US DOJ Swiss Bank Program Categories 3 and 4 Comments (2/4/16; 2/7/16)

As readers know, DOJ has just announced the final NPA under the DOJ Swiss Bank Program for so-called Category 2 banks.  Category 2 was designed to resolve potential criminal issues for banks who had committed criminal acts with respect to U.S. depositors, provided that they were not under criminal investigation at the time (the latter banks are called Category 1 banks).  The DOJ Swiss Bank Program had two other categories, Categories 3 and 4.  Banks qualifying under Categories 3 and 4 were banks who had not committed criminal acts (thus not being in the scope of Category 2) but who desired to obtain "Non-Target Letters" ("NTLs")

Thus, one condition for a Category 3 bank was (par. III.A.3.):

3. that [it] has not committed any tax-related offenses under Titles 18 or 26, United States Code, or monetary transactions offenses under §§ 5314 or 5322, Title 31, United States Code, in connection with undeclared U.S. Related Accounts held by the Swiss Bank during the Applicable Period (i.e., that is not a Category 2 Bank).

A condition for a Category 4 bank was (par. IV.A.2.):

2. that is a "Deemed Compliant Financial Institution" as a "Financial Institution with Local Client Base" under the FATCA Agreement, Annex II Paragraph II.A.1, as if the FATCA Agreement were in force during the Applicable Period (except that the Swiss Bank must meet the terms of Annex II, Paragraph II.A.1.e on December 31, 2009, and the date of the announcement of this Program),

I won't parse that Category 4 condition; suffice it to say that these banks would not be Category 2 banks because they did not commit criminal acts in the "Applicable Period."

A Swiss bank within the scope of Categories 3 and 4 had until October 31 to provide a letter to DOJ Tax of its intent to seek an NTL and then meet certain requirements as to an Independent Examiner, recordkeeping, and waiver of the defense of the statute of limitations and preindictment delay if DOJ were to discover that they had indeed committed criminal misconduct.

I have received inquiries about whether any banks within the scope of Categories 3 and 4 actually completed the requirements and obtained NTLs.  Unlike NPAs for Category 2 banks, DOJ Tax makes no announcement of issuing NTLs under Categories 2 and 3, just as it makes no public announcement when and if it issue such or similar letters in grand jury investigations generally.  So, this raises two questions.

1. Why would any Swiss bank have seen a benefit in obtaining a Non-Target Letter.
2. Did any actually seek and obtain Non-Target Letters.

Why would Any Swiss Bank Seek NTLs?

I must confess that this baffles me.  An NTL is not an agreement of any sort.  Rather, it is a statement that, at the moment in time that it is issued, the bank is not a target of a DOJ criminal investigation (presumably a grand jury investigation).  There is always the possibility that DOJ Tax could receive information or discover information already in its possession that would make the bank a target.  And, if it were to do so, the NTL would have achieved absolutely nothing for the bank.  Note in this regard that the bank has to waive all defenses related to the statute of limitations or delays in indictment.  (I am not sure how important the statute of limitations waiver is because among the panoply of crimes that could be charged are tax crimes for which the statute is suspended while the person is out of the country).  Even worse, the process of seeking and obtaining an NTL requires representations of the type that would like constitute a criminal offense (e.g., false statements under § 1001) if the bank should have been in Category 2.

I asked some colleagues who were closer to the Swiss banks than I am.  The only response I got was that some Swiss banks felt that obtaining an NTL would be good for reputational and marketing purposes.  As to reputation, since most Swiss banks were doing it at the time, I suspect that the reputation of a bank that did not do it was problematic (reputation for stupidity), but in the long run it was pretty smart.  As to marketing, I am not sure customers and potential customers would particularly care, but they are closer to the needs of their markets than I am.  In any event, I hope it is evident from the above that the NTL is not a statement that the DOJ has declared the bank innocent or blameless or anything else; it is simply a statement that the bank is not a target at that time.  (Most criminal defense practicioners know or at least believe, that regardless of how much information a prosecutor has, he or she does not make the determination of target status until about 15 seconds before the prosecutor asks the grand jury to approve the indictment that the prosecutor has previously prepared.)

Now, I have sought and obtained letters from prosecutors of grand jury investsigations that my client was not a target.  Further, at the start of a proffer session with the prosecutor assigned to a grand jury, I always seek and received oral assurances that my client is not a target.  (If I don't get that assurance, the proffer session concludes post haste.)  In one case where the prosecutors gave the assurance of nontarget status, the tone of the questioning clearly established that my client was indeed a target despite the oral assurances.  So, whether written or oral, such statements of Non=Target status provide no protection, except perhaps if a strong case could be made that the prosecutor was untruthful in the proffer session as to the witness's status, in any subsequent prosecution, the witness might be able to exclude any of the statements made in the proffer session (provided that the client did not lie in the session, since such inducements do not give license to the witness to lie).

