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Tax evasion BSI first bank to face US non-prosecution deal fine

After 2008, BSI has more than 3,000 US accounts on its books


The Lugano-based BSI bank has been fined $211 million (CHF203 million) by the United States for aiding and abetting tax cheats. It is the first Swiss-based bank to complete the non-prosecution programme set up in 2013 to clear up past tax evasion offences.

BSI had more than 3,000 active accounts relating to US citizens after 2008, according to the Department of Justice (DoJ). It helped US clients set up sham companies to shield their identities and issued credit cards with no visible names on the card.

The DoJ press releaseexternal link also revealed the use of codes, such as “can you download some tunes for us?” or “gas tank is running empty” to indicate the need for illicit cash transfers.

“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,” said DoJ Acting Associate Attorney General Stuart F Delery.

BSI said in a statement on Monday that the fine had "significantly impacted" profits which stood at CHF2.2 million for the full year 2014. The bank added that the US programme had incurred CHF36 million in legal and audit costs. 

Also on Monday, the Swiss financial regulator said it had concluded its investigation of BSI (begun in March 2013) by reprimanding the bank and ordering it to implement corrective measures.

“BSI breached its obligations to identify, limit and monitor the risks involved in the US client business,” the Swiss Financial Market Supervisory Authority (FINMA) said in a statement. “In particular, the bank served a high volume of US clients with undeclared assets. Even after 2009, BSI still accepted US clients with untaxed assets from other Swiss banks."

Growing list of fines

BSI’s fine is a major milestone in the non-prosecution programme, negotiated by Switzerland and the US in August 2013. It allows banks to escape criminal prosecution, and possible conviction, in return for owning up to non-declared US accounts and paying fines.

Some 106 banks, including BSI, entered the programme (see box below) under the most onerous category 2 definition at the end of 2013, but several banks have since downgraded their presumed guilt or left the scheme altogether since then. Fewer banks entered the scheme under the categories 3 and 4 which implied innocence of tax dodging offences.

Last autumn, the programme ran into problems when the DoJ demanded that banks allow their data to be handed over to third countries. The resolution with BSI appears to have resolved that particular contradiction with Swiss banking secrecy law.

A further DoJ statement on BSI indicated that the bank would only be expected to provide documentation to US state officials. There was no mention of assisting foreign investigators in the non-prosecution agreement.  

“Today’s agreement is the first of many that will be signed in the near future,” Acting Assistant Attorney General Caroline D Ciraolo said in a statement on Monday.

She added that the DoJ would be “using the information obtained in the program to initiate and pursue investigations of individuals and other financial institutions.  We are tracking the movement of funds in and out of these secret offshore accounts.  Our investigations go well beyond Switzerland and the department will continue to follow the evidence wherever it leads.”

Trail of fines

Some 14 other Swiss banks, including Julius Baer and Pictet, were denied entry to the scheme because they were already under active investigation in August 2013. Last year Credit Suisse was fined a total  of $2.8 billion and admitted tax evasion offences in the US.

In 2009, UBS became the first Swiss bank to be fined ($780 million) by the DoJ. Banks Wegelin and Frey have ceased operating under the weight of US prosecutions.

In December last year, the Swiss private banking branch of the Israeli Leumi group was fined $400 million for tax evasion offences in the US. Leumi was not part of the non-prosecution programme.

Set up in Lugano in 1873, BSI is one of Switzerland’s longest established private banks. As of the end of 2014, it held CHF92.3 billion of clients’ assets under management.

In December of last year, it was announced that ownership was passing from Italian insurer Generali Group to  Brazil’s BTG Pactual. BSI stated on Monday that the US legal resolution was a major boost to the deal, which is still pending regulatory approval, being concluded.

The non-prosecution programme

The non-prosecution agreement signed between Switzerland and the US in August 2013 sets out a programme for Swiss banks to avoid landing in the US courts on tax evasion offences. Those banks that believe, or suspect, that they may have illegally accepted the assets of US tax cheats had to register by the end of 2013. Some 106 banks chose this route, although some may have had their arms twisted by the country’s financial regulator. These banks had to supply the DoJ with documentation last year showing their business activities in the US, including names of lawyers and other parties they dealt with and the names of their own staff involved in such business. They did not, however, have to provide the names or account details of their clients. Penalties will range from 20% of the value of assets held in accounts opened before August 1, 2008 to 50% in accounts opened after February 28, 2009.

Banks that have US clients but believe they complied fully with US tax law were able to enter the programme as category 3 between the end of July and December 31 last year. The same entry window was open for category 4 banks that are so small they have no US exposure.

The DoJ did not allow 14 Swiss banks, or Swiss-based branches of foreign institutions, to join  the programme because they were already under active criminal investigation in August 2013. These included Credit Suisse, which was fined $2.8 billion last year, Julius Bär, Pictet and the cantonal banks of Zurich and Basel.

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