Swiss Private Bank BSI SA Admits Aiding U.S. Tax Cheats, Will Pay $211 Million
In a deal with U.S. prosecutors, Swiss private bank BSI SA agreed today to pay a $211 million penalty and hand over leads on more than 3,000 accounts with U.S. ties, as well as the actual names of an undisclosed, but presumably much smaller group of U.S. account owners.
The “non-prosecution agreement,” which allows BSI to avoid criminal charges in the U.S., is the first to be sealed under a controversial amnesty program the U.S. Department of Justice announced in August 2013 for all Swiss banks, except the 14 already under criminal investigation at that time. Last year, one of the 14, Credit Suisse AG, Switzerland’s second largest bank, plead guilty to a felony and agreed to pay a total of $2.6 billion in fines and restitution for its role enabling U.S. tax cheats.
BSI, which managed assets of nearly $100 billion at the end of 2013, agreed last year to be acquired by Brazilian investment bank Grupo BTG Pactual, which is controlled by Andre Esteves, who Forbes estimates is worth $2.5 billion, making him Brazil’s 13th richest individual. (Update: the original version of this story said BSI was acquired last year, but a spokesman for BTG said the acquisition has not yet closed.) At a briefing on the deal today, DOJ officials declined to comment on whether BSI’s impending change of ownership had made it more eager to settle the matter, but noted that several other Swiss bank deals would be announced soon.
As part of the unprecedented Swiss bank amnesty program, “category 2” banks such as BSI, which had reason to believe they had committed U.S. tax offenses, can escape prosecution in return for admitting their wrongdoing and providing details about accounts with U.S. ties, including transfers of such accounts to other offshore banks. Some 106 category 2 banks—roughly a third of all Swiss banks–applied to participate in the voluntary disclosure amnesty before the Dec. 31, 2013 deadline, although an undisclosed number have since dropped out. Last October, lawyers for 73 banks wrote a letter to the DOJ complaining about some terms of the proposed nonprosecution deal and it was later somewhat revised.
In deference to Swiss bank secrecy law, banks participating in the program aren’t required to name all their customers, a concession which came under withering criticism last year from Michigan Democrat Carl Levin, the then chairman of the Senate Permanent Subcommittee on Investigations. (Levin did not seek reelection in 2014.) By contrast, last December, when Israel’s Bank Leumi settled charges of enabling U.S. tax cheats, it agreed to hand over the names of 1,500 U.S. account holders, as well as to pay a total of $400 million to the Internal Revenue Service and New York’s Department of Financial Services.
DOJ officials have defended the unprecedented Swiss program, saying the Swiss banks are providing leads that allow U.S. investigators to uncover where secret money has gone and to eventually (after a lot of back and forth with Swiss authorities) uncover the identities of some tax-cheating U.S. account holders. In announcing the BSI deal today, Acting Associate Attorney General Stuart F. Delery said it “demonstrates that the program is working. BSI is paying an appropriate penalty for its misconduct and the information and continuing cooperation we have required the banks to provide in order to participate in the program is allowing us to systematically attack offshore tax avoidance schemes.”
DOJ officials today declined to say how many names will be immediately turned over by BSI to the U.S., but if past Swiss bank cases are any indication, it will only be a tiny percentage of the BSI accounts with U.S. ties. At one point, BSI had 3,500 U.S. linked accounts holding a total of $2.78 billion in assets.
The fact that most names won’t be immediately revealed gives customers of the bank a window to apply to the IRS’ long running Offshore Voluntary Disclosure Program (OVDP). The program allows individuals with secret offshore accounts to avoid criminal prosecution in return for confessing and paying back taxes and a penalty equal to some percentage of the account’s maximum value, but tax cheats whose names the IRS already has aren’t eligible for the OVDP. Last August, the IRS increased the OVDP penalty to 50% of an account’s maximum value in those cases where the money was held at an institution that has been publicly identified as under investigation, as BSI now has. The IRS said in January that it has collected more than $7 billion from more than 50,000 participants in the OVDP.
In a statement of facts accompanying the non-prosecution agreement, BSI admitted that it assisted U.S. taxpayers conceal their ownership of accounts by helping them set up shell companies, foundations and trusts in the Bahamas, Channel Islands, British Virgin Islands, Panama and Liechtenstein; providing them with offshore debit cards to access their funds: and structuring funds transfers to evade U.S. currency reporting rules. As a result, the document states, thousands of Americans filed false 1040s, which failed to disclose the accounts, and failed to file so-called FBARS (a separate document that must be filed with the Treasury annually disclosing foreign accounts worth more than $10,000).
Among other things, BSI offered U.S. clients (for a fee) a “hold mail” service which kept their statements at the bank rather than delivering them to their U.S. addresses. About two thirds of the U.S. customers used the service, suggesting efforts to hide their accounts. In 2008, after Swiss bank UBS AG disclosed it was under criminal investigation in the U.S. (it later paid $780 million to settle) BSI decided not to open any more accounts owned by sham entities set up for Americans. But at the same time, it also moved to conceal those it already had, by instituting mandatory hold mail for suspect accounts.
