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Credit Suisse Pays $2.8 Billion for Tax Evasion Conspiracy

Posted by William Byrnes on November 25, 2014

Pays a total of $2.8 Billion to DOJ, IRS, SEC, NYDS, and Fed Reserve

Irs_logoCredit Suisse AG was sentenced today for conspiracy to aid and assist U.S. taxpayers in filing false income tax returns and other documents with the Internal Revenue Service (IRS).  Credit Suisse pleaded guilty to conspiracy on May 19.  The sentencing of the Swiss corporation is the result of a years-long investigation by U.S. law enforcement authorities that has also produced indictments of seven Credit Suisse employees and the owner of a trust company since 2011—two of those individuals have pleaded guilty so far—and of U.S. clients of Credit Suisse.  The announcement was made by Deputy Attorney General James M. Cole, Acting Deputy Assistant Attorney General Larry J. Wszalek for the Justice Department’s Tax Division, U.S. Attorney Dana J. Boente for the Eastern District of Virginia and IRS Commissioner John Koskinen.

At sentencing in the U.S. District Court for the Eastern District of Virginia, U.S. District Chief Judge Rebecca Beach Smith entered judgment and conviction and a restitution order requiring Credit Suisse to pay approximately $1.8 billion dollars to the United States by Nov. 28, per the plea agreement.  Credit Suisse will pay the Justice Department’s Crime Victims Fund, through the District Court Clerk’s Office for the Eastern District of Virginia, a fine of approximately $1.136 billion and will pay the IRS $666.5 million in restitution.  The parties agreed that Credit Suisse cannot challenge the restitution amount, which can also provide a basis for an IRS civil tax assessment.

“Today, with its criminal conviction and the payment of $2.6 billion in fines and restitution, Credit Suisse is held fully accountable for helping U.S. taxpayers engage in tax evasion,” said Deputy Attorney General Cole.  “As we expand our offshore investigations, not just in Switzerland, but around the world, the message to banks who engaged in these crimes is clear—step forward, accept responsibility for your past conduct,  and help us hold responsible the U.S. taxpayers who benefitted, and the individuals who assisted them.  Only through full cooperation will you avoid the most severe sanctions.”

The plea agreement, along with agreements made with state and federal agencies, provides that Credit Suisse will pay a total of approximately $2.6 billion—approximately $1.8 billion in a criminal fine and restitution, $100 million to the Federal Reserve and $715 million to the New York State Department of Financial Services.  Earlier this year, Credit Suisse negotiated cease and desist orders with the Federal Reserve and the state of New York requiring the bank to take certain remedial steps to ensure its compliance with U.S. law in its ongoing operations in addition to the civil penalties.  Credit Suisse also paid approximately $196 million in disgorgement, interest and penalties to the Securities and Exchange Commission (SEC) for violating the federal securities laws by providing cross-border brokerage and investment advisory services to U.S. clients without first registering with the SEC.  Together, these actions by U.S. law enforcement and state and federal partners appropriately punish Credit Suisse for its past behavior in these matters.

As part of the plea agreement, Credit Suisse acknowledged that, for decades prior to and through 2009, it operated an illegal cross-border banking business that knowingly and willfully aided and assisted thousands of U.S. clients in opening and maintaining undeclared accounts and concealing their offshore assets and income from the IRS.

According to the statement of facts filed with the plea agreement, Credit Suisse employed a variety of means to assist U.S. clients in concealing their undeclared accounts, including by:

  • Assisting clients in using sham entities to hide undeclared accounts;
  • Soliciting IRS forms that falsely stated, under penalties of perjury, that the sham entities were the beneficial owners of the assets in the accounts;
  • Failing to maintain records in the United States related to the accounts;
  • Destroying account records sent to the United States for client review;
  • Using Credit Suisse managers and employees as unregistered investment advisors on undeclared accounts;
  • Facilitating withdrawals of funds from the undeclared accounts by either providing hand-delivered cash in the United States or using Credit Suisse’s correspondent bank accounts in the United States;
  • Structuring transfers of funds to evade currency transaction reporting requirements; and
  • Providing offshore credit and debit cards to repatriate funds in the undeclared accounts.