Finally, merely asking for an NTL invites DOJ Tax to take a hard look at the bank.  DOJ Tax may have other information and read the facts differently than the bank.  The mere process of applying and processing could turn the bank into a Target because it should have joined as a Category 2 bank but did not.

I urge readers to comment on what I may be missing here.  Was it a smart move or not for Swiss Banks to seek Category 3 or 4 NTLs?

Did Any Swiss Banks Seek or Obtain Category 3 or Category 4 NTLs?

A web site titled U.S. Tax Program, here, catalogues the following banks as having indicated that they would seek NTLs:

Financial Institution	US Swiss Category
Acrevis Bank AG	4
AEK Bank 1826 Genossenschaft	4
Alpha Rheintal Bank AG	3
Baloise Bank SoBa AG	3
Bank Vontobel AG	3
Banque de Commerce et de Placements SA	3
Burgergemeinde Bern, DC Bank Deposito-Cassa der Stadt Bern	4
Cembra Money Bank AG	3
Notenstein Privatbank AG	3 or not participating
Raiffeisen Group as well as Raiffeisen banks	3
Swissquote Bank SA	3 or not participating
Thurgauer Kantonalbank	3
VP Bank (Schweiz) AG	was 2, but left Program

My own statistics derived from anecdotal information that they might join as Category 3 or 4 is:

Financial Institution	US Swiss Category
acrevis Bank AG	4
AEK Bank 1826	4
Alpha Rheintal Bank AG	3
Appenzeller Kantonalbank	4
Baloise Bank SoBa	3
Bank am Bellevue	3
Banque de Commerce et de Placements SA	3
Basellandschaftliche Kantonalbank	3
Burgergemeinde Bern, DC Bank Deposito-Cassa der Stadt Bern	4
Cembra Money Bank AG	3
DC Bank (Switzerland)	3
Glarner Kantonalbank	3
Glarus Bank	4
Notenstein Privatbank Ltd.	3
Obwaldner Kantonalbank	4
Raiffeisen Schweiz	3
Schwyzer Kantonalbank	4
Swissquote Bank SA	3
Thurgauer Kantonalbank	3
Urner Kantonalbank	4
Vontobel Holding AG	3

I would love to hear from readers as to the banks actually getting NTLs, along, if possible, with a source for the information (preferably a publicly available source.

Addendum 2/7/16:

So, far, from various sources, I have been able only to confirm that the following bank did join:

• Vantobel - Category 3, here at p. 25 (where it is mentioned under the topic success in attracting top talent, which means that the bank was focused on the reputational concerns.

I have not confirmed that any bank joined as Category 4.

Bank Julius Baer, a Category 1 Bank, Enters Deferred Prosecution Agreement with Payment of $547 Million (2/4/16)

DOJ announced, here, that Bank Julius Baer (sometimes "BJB") has entered a deferred prosecution Agreement.  I provide certain key excerpts from the press release and deferred prosecution agreement below.  Except for the headings, the bold face is supplied by me to draw the readers attention to the information bold-faced.  Please note that this is a very quick summary due to the press of time.  I may add more later.

Key excerpts from the press release are:

Acting Assistant Attorney General Ciraolo and U.S. Attorney Bharara also announced a deferred prosecution agreement with Julius Baer (the agreement) under which the company admits that it knowingly assisted many of its U.S. taxpayer-clients in evading their tax obligations under U.S. law.  The admissions are contained in a detailed Statement of Facts attached to the agreement.  The agreement requires Julius Baer to pay a total of $547 million by no later than Feb. 9, 2016, including through a parallel civil forfeiture action also filed today in the Southern District of New York. 

* * * *  

The criminal charge is contained in an Information (the information) alleging one count of conspiracy to (1) defraud the IRS, (2) to file false federal income tax returns and (3) to evade federal income taxes.  If Julius Baer abides by all of the terms of the agreement, the government will defer prosecution on the Information for three years and then seek to dismiss the charges. 

In addition, two Julius Baer client advisers, Daniela Casadei and Fabio Frazzetto, pleaded guilty in Manhattan federal court today.   Casadei and Frazzetto were originally charged in 2011 and remained at large until Feb. 1, when they each made initial appearances before the Honorable Gabriel W. Gorenstein, U.S. Magistrate Judge for the Southern District of New York.  

Casadei and Frazzetto each pleaded guilty to an Information (collectively, with the Julius Baer information, the informations) before U.S. District Judge Laura Taylor Swain charging them with conspiring with U.S. taxpayer-clients and others to help U.S. taxpayers hide their assets in offshore accounts and to evade U.S. taxes on the income earned in those accounts.  

