Bank La Roche & Co AG Reaches Resolution Under US Justice Department’s Swiss Bank

The Department of Justice announced today that Bank La Roche & Co AG has reached a resolution under the department’s Swiss Bank Program.

“Today’s agreement is yet another example of a foreign financial institution coming forward, acknowledging its criminal conduct, taking the necessary steps to resolve its criminal exposure, cooperating with the department’s ongoing investigations and paying appropriate penalties,” said Acting Assistant Attorney General Caroline D. Ciraolo of the Justice Department’s Tax Division. “The continued success of the program is evident from the 35 agreements signed to date, and the treasure trove of information provided regarding U.S. accountholders, the foreign and domestic facilitators who assisted in the concealment of U.S- related accounts and the various entities and institutions that played critical roles in these schemes.”

The Swiss Bank Program, which was announced on Aug. 29, 2013, provides a path for Swiss banks to resolve potential criminal liabilities in the United States. Swiss banks eligible to enter the program were required to advise the department by Dec. 31, 2013, that they had reason to believe that they had committed tax-related criminal offenses in connection with undeclared U.S.-related accounts. Banks already under criminal investigation related to their Swiss-banking activities and all individuals were expressly excluded from the program.

Under the program, banks are required to:

• Make a complete disclosure of their cross-border activities;
• Provide detailed information on an account-by-account basis for accounts in which U.S. taxpayers have a direct or indirect interest;
• 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;
• Agree to close accounts of accountholders who fail to come into compliance with U.S. reporting obligations; and
• Pay appropriate penalties.

Swiss banks meeting all of the above requirements are eligible for a non-prosecution agreement.

According to the terms of the non-prosecution agreement signed today, La Roche agrees to cooperate in any related criminal or civil proceedings, demonstrate its implementation of controls to stop misconduct involving undeclared U.S. accounts and pay penalties in return for the department’s agreement not to prosecute this bank for tax-related criminal offenses.

La Roche was founded in 1787 and is based in Basel, Switzerland, with offices in Olten and Bern, Switzerland. In 2011, La Roche closed a Hong Kong asset management subsidiary that opened in 2008. On Feb. 13, 2015, La Roche sold its business to Notenstein Privatbank AG. Most of La Roche’s employees and the clients of La Roche, with the exception of U.S. taxpayers and a few other clients, will be transferred to Notenstein Privatbank AG. The transaction is expected to close in October 2015. Thereafter, La Roche intends to wind down its remaining business and relinquish its banking license.

La Roche assisted some U.S. clients in opening and maintaining undeclared accounts in Switzerland and concealing the assets and income the clients held in their accounts from the Internal Revenue Service (IRS). La Roche used a variety of means to assist some U.S. clients in concealing the assets and income the clients held in their La Roche undeclared accounts, including by:

• providing numbered accounts for 70 U.S. taxpayers;
• holding bank statements and other mail relating to 66 U.S.-related numbered accounts, as well as 20 named accounts of U.S. taxpayers domiciled in the United States;
• allowing substantial cash and precious metal withdrawals in connection with the closures of 27 U.S. taxpayers’ accounts for a total amount of $11.6 million;
• maintaining records in which certain U.S. taxpayers expressly instructed La Roche not to disclose their names to the IRS;
• providing travel cash cards to five U.S. taxpayers upon their request; and

opening an account in June 2010 for a U.S. taxpayer who left UBS and who transferred $126,000 from UBS to the La Roche account.

In 51 instances, La Roche maintained accounts for U.S. taxpayers as beneficial owners of accounts held by non-U.S. corporations, foundations or other entities, some of which were sham entities, that concealed the beneficial ownership of the U.S. taxpayers. These entities included Liechtenstein foundations, two of which were established or administered by a Liechtenstein trust company, whose manager and director had a long-standing personal relationship with La Roche.

Due in part to the assistance of La Roche and its personnel, and with the knowledge that Swiss banking secrecy laws would prevent La Roche from disclosing their identities to the IRS, some U.S. clients of La Roche filed false and fraudulent U.S. Individual Income Tax Returns (IRS Forms 1040), which failed to report their interests in their undeclared accounts and the related income. Some of La Roche’s U.S. clients also failed to file and otherwise report their undeclared accounts on Reports of Foreign Bank and Financial Accounts (FBARs).

As part of its participation in the Swiss Bank Program, La Roche provided information concerning 10 U.S. client accounts held at La Roche in Switzerland since August 2008 sufficient to make treaty requests to the Swiss competent authority for U.S. client account records. It also provided a list of the names and functions of individuals who structured, operated or supervised the cross-border business at La Roche.

Since Aug. 1, 2008, La Roche maintained 201 U.S.-related accounts with a maximum aggregate value of approximately $193.9 million. 136 of these accounts were beneficially owned by U.S. clients domiciled in the United States, 36 of which were maintained in the names of entities. La Roche will pay a penalty of $9.296 million.

In accordance with the terms of the Swiss Bank Program, La Roche mitigated its penalty by encouraging U.S. accountholders to come into compliance with their U.S. tax and disclosure obligations. While U.S. accountholders at La Roche who have not yet declared their accounts to the IRS may still be eligible to participate in the IRS Offshore Voluntary Disclosure Program, the price of such disclosure has increased.

Most U.S. taxpayers who enter the IRS Offshore Voluntary Disclosure Program to resolve undeclared offshore accounts will pay a penalty equal to 27.5 percent of the high value of the accounts. On Aug. 4, 2014, the IRS increased the penalty to 50 percent if, at the time the taxpayer initiated their disclosure, either a foreign financial institution at which the taxpayer had an account or a facilitator who helped the taxpayer establish or maintain an offshore arrangement had been publicly identified as being under investigation, the recipient of a John Doe summons or cooperating with a government investigation, including the execution of a deferred prosecution agreement or non-prosecution agreement. With today’s announcement of this non-prosecution agreement, noncompliant U.S. accountholders at La Roche must now pay that 50 percent penalty to the IRS if they wish to enter the IRS Offshore Voluntary Disclosure Program.

“With each agreement signed under the Swiss Bank Program, we gather more specific information about the schemes used to hide assets overseas,” said Chief Richard Weber of IRS-Criminal Investigation (CI). “The sheer magnitude of information collected as a result of these agreements will be used to pursue tax evaders around the world and will have profound ramifications in developing innovative international tax compliance strategies in the future.”

Acting Assistant Attorney General Ciraolo thanked the IRS, and in particular, IRS-CI and the IRS Large Business & International Division for their substantial assistance. Ciraolo also thanked Karen M. Quesnel, who served as counsel on this matter, as well as Senior Counsel for International Tax Matters and Coordinator of the Swiss Bank Program Thomas J. Sawyer and Senior Litigation Counsel Nanette L. Davis of the Tax Division.

Additional information about the Tax Division and its enforcement efforts may be found on the division’s website.