As part of the plea agreement, Credit Suisse further agreed to make a complete disclosure of its cross-border activities, 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 and to close accounts of account holders who fail to come into compliance with U.S. reporting obligations.  Credit Suisse has also agreed to implement programs to ensure its compliance with U.S. laws, including its reporting obligations under the Foreign Account Tax Compliance Act and relevant tax treaties, in all its current and future dealings with U.S. customers.

“Today’s sentencing of Credit Suisse AG holds the bank responsible for its decades-long pervasive conduct of aiding U.S. taxpayers in the commission of tax crimes,” said Acting Deputy Assistant Attorney General Wszalek.  “The Justice Department will continue to vigorously pursue our global enforcement efforts against individuals who avoid their tax obligations by hiding their assets in foreign bank accounts, and the financial institutions, bankers, and other professionals who facilitate these crimes.”

“Credit Suisse AG ran an illegal cross-border business which willfully aided U.S. clients in concealing their offshore assets and income from the U.S. government,” said U.S. Attorney Boente.  “Simply put, if you are in the business of hiding money from the U.S. government you will be caught, you will be prosecuted and you will pay the price for your crime.  The successful prosecution of Credit Suisse AG, and today’s sentencing is representative of the tireless commitment and hard work of this office and our partners at the Internal Revenue Service.”

“Today’s sentencing is yet another striking example of what happens to those who help offshore tax evaders,” said IRS Commissioner Koskinen.  “We owe it to the vast majority of honest U.S. taxpayers to tirelessly search for and prosecute those who dodge paying their fair share and the unprincipled professionals who assist them.”

On December 5, two former employees of a Credit Suisse subsidiary will be sentenced for their involvement in assisting U.S. customers to evade their taxes.  On March 12, Andreas Bachmann, a former banker at Credit Suisse Fides pleaded guilty to a superseding indictment in connection with his work as a banker at Credit Suisse Fides.  On April 30, Josef Dörig, a former Credit Suisse Fides employee and owner/operator of a trust company, pleaded guilty to conspiring to defraud the IRS in connection with his role managing offshore entities used by U.S. taxpayers to conceal their accounts at Credit Suisse.  The pleas were accepted by U.S. District Judge Gerald Bruce Lee in the Eastern District of Virginia.  Bachmann and Dörig each face a statutory maximum sentence of five years in prison.

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Credit Suisse Expands Private Banking to Canada

Posted by William Byrnes on September 11, 2014

International Financial Law Prof Blog –

The number of Canadian millionaires increased 7.2 percent last year, helping make North America the wealthiest region in the world, according to a June 18 report by consulting firm Cap Gemini SA and Royal Bank of Canada. Canadians with at least $1 million in investable assets climbed to 320,000 people, about 1 percent of the country’s population, with a collective wealth of $979 billion, according to the report.

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Former Credit Suisse Banker Pleads Guilty

Posted by William Byrnes on May 2, 2014

Former Credit Suisse Banker Pleads Guilty

Josef Dörig, 72, plead guilty on April 30 to conspiring to defraud the IRS in connection with his work as the owner of Dorig Partner AG, a trust company in Switzerland.

In a statement of facts filed with the plea agreement, Dörig admitted that between 1997 and 2011, while owning and operating a trust company, he engaged in a wide-ranging conspiracy to aid and assist U.S. customers in evading their income taxes by concealing assets and income in secret bank accounts held in the names of sham entities at Credit Suisse.  In 1997, the Credit Suisse subsidiary spun off these sham entities into a trust company, Dorig Partner AG, owned and operated by Dorig, the Justice Department said.

Sentencing is set for Aug. 8th and Dörig faces a statutory maximum sentence of five years in prison.

Credit Suisse Agrees to Pay $196 Million and Admits Wrongdoing in Providing Unregistered Services to U.S. Clients

In the February 21, 2014 Press Release by the US Securities and Exchange Commission (SEC) “Credit Suisse Agrees to Pay $196 Million and Admits Wrongdoing in Providing Unregistered Services to U.S. Clients“, Credit Suisse agreed to pay $196 million and admit wrongdoing to settle the SEC’s charges.  According to the SEC’s order instituting settled administrative proceedings, Credit Suisse provided cross-border securities services to thousands of U.S. clients and collected fees totaling approximately $82 million without adhering to the registration provisions of the federal securities laws.  Credit Suisse relationship managers traveled to the U.S. to solicit clients, provide investment advice, and induce securities transactions.  These relationship managers were not registered to provide brokerage or advisory services, nor were they affiliated with a registered entity.  The relationship managers also communicated with clients in the U.S. through overseas e-mails and phone calls.

