Zurich bank settles tax evasion probe with US

Zurich Cantonal Bank agrees to pay $98.5 million as part of a settlement with US tax authorities after a seven-year investigation into the bank's activities with US customers. Keystone

Zurich Cantonal Bank (ZKB) has agreed to pay the United States Department of Justice (DOJ) $98.5 million (CHF97.7 million) to resolve a long-running investigation into its role in tax evasion by wealthy Americans using undeclared Swiss bank accounts.

This content was published on August 14, 2018 - 10:14

The ZKB said in statement on Monday eveningExternal link that it had agreed to pay $98.5 million as part of a Deferred Prosecution Agreement after concluding “the DOJ’s investigation into the bank’s legacy business with US clients”.

“We are relieved that after seven years, we were able to conclude the investigation following an objective dialogue with the US authorities. The solution that has now been reached marks the end of this matter and removes any related uncertainties,” said Jörg Müller-Ganz, Chairman of the Board of Directors.

Reuters reported that in a court hearing in Manhattan on Monday, a US prosecutor confirmed that ZKB had agreed to pay the fine and said charges against the bank would not be pursued under the Deferred Prosecution Agreement.

Two bankers at ZKB, Stephan Fellmann and Christof Reist, also pleaded guilty on Monday to a single misdemeanor conspiracy charge, which carries a maximum prison sentence of one year. The two were originally indicted on a more serious felony charge in 2012. Both men admitted at the hearing that they provided services to American clients while they “deliberately avoided learning” that the clients were using their accounts to avoid paying US taxes.

The case followed a US crackdown on offshore tax evasion by wealthy Americans using undeclared Swiss bank accounts.

In a 2012 indictment, prosecutors said that from 2003 to 2009, more than 190 US taxpayer clients of ZKB conspired to hide accounts at the bank from the US Internal Revenue Service to evade taxes.

Long-running battle

The tax evasion battle between the Swiss financial sector and the DOJ began a decade ago when whistleblower Bradley Birkenfeld provided evidence that his former employer, UBS, was helping wealthy Americans evade taxes.

Switzerland’s largest bank was fined $780 million in 2009, but it was later discovered that other Swiss banks had been poaching UBS clients after the criminal probe had been announced. One of these institutions, Switzerland’s then oldest private bank Wegelin, was forced to close down in 2013 after being taken to court and fined $74 million.

Later that year, a Swiss-US agreement laid the foundations for a Swiss Bank ProgramExternal link that enabled wrongdoers to settle financially to avoid criminal prosecution through the US courts. This classified banks under four categories: category 1 was those banks already under investigation, category 2 comprised of banks that wanted to come clean about their activities, whilst categories 3 and 4 contained those that had no case to answer.

In January 2016, 80 category 2 Swiss banks had shelled out $1.36 billion in fines to avoid prosecution. ZKB was classified a category 1 bank but its settlement is lower than that of the dozen or so other banks in this group, Credit Suisse, for example, was fined more than $2.5 billion in 2014. 

The tax evasion spat as a whole forced Switzerland to end its tradition of providing strict banking secrecy, a practice that had shielded foreign tax evaders from the scrutiny of their home tax authorities.

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