* * * * 

The Offense Conduct 

From at least the 1990s through 2009, Julius Baer helped many of its U.S. taxpayer-clients evade their U.S. tax obligations, file false federal tax returns with the IRS and otherwise hide accounts held at Julius Baer from the IRS (hereinafter, undeclared accounts).  Julius Baer did so by opening and maintaining undeclared accounts for U.S. taxpayers and by allowing third-party asset managers to open undeclared accounts for U.S. taxpayers at Julius Baer.  Casadei and Frazzetto, bankers who worked as client advisers at Julius Baer, directly assisted various U.S. taxpayer-clients in maintaining undeclared accounts at Julius Baer in order to evade their obligations under U.S.  law.  At various times, Casadei, Frazzetto and others advised those U.S. taxpayer-clients that their accounts at Julius Baer would not be disclosed to the IRS because Julius Baer had a long tradition of bank secrecy and no longer had offices in the United States, making Julius Baer less vulnerable to pressure from U.S. law enforcement authorities than other Swiss banks with a presence in the United States.    

In furtherance of the scheme to help U.S. taxpayers hide assets from the IRS and evade taxes, Julius Baer undertook, among other actions, the following: 

• Entering into “code word agreements” with U.S. taxpayer-clients under which Julius Baer agreed not to identify the U.S. taxpayers by name within the bank or on bank documents, but rather to identify the U.S. taxpayers by code name or number, in order to reduce the risk that U.S. tax authorities would learn the identities of the U.S. taxpayers.
• Opening and maintaining accounts for many U.S. taxpayer-clients held in the name of non-U.S. corporations, foundations, trusts, or other legal entities (collectively, structures) or non-U.S. relatives, thereby helping such U.S. taxpayers conceal their beneficial ownership of the accounts.

Julius Baer was aware that many U.S. taxpayer-clients were maintaining undeclared accounts at Julius Baer in order to evade their U.S. tax obligations, in violation of U.S. law.  In internal Julius Baer correspondence, undeclared accounts held by U.S. taxpayers were at times referred to as “black money,” “non W-9,” “tax neutral,” “unofficial,” or “sensitive” accounts.

Julius Baer also advised its bankers to take certain steps to avoid scrutiny from U.S. authorities when travelling to the United States, as well as steps to avoid U.S. law enforcement identifying Julius Baer clients.  In a memo entitled “U.S. Clients Do’s & Don’ts,” circulated internally in 2006, a Julius Baer employee provided client advisers with advice regarding travel to the United States, including: 

• “At Immigration . . . When asked by Officer what will you do while in the USA, say Business and of course some leisure, trying to take some time to enjoy your beautiful country. Proud government employees usually love this type of statement.One can throw in skydiving or another fun sport/activity. This tends to shift the questioning away from the business purpose to the ‘fun time’ part of the trip (carrying a tennis racket also puts the emphasis on “fun and games,” and not on business).”
• In regard to communicating while in the U.S.:“Only use mobile phone[s] registered in and operating from Switzerland. Avoid phone calls from hotel to clients.It is recommended to purchase a telephone calling card from the post office, grocery stores, or electronic shops. This allows you to use practically any phone with no specific link left behind. The best is to pay for the calling card in cash. For ex: a 400 minutes local calling card costs less than $50, but the rates can vary.Most cards can also be used to call anywhere abroad.”

At its high-water mark in 2007, Julius Baer had approximately $4.7 billion in assets under management relating to approximately 2,589 undeclared accounts held by U.S. taxpayer-clients.  From 2001 through 2011, Julius Baer earned approximately $87 million in profit on approximately $219 million gross revenues from its undeclared U.S. taxpayer accounts, including accounts held through structures.  

Julius Baer’s Blocked Effort to Self-Report, Acceptance of Responsibility, and Cooperation in the Government Investigation 

Notwithstanding its lucrative criminal conduct, by at least 2008, Julius Baer began to implement institutional policy changes to cease providing assistance to U.S. taxpayers in violating their U.S. legal obligations.  For example, by November 2008, the company began an “exit” plan for U.S. client accounts that lacked evidence of U.S. tax compliance.  In that same month, Julius Baer imposed a prohibition on opening accounts for any U.S. clients without a Form W-9. 

Additionally, in November 2009, before Julius Baer became aware of any U.S. investigation into its conduct, Julius Baer decided proactively to approach U.S. law enforcement authorities regarding its conduct relating to U.S. taxpayers.  Prior to self-reporting to the Department of Justice, Julius Baer notified its regulator in Switzerland of its intention to contact U.S. law enforcement authorities.  This Swiss regulator requested that Julius Baer not contact U.S. authorities in order not to prejudice the Swiss government in any bilateral negotiations with the United States on tax-related matters.  Accordingly, Julius Baer did not, at that time, self-report to U.S. law enforcement authorities. 