Credit Suisse Hearing 

The seven hour hearing of the US Senate’s Permanent Subcommittee on Investigations on tax evasion associated with unreported bank accounts of Americans held about Credit Suisse in February 2014 provides a good background to understand the Justice Department indictment and guilty plea.  Below I paraphrase and excerpt the most intriguing statements of the hearing.

Based upon its two-year investigation, the Subcommittee reported that Credit Suisse opened Swiss accounts for over 22,000 U.S. customers with assets that, at their peak, totaled roughly $10 billion to $12 billion.  The Subcommittee stated that the vast majority of these accounts were hidden from U.S. authorities and that U.S. law enforcement officials have been slow to collect the unpaid taxes or hold accountable the tax evaders and bank involved.

Sen. Carl Levin, D-Mich., the subcommittee chairman said “The Credit Suisse case study shows how a Swiss bank aided and abetted U.S. tax evasion, not only from behind a veil of secrecy in Switzerland, but also on U.S. soil by sending Swiss bankers here to open hidden accounts. In response, the Department of Justice has failed to use the U.S. legal tools that won the UBS case and has instead used treaty requests for U.S. client names, relying on Swiss courts with predictably poor results. It’s time to ramp up the collection of taxes due from tax evaders on the billions of dollars hidden offshore.”

“For too long, international financial institutions like Credit Suisse have profited from their offshore tax haven schemes while depriving the U.S. economy of billions of dollars in tax revenues by facilitating U.S. tax evasion,” said Senator John McCain, ranking member of the subcommittee. “As federal regulators begin to crack down on these banks’ illicit practices, it is imperative that they use every legal tool at their disposal to hold these banks fully accountable for willfully deceiving the U.S. government and seek penalties that will deter similar misconduct in the future.”

Amount Recovered Thus Far from Non-Compliant Taxpayers 

According to the GAO Reports and the Subcommittee report, the 2008, 2011, and the ongoing 2012 offshore voluntary disclosure initiative (OVDI) have led to 43,000 taxpayers paying back taxes, interest and penalties totaling $6 billion to date, with more expected.  However, the vast majority of this recovered money is not tax revenue but instead results from the FBAR penalties assessed for not reporting a foreign account.  The Taxpayer Advocate found that for noncompliant taxpayers with small accounts, the FBAR and tax penalties reached nearly 600% of the actual tax due!  The median offshore penalty was about381% of the additional tax assessed for taxpayers with median-sized account balances.

Have These Efforts Substantially Increased Taxpayer Compliance?

The Taxpayer Advocate, replying on State Department statistics,  cited that 7.6 million U.S. citizens reside abroad and many more U.S. residents have FBAR filing requirements, yet the IRS received only 807,040 FBAR submissions as recently as 2012.  The Taxpayer Advocate noted that in Mexico alone, more than one million U.S. citizens reside, and many Mexican citizens reside in the U.S. (and thus are required to file a FBAR for any Mexican accounts of $10,000 or greater).

Thus, at a current rate well below 10% compliance (because nonresident aliens in the US must file a FBAR on their non-US accounts of $10,000 and over), it appears that all the additional enforcement is producing similar results of the War on Drugs.  This is not to say that obtaining a highly level of compliance with the tax law , like compliance with the drug laws and DUI laws, is not a public good in itself – it indeed is a public good that the public has chosen, via Congress (and its investigatory hearings), for resource allocation. But like the War on Drugs, there are many potential strategies to bring about compliance, about which pundits such as law enforcement officials, social libertarians, the medical profession, and all their paid lobbyists, debate.

Credit Suisse Statement to Subcommittee:

Credit Suisse is a global financial services company with operations in more than 50 countries and over 45,000 employees including approximately 9,000 U.S. employees in 19 U.S. locations. In the United States, Credit Suisse is a Financial Holding Company regulated by the Federal Reserve. The Bank has a New York branch, which is supervised by the New York Department of Financial Services, and we have three regulated U.S. broker/dealer subsidiaries. Our primary U.S. broker/dealer has been designated a Systemically Important Financial Institution under the Dodd-Frank law. We have a substantial business presence here in the United States.

