecy so embedded in Swiss culture and the world’s largest offshore financial center.

BSI acknowledged that it issued pre-paid debit cards to U.S. clients without their names visible on the card to help them keep their identities secret, U.S. authorities said.

It also said the bank helped U.S. clients create “sham corporations” and trusts that masked their identities.

In some instances, U.S. clients would tell their bankers that their “gas tank is running empty” as coded language to indicate that they needed more cash on their cards, according to a statement of facts..

Swiss financial regulator FINMA said in a statement on Monday that BSI had breached its obligations to identify, limit and monitor the risks involved in its dealings with U.S. clients, having served a large volume of customers with undeclared assets.

FINMA said it hopes that, case by case, each bank in the U.S. program “will reach an agreement with the DoJ to settle their legacies related to U.S. clients subject to U.S. taxation.”

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. Sixty or 70 other Swiss banks are expected to strike similar agreements with the Justice Department in the coming months.

The BSI agreement also has substantial implications for account holders. 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 percent of the high balance in the account.

With the announcement of BSI’s non-prosecution agreement, its noncompliant U.S. account holders must now pay that 50 percent penalty to the IRS if they wish to enter the IRS’ program.  Once a bank becomes the publicly announced subject of an investigation or enforcement action, including the execution of a non-prosecution agreement, the 27.5 percent penalty facing a taxpayer who holds an undisclosed account rises to 50 percent.

BSI and other banks in the Swiss Bank Program are also providing detailed information to the department about transfers of money from Switzerland to other countries. The Tax Division and the IRS intend to follow that money to uncover additional tax evasion schemes.

The US Department of Justice has emphasized the importance of identifying U.S. account holders who have undeclared foreign bank accounts, and BSI has provided assistance in that task.  Because of the information provided to the department under the program, the Tax Division has already begun the process of identifying noncompliant U.S. accountholders who have maintained accounts at many Swiss banks participating in the Swiss Bank Program.

According to the US Department of Justice press release “Today’s action sends a clear message to anyone thinking about keeping money offshore in order to evade tax laws,” said Chief Richard Weber of IRS-Criminal Investigation (CI).  “Fighting offshore tax evasion continues to be a top priority for IRS-CI and we will trace unreported funds anywhere in the world.  IRS-CI special agents are our nation’s best financial investigators, trained to follow the money and enforce our country’s tax laws to ensure fairness for all.”