After ultimately engaging with U.S. authorities, Julius Baer has taken exemplary actions to demonstrate acceptance and acknowledgement of responsibility for its conduct.  Julius Baer conducted a swift and robust internal investigation, and furnished the U.S. government with a continuous flow of unvarnished facts gathered during the course of that internal investigation.  As part of its cooperation, Julius Baer also, among other things, (1) successfully advocated in favor of a decision provided by the Swiss Federal Council in April 2012 to allow banks under investigation by the U.S. Department of Justice to legally produce employee and third-party information to the department, and subsequently produced such information immediately upon issuance of that decision; and (2) encouraged certain employees, including specifically Frazzetto and Casadei, to accept responsibility for their participation in the conduct at issue and cooperate with the ongoing investigation.      

*         *        *         * 

Casadei, 52, a Swiss citizen, and Frazzetto, 42, an Italian and Swiss citizen, each pleaded guilty to one count of conspiracy to defraud the IRS, to evade federal income taxes and to file false federal income tax returns.  Casadei and Frazzetto each face a statutory maximum sentence of five years in prison.  The statutory maximum sentence is prescribed by Congress and is provided here for informational purposes only, as any sentences imposed on the defendants will be determined by the judge.  

Casadei and Frazzetto are each scheduled to be sentenced before Judge Swain on Aug. 12, 2016.

JAT Comment on press release:

1.  Note the following:

At its high-water mark in 2007, Julius Baer had approximately $4.7 billion in assets under management relating to approximately 2,589 undeclared accounts held by U.S. taxpayer-clients.  From 2001 through 2011, Julius Baer earned approximately $87 million in profit on approximately $219 million gross revenues from its undeclared U.S. taxpayer accounts, including accounts held through structures. 

 Of course, BJB likely had been doing this far earlier than 2001, but the $547 million payment now certainly took all the profit and more for the period from 2001 through 2011.

DPA and Related Documents, here.

These documents include the following:

• Verified Complaint
• Information (Exhibit A)
• Deferred Prosecution Agreement (Exhibit B)
• \Statement of Facts (Exhibit C)
• Verified Complaint (Exhibit D)

Key excerpts from the DPA:

Acceptance of Responsibility 

2. Julius Baer admits and stipulates that the facts set forth in the Statement of Facts, attached hereto as Exhibit C and incorporated herein, are true and accurate. In sum, Julius Baer admits that it knowingly and willfully agreed to assist, and did assist, certain of its U.S. taxpayer-clients to hide overseas bank accounts from the IRS and to evade these clients' tax and reporting obligations under U.S. law.

Restitution, Forfeiture and Penalty Obligations 

4. As a result of the conduct described in the Information and the Statement of Facts, Julius Baer agrees to make payments in total of $547.25 million to the United States. Specifically, Julius Baer agrees to (1) make a payment of restitution in the amount of $247 million (the "Tax Restitution Amount"), (2) forfeit to the United States $219.25 million (the "Forfeiture Amount"), and (3) pay a penalty of $81 million (the "Penalty Amount") to the U.S. Department of Justice (the "Department"), as set forth below. 

5. In regard to the Tax Restitution Amount, Julius Baer admits that the Tax Restitution Amount represents the approximate unpaid pecuniary loss to the United States as a result of the conduct described in the Statement of Facts. The Tax Restitution Amount shall not be further reduced by payments that have been made or may be made to the United States by U.S. taxpayers through the Offshore Voluntary Disclosure Initiative and similar programs (collectively, "OVDI") before or after the date of this Agreement. Julius Baer agrees to pay the Tax Restitution Amount to the IRS by wire transfer within seven (7) days of the date of the execution of this Agreement. If Julius Baer fails to timely make the payment required under this paragraph, interest (at the rate specified in 28 U.S.C. § 1961) shall accrue on the unpaid balance through the date of payment, unless the Office, in its sole discretion, chooses to reinstate prosecution pursuant to Paragraphs 19 and 20, below. 

6. In regard to the Forfeiture Amount, Julius Baer agrees, pursuant to Title 18, United States Code, Section 981(a)(1)(C) that it will forfeit to the United States the Forfeiture Amount.  

7. The Forfeiture Amount of $219.25 million represents gross fees paid to Julius Baer by U.S. taxpayers with undeclared accounts at Julius Baer from January 1, 2001 through approximately December 31, 2011. 

8. The Forfeiture Amount shall be sent by wire transfer to a seized asset deposit account maintained by the United States Department of the Treasury within seven (7) days of the execution of this Agreement. If Julius Baer fails to timely make the payment required under this paragraph, interest (at the rate specified in 28 U.S.C. § 1961) shall accrue on the unpaid balance through the date of payment, unless the Office, in its sole discretion, chooses to reinstate prosecution pursuant to Paragraphs 19 and 20, below. 