Credit Suisse Exit of U.S. Relationships

Following our decision to prohibit former U.S. clients of UBS from transferring their assets to Credit Suisse, in August 2008, Credit Suisse promptly turned to addressing issues highlighted by the UBS situation. In October 2008, Credit Suisse decided to allow relationships with non-U.S. entities that had U.S. beneficial owners only if they demonstrated U.S. tax compliance. We hired a leading Swiss law firm to review the tax status of U.S. clients that wanted to remain. By the end of the first year of review, all but 135 relationships with assets over $10,000 had been reviewed and resolved.

In April 2009, we extended our review to U.S. resident clients. Credit Suisse transferred virtually all U.S. resident accounts to one of the Bank’s U.S.-registered affiliates, or terminated the relationships. Credit Suisse simply shut down those client relationships that were unwilling to move or that did not meet the $1 million requirement for transfer to the Bank’s U.S.-regulated affiliates. By the end of the first full year of review, 2010, we had reviewed and resolved more than 85% of U.S.-resident relationships with assets over $10,000.

To ensure that the review was comprehensive, we also manually searched for accounts that, although not identified in our systems as U.S.-linked, could possibly have some U.S. connection – for example, a U.S. phone number or address in the paper client file, or a notation of a U.S. birthplace on a foreign passport. Credit Suisse also reviewed the private banking activities of its subsidiaries, including Clariden Leu, which was a nearly wholly owned Credit Suisse subsidiary between 2007 and 2012. Clariden Leu’s review and exit projects paralleled the projects at Credit Suisse.

Credit Suisse also engaged one of the Big Four accounting firms to conduct its own review to assess whether the Bank had effectively identified the account relationships with U.S. links. This firm carefully analyzed the Bank’s efforts – with an intense line-by-line analysis of account information – and concluded to an extremely high level of confidence that Credit Suisse had identified the complete population of U.S. account relationships. The results of this substantial effort have been presented to the Subcommittee staff.

Subcommittee “Undeclared Accounts” Methodologies Unreliable

Credit Suisse repeatedly discussed with the Subcommittee staff the fact that it is impossible for us to know the tax status of assets previously held by U.S. clients if those clients did not disclose that information to the Bank. Unfortunately, the Subcommittee has chosen to speculate based on a number of “methodologies,” each of which is problematic and generates results that are, at best, unreliable. The Subcommittee’s need to reference three conflicting “methodologies” is an implicit recognition that accurate estimates of unreported U.S. client assets previously held at Credit Suisse cannot be made based on the actual information available to the Bank and to the Subcommittee.

8,300 Accounts under $10,000 FBAR Reporting Requirement

In any event, the Subcommittee assumes that every U.S. client account held abroad was undeclared. As discussed below, that is a demonstrably inappropriate assumption. Moreover, U.S. Treasury Department regulations required U.S. citizens to report foreign accounts only if the balance exceeded $10,000 at some point during the year. While the Subcommittee staff has mentioned 22,000 accounts, more than 8,300 had balances below $10,000 as of December 31, 2008.

6,400 Accounts for US Expats Residing in Switzerland

Troublingly, these estimates also lump in categories of accounts where there is every reason to believe that the client had a valid reason for holding a Swiss account. For example, the Subcommittee’s estimates of “undeclared” accounts include approximately 6,400 accounts held by all U.S. expats who would ordinarily have a need for some form of local banking services outside of the U.S. Again, it should not be ignored that most expats resided in Switzerland, and therefore had a particularly valid reason for maintaining a bank near their homes.

Finally, each of the three “methodologies” that the Subcommittee staff has raised is problematic for different reasons:

First Methodology No Factual Basis

The first method wrongly suggests that the number of accounts closed during the Bank’s

“Exit Projects” may be a proxy for “undeclared” accounts. The Bank’s “Exit Projects” revealed that U.S. clients left the Bank for various reasons. For example, Credit Suisse decided to simply shut down around 11,000 U.S. resident accounts when the Bank decided to stop having Swiss-based private bankers service U.S. residents and because those clients’ balances did not meet the $1 million requirement for transfer to the U.S. regulated affiliates. Those clients never had the opportunity to demonstrate tax compliance because their accounts were simply terminated. There is no basis factually to assume that all of these clients were not tax compliant.

