BSI will Pay $211 Million to Avoid Criminal Prosecution in U.S.
posted May 15, 2015 by Paul Oliveira, CPA
BSI became the first bank to reach a resolution under the U.S. Justice Department’s Swiss Bank Program.
The program offers Swiss banks the chance to resolve any potential criminal liabilities if they suspect they committed tax-related criminal offenses in connection with undeclared accounts. Banks had until December 2013 to sign up for the program.
BSI, one of the 10 largest private banks in Switzerland, agreed to:
- Cooperate in any related criminal or civil proceedings,
- Demonstrate it has put controls in place to stop misconduct involving undeclared accounts held by U.S. taxpayers, and
- Pay a $211 million penalty in return for the Justice Department’s agreement not to prosecute the bank for tax-related criminal offenses.
More deals expected this year
Many more Swiss banks are expected to strike similar agreements this year, an official overseeing the Swiss Bank Program told Reuters.
“I would stay tuned,” Acting Assistant Attorney General Caroline Ciraolo of the Justice Department’s Tax Division said in an interview. A number of nonprosecution agreements will be signed in the “very near future,” she added.
Ciraolo said BSI’s $211 million agreement “will be one of the larger cases resolved” in the program. The penalty is based on the value of the U.S.-related accounts being managed, Ciraolo said. The penalty rate varies depending on when the bank opened the accounts. Higher rates apply to accounts opened after August 2008, when the U.S. government publicly said it was pursuing offshore banks for potential tax evasion.
As a result of leads from banks involved in the voluntary disclosure program, Ciraolo said, the Justice Department is going after individual account holders as well as bankers and other professionals who helped conceal offshore accounts.
About 100 banks signed up before the December 2013 deadline, although some have since withdrawn. Ciraolo said the government was not publicly updating the number of banks in the program, but “we’re hopeful that agreements will be reached with the other banks by the end of this calendar year.”
Banks already under criminal investigation and all individuals were excluded from the program. The Justice Department is still probing about a dozen banks, including Julius Baer Group Ltd., Zürcher Kantonalbank and HSBC’s Swiss private bank.
The CEO of Julius Baer said in a speech to shareholders that the bank would be among the next Swiss institutions to settle U.S. claims of tax evasion. The bank is in “an advanced state of talks,” he said.
Sidebar: Switzerland aims to align corporate tax law with OECD standards
The Swiss government proposed abolishing arrangements under corporate tax law that no longer comply with the international standards of the Organisation for Economic Co-operation and Development (OECD).
The diminishing acceptance of such arrangements has reduced legal and planning certainties for companies operating in Switzerland. Other proposed measures are also being considered.
According to the government, arrangements that do not comply with OECD international standards include the cantonal (state) tax statuses of holding, domiciliary, and mixed companies.
Furthermore, while the introduction of a royalty box at the cantonal level met with broad approval, the instrument must still be modified to take the latest international developments into consideration. Royalty boxes are a method of preferential tax treatment for certain types of profits, notably royalties from a patent.
The Swiss government indicated that the cantons should consider the possibility of applying a higher deduction for research and development expenditures. Consideration is also being given to the introduction of a tonnage tax, a tax on profits from companies engaged in maritime transport.
The government said it is initiating reforms to ensure that the country remains an attractive location for businesses and that companies continue to pay the taxes levied by the Swiss Confederation (federal government), the cantons, and the communes (municipalities).
The Ministry of Finance is expected to draft legislation and submit it to Parliament by June. As parliamentary elections are scheduled for autumn, it seems unlikely that discussion will be finished before 2016. Still, observers say, companies with mixed, domiciliary, auxiliary or holding status should start evaluating how they can structure their businesses in a tax-efficient manner to comply with the expected new laws.