9. Julius Baer agrees this Agreement, the Information, and the Statement of Facts may be attached and incorporated into a civil forfeiture complaint (the "Civil Forfeiture Complaint"), a copy of which is attached hereto as Exhibit D, that will be filed against the Forfeiture Amount. By this Agreement, Julius Baer expressly waives service of that Civil Forfeiture Complaint and agrees that a Final Order of Forfeiture may be entered against the Forfeiture Amount. Julius Baer also agrees that the facts contained in the Information and Statement of Facts are sufficient to establish that the Forfeiture Amount is subject to civil forfeiture to the United States.  

10. The Office and Julius Baer agree that, consistent with the factors set forth in 18 U.S.C. § 3553(a) and 18 U.S.C. § 3572(a), and in light of the Forfeiture Amount and the Tax Restitution Amount, the Penalty Amount of $81 million is an appropriate penalty in this case. Julius Baer agrees to pay the Penalty Amount as directed by the Office within seven (7) business days of the date of the execution of this Agreement. The Penalty Amount represents a reduction of approximately 85% from the low end of the fine range that the parties agree would be applicable under the United States Sentencing Guidelines if Julius Baer had been convicted and sentenced for its criminal conduct. The Office and Julius Baer agree that the Penalty Amount is appropriate given the facts and circumstances of this case, including the nature and seriousness of Julius Baer's conduct as set forth in the Statement of Facts, and also, in mitigation of a higher penalty, among other things: (1) Julius Baer's blocked efforts to self-report to U.S. authorities as set forth in the Statement of Facts, and (2) Julius Baer's thorough internal investigation and concomitant efforts to provide extensive infmmation and materials derived from that investigation to U.S. authorities. The Penalty Amount is fmal and shall not be refunded. Furthermore, nothing in this Agreement shall be deemed an agreement by the Office that the Penalty Amount is the maximum penalty that may be imposed in any future prosecution,and the Office is not precluded from arguing in any future prosecution that the Court should impose a higher penalty. 

11. Upon payment of the Forfeiture Amount, Julius Baer shall release any and all claims it may have to such funds and execute such documents as necessary to accomplish the forfeiture of the funds. Julius Baer agrees that it will not file a claim with the Court or otherwise contest the civil forfeiture of the Forfeiture Amount or the payment of the Penalty Amount and will not assist a third party in asserting any claim to the Forfeiture Amount or the Penalty Amount. 

12. Julius Baer agrees that the Tax Restitution Amount, the Forfeiture Amount and the Penalty Amount shall be treated as non-tax-deductible amounts paid to the United States government for all tax purposes under United States law. Julius Baer agrees that it will not claim, assert, or apply for, either directly or indirectly, a tax deduction, tax credit, or any other offset with regard to any United States federal, state, or local tax, for any portion of the $547.25 million that Julius Baer has agreed to pay to the United States pursuant to this Agreement.

* * * * 

 Deferral of Prosecution and Duration of the Agreement

15. The actions Julius Baer has taken to date demonstrate acceptance and acknowledgment of responsibility for its conduct, including, among other things: 

• Making a Board-level decision in 2009 to self-report its conduct to the Department;
• Implementing remedial measures before it became aware it was the subject of a U.S. law enforcement investigation; 

• Conducting a thorough internal investigation and providing the Office with the facts, including unfavorable ones, discovered during the course of that internal investigation; 

• Advocating in favor of a decision provided by the Swiss Federal Council in April 2012 to allow banks under investigation by the Department to legally produce employee and third-party information to the Department and subsequently producing such information almost immediately upon issuance of that decision; and 

• Encouraging and facilitating certain employees, including specifically charged defendants Fabio Frazzetto and Daniela Casadei, to accept responsibility for their participation in the conduct set forth in the Statement of Facts and to cooperate with the investigation being conducted by the Department and the IRS. Julius Baer has also made a commitment to: (a) accept and acknowledge responsibility for its conduct, as described in the Statement of Facts and the Information; (b) cooperate with the Department and the IRS; (c) make the payment specified in this Agreement; (d) comply with the federal criminal laws of the United States (as provided herein in Paragraph 14); and (e) otherwise comply with all of the terms of this Agreement. In consideration of the foregoing, the Office shall recommend to the Court that prosecution of Julius Baer on the Information be deferred for three years from the date of the signing of this Agreement. Julius Baer shall expressly waive indictment and all rights to a speedy trial pursuant to the Sixth Amendment of the United States Constitution, Title 18, United States Code, Section 3161, Federal Rule of Criminal Procedure 48(b ), and any applicable Local Rules of the United States District Court for the Southern District of New York for the period during which this Agreement is in effect.\ 