Second Methodology Unsupported

The second method, the “UBS method,” is simply unsupported. This method proposes to estimate accounts by considering all accounts without Forms W-9 to be “undeclared” U.S. accounts. The absence of a Form W-9 alone in no way supports an inference that a client failed to report the account to the IRS, or that the Bank was aware that the client failed to do so. The Qualified Intermediary Agreement with the IRS required the preparation of a Form W-9 only if the client maintained U.S. securities. If the client did not maintain U.S. securities, a Form W-9 was not required. These are the IRS’s rules. Because this method does not consider whether the client maintained U.S. securities, it is inaccurate to assume that the account was maintained to evade U.S. taxes.

Third Methodology Inconclusive

Nor is the third method conclusive. The so-called “DOJ Estimate” recounts a figure of $4 billion stated in an indictment of certain Bank relationship managers. Because the grand jury’s proceedings are secret, neither we nor the Subcommittee have any basis to assess the grand jury’s methodologies.

Credit Suisse Assets Under Management

As to Assets under Management (AuM), it should be noted that our exit projects established that an approximate amount of $5 billion of AuM was reviewed and verified for tax compliance over the years. This number includes AuM transferred to our U.S.-registered entities or closed after tax compliance was established. In addition, approximately $2.25 billion AuM lost its U.S. nexus over the years. Finally, of the accounts that were closed over the years we simply have no basis to assume that all of them were undeclared.

It was discussed between the Senators and the representatives of Credit Suisse that the actual amount of AUM compared to Credit Suisse’s AuM was miniscule, and that such AuM contributed less than 1% to Credit Suisse’s profits.  However, Senator John McCain, the minority ranking member, told the Credit Suisse representatives that, while small in the context of the bank, amounts of billions and the profits made therefrom, are large amounts to a American taxpayer if made aware of such conduct.  While listening to the Senator’s assessment (and agreeing), I wondered why in contrast hundreds of billions of annual deficits up to nearly a trillion deficit, and 15, 17, perhaps 20 trillion of national debt don’t seem to phase the same taxpayer referred to?

Internal Investigation

Nor did we turn a blind eye to the past. On the contrary, we invested enormous efforts to achieve as much clarity as possible about whether, and to what extent, Credit Suisse employees had violated U.S. laws or helped clients do so. Credit Suisse asked external counsel to investigate any instances of past improper conduct fully. That investigation was broad and deep.

The U.S. law firm King & Spalding and the Swiss law firm Schellenberg Wittmer led the investigation, with help from a major accounting firm. The investigation reviewed all aspects of the Bank’s Swiss-based private banking business with U.S. customers. It involved more than 100 interviews of Credit Suisse and Clariden Leu personnel, from line-level private bankers to senior leaders of the Bank. The investigation reviewed the conduct of bankers across the Swiss private bank who had a number of U.S. clients or traveled to the United States.

The investigation identified evidence of violations of Bank policy centered on a small group of Swiss-based private bankers. That conduct centered on a group of private bankers within a desk of 15 to 20 private bankers at any given time who were focused on larger accounts of U.S. residents. Most of the improper activity was focused on some private bankers who traveled to the United States once or twice a year; otherwise, the investigation found only scattered evidence of improper conduct.

The investigation did not find any evidence that senior executives of Credit Suisse knew these bankers were apparently helping U.S. customers hide income and assets. To the contrary, the evidence showed that some Swiss-based private bankers went to great lengths to disguise their bad conduct from Credit Suisse executive management.

Cooperation with U.S. Authorities

Credit Suisse has consistently cooperated with the investigations led by the Department of Justice, the SEC, and this Subcommittee, going to the greatest extent permissible by Swiss law to provide information to investigating U.S. authorities.

Since early 2011, Credit Suisse has produced hundreds of thousands of pages of documents, including translations of foreign-language documents. Our representatives have met with the Department of Justice to help them understand the information we provided and to describe the findings of our internal investigation and the Bank’s various compliance efforts.