21. Julius Baer, having truthfully admitted to the facts in the Statement of Facts, agrees that it shall not, through its attorneys, agents, or employees, make any statement, in litigation or otherwise, contradicting the Statement of Facts or its representations in this Agreement. Consistent with this provision, Julius Baer may raise defenses and/or assert affirmative claims in any civil proceedings brought by private parties as long as doing so does not contradict the Statement of Facts or such representations. Any such contradictory statement by Julius Baer, its present or future attorneys, agents, or employees shall constitute a violation of this Agreement and Julius Baer thereafter shall be subject to prosecution as specified in paragraphs 19 and 20, above, or the deferral-of-prosecution period shall be extended pursuant to paragraph 18, above. The decision as to whether any such contradictory statement will be imputed to Julius Baer for the purpose of determining whether Julius Baer has violated this Agreement shall be within the sole discretion of the Office. Upon the Office's notifying Julius Baer of any such contradictory statement, Julius Baer may avoid a finding of violation of this Agreement by repudiating such statement both to the recipient of such statement and to the Office within forty-eight ( 48) hours after having been provided notice by the Office. Julius Baer consents to the public release by the Office, in its sole discretion, of any such repudiation. Nothing in this Agreement is meant to affect the obligation of Julius Baer or its officers, directors, agents or employees to testify truthfully to the best of their personal knowledge and belief in any proceeding.

Bank Julius Baer will be added to the IRS's Foreign Financial Institutions or Facilitators, here.  As indicated in the last quoted paragraph, accountholders in the listed banks joining OVDP after one of their banks are listed will be subject to the 50% penalty in OVDP (provided that they do not opt out, in which case, who knows).

My updated statistics for all payments from Swiss Banks are:

US DOJ Swiss Bank Program	Number	Number Resolved	Total Costs
U.S. / Swiss Bank Initiative Category 1 (Criminal Inv.) *	16	5	$4,017,800,000
U.S. / Swiss Bank Initiative Category 2 **	98	81	$1,363,683,990
U.S. / Swiss Bank Initiative Category 3	14		$0
U.S. / Swiss Bank Initiative Category 4	8		$0
Swiss Bank Program Results	136		$5,381,483,990
* Includes subsidiary or related entities counted as separate entities, so the numbers may exceed the numbers the IRS and DOJ posted numbers which combine some of the entities.
** DOJ says original total was 106 but that it expects about 80 to complete the process.

Another Taxpayer Guilty Plea for Offshore Account Misbehavior (2/3/16)

The DOJ press release is here.

Former U.S. Citizen Pleads Guilty to Tax Fraud Related to Swiss Financial Account 

Used Hong Kong Entity and Foreign Accounts in Switzerland, Monaco and Singapore to Conceal Funds 

A former U.S. citizen residing in Switzerland pleaded guilty today to one count of filing a false income tax return, announced Acting Assistant Attorney General Caroline D. Ciraolo of the Justice Department’s Tax Division and U.S. Attorney Dana J. Boente of the Eastern District of Virginia. 

* * * * 

According to court documents, in 2006, Albert Cambata, 61, established Dragonflyer Ltd., a Hong Kong corporate entity, with the assistance of a Swiss banker and a Swiss attorney.  Days later, he opened a financial account at Swiss Bank 1 in the name of Dragonflyer.  Although he was not listed on the opening documents as a director or an authorized signatory, Cambata was identified on another bank document as the beneficial owner of the Dragonflyer account.  That same year, Cambata received $12 million from Hummingbird Holdings Ltd., a Belizean company.  The $12 million originated from a Panamanian aviation management company called Cambata Aviation S.A. and was deposited to the Dragonflyer bank account at Swiss Bank 1 in November 2006.  

* * * * 

On his 2007 and 2008 federal income tax returns, Cambata failed to report interest income earned on his Swiss financial account in the amounts of $77,298 and $206,408, respectively.  In April 2008, Cambata caused the Swiss attorney to request that Swiss Bank 1 send five million Euros from the Swiss financial account to an account Cambata controlled at the Monaco branch of Swiss Bank 3.  In June 2008, Cambata closed his financial account with Swiss Bank 1 in the name of Dragonflyer and moved the funds to an account he controlled at the Singapore branch of Swiss Bank 2.  

In 2012, Cambata, who has lived in Switzerland since 2007, went to the U.S. Embassy in Bratislava, Slovakia, to renounce his U.S. citizenship and informed the U.S. Department of State that he had acquired the nationality of St. Kitts and Nevis by virtue of naturalization.

Comments:

1. Cast of Characters:
Albert Cambata a former U.S. citizen residing in Switzerland; naturalized to St. Kitts and Nevis)
Dragonflyer, Ltd., a Hong Kong corporate entity
Swiss banker (unnamed)
Swiss attorney (unnamed)
Swoss Bamk 1
Swiss Bank 2 (Singapore branch_
Swiss Bank 3 (Monaco branch)
Hummingbird Holdings, Ltd., A Belizean company
Cambata Avaiation S.A., a Parnamanian aviation company.
U.S. State Dept (to whom he renounced citizenship)
St. Kitts and Nevis (his new country of citizenship)

2.  It is fairly common to use pseudonyms in indictments and plea agreements where there is some reason to do so.  I don't know precisely why this plea agreement does not name the Swiss Banks.  For example, if one of the Swiss Banks were a bank already identified on the IRS Foreign Financial Institutions or Facilitators list here, those institutions have been outed and have made their peace with the U.S. tax system.  I don't see what interest is furthered by not identifying them.  I suppose an inference -- perhaps a good or bad inference -- is that the banks involved have not been publicly identified.  That does not mean that those banks are necessarily good or bad banks and should have been in the DOJ Swiss Bank Program, here; but the statement of what the banks knew would certainly suggest that one ore more of them should have been in the Program.

3.  I infer that the Swiss banker and lawyer were not named because they may be persons of interest (deliberately fuzzy) to DOJ.  Of course, they will know who they are, and, if smart, will limit their travel to points of destination within Switzerland.

4.  In 2012, in renouncing U.S. citizenship, he advised the State Dept. that he had become a citizen of St. Kitts and Nevis and presumably also told the State Dept that he was living in Switzerland.  Really?  That is hardly flying low.

5.  He agreed to restitution of $84,849 which, I infer, is the tax based on the 2007 and 2008 years where he failed to report interest of $77,298 and $206,408.  There is no explanation as to why DOJ Tax did not insist upon restitution for all years, with appropriate credits for any payments he made.  Perhaps he had already attempted a voluntary disclosure (a quiet one, I would assume) and paid the tax for the years 2009 and forward.  (Restitution is normally limited to the counts of conviction, but in a plea agreement the DOJ could have insisted upon restitution for all years; restitution is not necessarily the amount of the tax loss for sentencing purposes.)

6.  There is no indication that he has resolved any FBAR matters.  The standard FBAR penalty in plea agreements has been 50% of the high year, but apparently the plea agreement here does not address that issue.  I would assume that he did not report these accounts.

7.  The single plea count is to tax perjury, § 7206(1), here, a three-year felony.  During most of the time since 2009 when the DOJ's offshore bank initiative kicked into high gear, the plea offer to taxpayers was one count of tax perjury or one count of FBAR violation, which is a five-year felony.  I think most taxpayers took the tax perjury count offer.  (I can figure that out from my data, but have not yet done that.)  Of course, based on the announcement it is not even clear that there was an FBAR violation, but usually in a foreign bank account tax evasion case (this was tax evasion even though only tax perjury was the plea), there is an FBAR violation.  One of the problems with the FBAR violation is that, if he did file FBARs and simply omitted some, the charge would likely have to be false statements (18 USC § 1001) or some other such charge.

8.  I did a Google search for Albert Cambata and found an indication that, in 2008, he resided "in both Switzerland and Staunton, Virginia."

Here are some statistics of indictments, prosecutions, etc.:

	All	Taxpayers	Enablers	# Uncertain
Charges (Indictments, Information, Complaint)	163	116	47
Charges with Taxpayer Entities Involved	99	99	N/A	5
Guilty Pleas	100	86	14
Guilty Verdicts	19	17	2
Acquittals	3	1	2
Dismissals	2	1	1
Cases Sentenced (Total)	86	72	14
Cases Pending (All Prior to Sentencing, incl. Fugitives)	73	43	30
Cases Pending (without Fugitives)	48	41	7
Cases Pending (Fugitives Only)	25	2	23

Two Ex-Julius Baer Bankers Return to U.S. to Face Charges (2/2/16)

There are several articles reporting that Daniela Casadei and Fabio Frazzetto, two former Julius Baier bankers, have voluntarily come to the U.S., have entered not guilty pleas, but, reportedly will enter guilty pleas when Julius Baer resolves its case with a $547 million payment.  E.g., Nate Raymond, Two ex-Julius Baer bankers plead not guilty in U.S. tax case (Reuters 2/2/16), here.  David Voreacos, Patricia Hurtado and Giles Broom, Julius Baer Bankers Said Ready to Plead Guilty in Tax Case (BloombergBusiness 2/2/16), here.

Prior reporting involving their initial indictment is Swiss Bankers / Enablers Indictment; Reputedly Julius Baer Related (Federal Tax Crimes Blog 10/11/11), here.