Credit Suisse has also provided briefings to officials from the U.S. government, including the SEC and this Subcommittee. That includes more than 100 hours briefing the Subcommittee staff on details of the private banking business and the internal investigation and thousands more hours answering written questions from Subcommittee staff. Specifically, Credit Suisse produced over 580,000 pages of documents, provided 11 detailed briefings to the Subcommittee staff in all-day, or multi-day, sessions, provided 12 substantive written submissions, and made 17 witnesses available from both the United States and Switzerland, including the Bank’s General Counsel, co-heads of the Private Bank and Wealth Management Division, and the CEO.

Report Offshore Tax Evasion: The Effort to Collect Unpaid Taxes on Billions in Hidden Offshore Accounts

The 175-page bipartisan staff report released Tuesday February 25 outlines how Credit Suisse engaged in similar conduct from at least 2001 to 2008, sending Swiss bankers into the United States to recruit U.S. customers, opening Swiss accounts that were not disclosed to U.S. authorities, including accounts opened in the name of offshore shell entities, and servicing Swiss accounts here in the United States without leaving a paper trail.  For the complete analysis of the reportm see https://profwilliambyrnes.com/2014/02/26/senate-subcommittee-hearing-and-report-on-offshore-tax-evasion/


106 Swiss Banks Seek Non-Prosecution from US Justice Department for Past Tax Evasion by Clients

106 Swiss banks (of approximately 300 total) filed the requisite letter of intent to join the Program for Non-Prosecution Agreements or Non-Target Letters (the “Program“) by the December 31, 2013 deadline.  Renown attorney Jack Townsend reported on his blog on February 14th provided a list of 49 Swiss banks that had publicly announced the intention to submit the letter of intent, as well as each bank’s category for entry: six announced seeking category 4 status, eight for category 3, thirty-five for category 2.  106 was a large jump from the mid-December report by the international service of the Swiss Broadcasting Corporation (“SwissInfo”) that only a few had filed for non prosecution with the DOJ’s program (e.g. Migros Bank, Bank COOP, Valiant, Berner Kantonalbank and Vontobel).

What is the Program for Non-Prosecution Agreements or Non-Target Letters for Swiss Banks?

The Tax Division of the Department of Justice released a statement on December 12, 2013 strongly encouraging Swiss banks wanting to seek non-prosecution agreements to resolve past cross-border criminal tax violations to submit letters of intent by a Dec. 31, 2013 deadline required by the Program for Non-Prosecution Agreements or Non-Target Letters (the “Program“).  The Program was announced on Aug. 29, 2013, in a joint statement signed by Deputy Attorney General James M. Cole and Ambassador Manuel Sager of Switzerland (> See the Swiss government’s explanation of the Program < ).  Switzerland’s Financial Market Supervisory Authority (FINMA) has issued a deadline of Monday, December 16, 2013 for a bank to inform it with its intention to apply for the DOJ’s Program.[2]

The DOJ statement described the framework of the Program for Non-Prosecution Agreements: every Swiss bank not currently under formal criminal investigation concerning offshore activities will be able to provide the cooperation necessary to resolve potential criminal matters with the DOJ.  Currently, the department is actively investigating the Swiss-based activities of 14 banks.  Those banks, referred to as Category 1 banks in the Program, are expressly excluded from the Program.  Category 1 Banks against which the DoJ has initiated a criminal investigation as of 29 August 2013 (date of program publication).

On November 5, 2013 the Tax Division of the DOJ had released comments about the Program for Non-Prosecution Agreements or Non-Target Letters for Swiss Banks.

Swiss banks that have committed violations of U.S. tax laws and wished to cooperate and receive a non-prosecution agreement under the Program, known as Category 2 banks, had until Dec. 31, 2013 to submit a letter of intent to join the program, and the category sought.

To be eligible for a non-prosecution agreement, Category 2 banks must meet several requirements, which include agreeing to pay penalties based on the amount held in undeclared U.S. accounts, fully disclosing their cross-border activities, and providing detailed information on an account-by-account basis for accounts in which U.S. taxpayers have a direct or indirect interest.  Providing detailed information regarding other banks that transferred funds into secret accounts or that accepted funds when secret accounts were closed is also a stipulation for eligibility. The Swiss Federal Department of Finance has released a > model order and guidance note < that will allow Swiss banks to cooperate with the DOJ and fulfill the requirements of the Program.