I recently reported that Julius Baer appeared to be on the verge of settling its criminal tax investigation.  Julius Baer Group Ltd. Expects to Pay $547 Million to US to Conclude Criminal Investigation (Federal Tax Crimes Blog 12/31/15), here.  In that blog I said:

3.  Two Julius Baer employees, Daniela Casadei and Fabio Frazzetto, were indicted in 2011, but have not yet come to the U.S., so the case has not proceeded beyond the indictment stage.  See BloombergBusiness article.  And, they are reported to still be with Julius Baer.  I would not expect that their criminal indictments will be resolved by the resolution with Julius Baer and would expect that their relationship with Julius Baer will be terminated.  (I am surprised that Julius Baer had not already terminate them in an attempt to curry favor with DOJ.)

I surmise that the report identifying them as "Ex-Julius Baer bankers" suggests that they are no longer with Julius Baer.  Perhaps more importantly, It is not clear whether, since they are not extraditable, Julius Baer induced them to come to the U.S. as a component of its appeasement with the U.S.   As to the reputed guilty plea, I can't imagine that they came back without first achieving a plea deal they deemed beneficial.

60 Minutes Exposé on Money Laundering Into the U.S. (1/31/16)

60 Minutes had an exposé on money laundering into the U.S., a process enabled by the ease to create U.S. corporations whose owners are anonymous.  I recently posted on some U.S. initiatives to curb the practice for real estate cash deals in the names of corporations whose owners are anonymous.  More on Transparency for Entities Acquiring Valuable Real Estate in Some U.S. Markets (Federal Tax Crimes Blog 1/23/16), here; and One Step in Attacking Lack of Transparency in U.S. (Federal Tax Crimes Blog 1/13/16), here.  Both article  have links to other sources.

The 60 Minutes program involved undercover investigations by Global Witness, a London-based nonprofit organization that exposes international corruption, here. The 60 minutes programs are entitled Anonymous, Inc., parts I and II.  The programs with transcripts and some extra materials and key excerpts are available here.  (Note:  Ad blockers must off in order to access the content.)

Here is the opening from the transcript:

If you like crime dramas and movies with international intrigue, then you probably have a basic understanding of money laundering. It's how dictators, drug dealers, corrupt politicians, and other crooks avoid getting caught by transforming their ill-gotten gains into assets that appear to be legitimate. 

They do it by moving the dirty money through a maze of dummy corporations and offshore bank accounts that conceal their identity and the source of the funds. 

And most of it would never happen without the help -- witting or unwitting -- of lawyers, accountants and incorporators; the people who actually create these anonymous shell companies and help move the money. In fact, the U.S. has become one of the most popular places in the world to do it. 

Tonight, with the help of hidden camera footage, we're going to show you how easy it seems to have become to conceal questionable funds from law enforcement and the public. 

You need look no further for evidence than the changing skyline of New York City, where much of the priciest residential real estate is being snapped up not by individuals, but by anonymous shell companies with secret owners. 

There's nothing illegal about it as long as the money's legitimate, but there's no way to tell, if you don't know who the real buyers are. It is one of the reasons Global Witness, a London-based nonprofit organization that exposes international corruption, came to New York City 19 months ago. It wanted to see how helpful U.S. lawyers would be in concealing questionable funds. 

This hidden camera footage was shot in law firms across Manhattan without the lawyers' knowledge by the man in the gray coat with the German accent.

The hidden videos recorded some pretty disturbing behavior by lawyers.  Some of it is perhaps ethically equivocal, but one lawyer did show the "client" the door.  Here are two of the excerpts:

• The lawyer who said no, here.
• The lawyer who claimed that lawyers are immune because they run the country, here.

The New York Times has this article on the program:  Louise Story, Report Describes Lawyers’ Advice on Moving Suspect Funds Into U.S. (NYT 1/31/16), here.  Excerpts:

“It wasn’t hard to find lawyers to suggest ways to move suspect funds into the United States,” said Stefanie Ostfeld, a spokeswoman for Global Witness. “We went undercover because it is the only way we could show what really happens behind closed doors. The findings speak for themselves — something urgently needs to change.” 

* * * * 

In recent weeks, federal law enforcement officials have said they are beginning to focus investigations on lawyers and other professionals who facilitate money laundering. The Treasury Department announced a program to require real estate firms to help it uncover and track people who use shell companies to purchase high-end properties. 

This week, a bipartisan group of lawmakers is planning to introduce a bill in the House of Representatives to require more transparency into shell companies nationwide. And later this week, activists in London will hold what they are calling a Kleptocracy Tour, a bus ride past properties that they said had been associated with illicit money. They plan to hold a similar tour in New York in April.