The DOJ’s November comments responded to such issues as: (a) Bank-specific issues and issues concerning individuals, (b) Choosing which category among 2, 3, or 4, (c) Qualifications of independent examiner (attorney or accountant), (d) Content of independent examiner report, (e) Information required under the Program – no aggregate account data, (f) Penalty calculation – permitted reductions, (g) Category 4 banks – retroactive application of FATCA Annex II, paragraph II.A.1, and (h) Civil penalties.

Which of Four Categories To File for Non-Prosecution Under?

Regarding which category to file under, the DOJ replied: “Each eligible Swiss bank should carefully analyze whether it is a category 2, 3 or 4 bank. While it may appear more desirable for a bank to attempt to position itself as a category 3 or 4 bank to receive a non-target letter, no non-target letter will be issued to any bank as to which the Department has information of criminal culpability. If the Department learns of criminal conduct by the bank after a non-target letter has been issued, the bank is not protected from prosecution for that conduct. If the bank has hidden or misrepresented its activities to obtain a non-target letter, it is exposed to increased criminal liability.”

Category 2

Banks against which the DoJ has not initiated a criminal investigation but have reasons to believe that that they have violated US tax law in their dealings with clients are subject to fines of on a flat-rate basis.  Set scale of fine rates (%) applied to the untaxed US assets of the bank in question:

– Existing accounts on 01.08.2008: 20%
– New accounts opened between 01.08.2008 and 28.02.2009: 30%
– New accounts after 28.02.2009: 50%

Category 2 banks must delivery of information on cross-border business with US clients, name and function of the employees and third parties concerned, anonymised data on terminated client relationships including statistics as to where the accounts re-domiciled.

Category 3

Banks have no reason to believe that they have violated US tax law in their dealings with clients and that can have this demonstrated by an independent third party. A category 3 bank must provide to the IRS the data on its total US assets under management and confirmation of an effective compliance programme in force.

Category 4

Banks are a local business in accordance with the FATCA definition.

Independence of Qualified Attorney or Accountant Examiner

Regarding the requirement of the independence of the qualified attorney or accountant examiner, the DOJ stated that the examiner “is not an advocate, agent, or attorney for the bank, nor is he or she an advocate or agent for the government. He or she must provide a neutral, dispassionate analysis of the bank’s activities. Communications with the independent examiner should not be considered confidential or protected by any privilege or immunity.”  The attorney / accountant’s report must be substantive, detailed, and address the requirements set out in the DOJ’s non-prosecution Program.  The DOJ stated that “Banks are required to cooperate fully and “come clean” to obtain the protection that is offered under the Program.”

In the ‘bottom line’ words of the DOJ: “Each eligible Swiss bank should carefully weigh the benefits of coming forward, and the risks of not taking this opportunity to be fully forthcoming. A bank that has engaged in or facilitated U.S. tax-related or monetary transaction crimes has a unique opportunity to resolve its criminal liability under the Program. Those that have criminal exposure but fail to come forward or participate but are not fully forthcoming do so at considerable risk.”

LexisNexis FATCA Compliance Manual

book cover

The LexisNexis® Guide to FATCA Compliance comprises 34 Chapters by 50 contributors grouped in three parts: compliance program (Chapters 1–4), analysis of FATCA regulations (Chapters 5–16) and analysis of FATCA’s application for certain trading partners of the U.S. (Chapters 17–34), including intergovernmental agreements as well as the OECD’s TRACE initiative for global automatic information exchange protocols and systems. The 34 chapters include many practical examples to assist a compliance officer contextualize the regulations, IGA provisions, and national rules enacted pursuant to an IGA.  Chapters include by example an in-depth analysis of the categorization of trusts pursuant to the Regulations and IGAs, operational specificity of the mechanisms of information capture, management and exchange by firms and between countries, insights as to the application of FATCA and the IGAs within new BRIC and European country chapters.

If you are interested in discussing the Master or Doctorate degree in the areas of financial services or international taxation, please contact me https://profwilliambyrnes.com/online-tax-degree/

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