U.S. Nets Seven Financial Institutions Through Its Swiss Bank Program. Is Julius Baer Next?

On Thursday, May 28, 2015, the Department of Justice announced that pursuant to its August 29, 2013 Swiss Bank Program, it had reached settlement with four additional Swiss banks. The newest banks to settle, Société Générale Private Banking (Lugano-Svizzera), MediBank AG, LBBW (Schweiz) AG, and Scobag Privatbank AG, will pay penalties ranging from $9,090 to $1.363 million. They will also be required to provide the Department of Justice with detailed information on accounts held by U.S. persons. United States taxpayers with unreported accounts at these institutions will now incur a 50 percent penalty should they seek to join the 2014 Offshore Voluntary Disclosure Program (OVDP). The 50 percent penalty is almost double the 27.5 percent penalty that would otherwise apply in the OVDP.

Last month, Vadian Bank AG and Finter Bank Zurich AG also reached settlements with the Department of Justice. These settlements followed on the heels of the first settlement under the Swiss Bank Program, which was announced with BSI, S.A. one of Switzerland's ten largest banks on March 30, 2015. In that settlement, BSI, S.A. agreed to pay $211 million and disclose information on more than 3,000 U.S.-related bank accounts. The Vadian Bank settlement requires the institution, which after 2008 accepted more than seventy accounts from US taxpayers fleeing UBS, to pay a $4.253 million penalty. Similarly, the settlement with Finter Bank requires it to pay a $5.414 million penalty and disclose information regarding its 283 U.S.-related accounts. 

According to Caroline D. Ciraolo, the Acting Assistant Attorney General in charge of the Department of Justice Tax Division, the information obtained from those banks settling with the U.S., will be used to prosecute taxpayers. Ciraolo said that the Department has already opened investigations based on information obtained through the Swiss Bank Program.

The four settlements last week bring the total number of settlements to seven, six of which were announced in May. Thus, it is clear that the Justice Department is moving rapidly. While which Swiss bank might be the next to settle under the Swiss Bank Program is anyone's guess, it seems like it is only a matter of time before Julius Baer joins the list. On April 15, 2015, at its annual shareholder meeting, Daniel J. Sauter, chairman of Julius Baer's Board of Directors, stated that the bank was close to a resolution with the United States. He indicated that he was convinced that it "will be among the next banks to conclude this chapter."

Any taxpayer with an undisclosed foreign account at one of the following 19 institutions will face a 50 percent penalty when joining the OVDP: 

1. UBS AG
2. Credit Suisse AG, Credit Suisse Fides, and Clariden Leu Ltd.
3. Wegelin & Co.
4. Liechtensteinische Landesbank AG
5. Zurcher Kantonalbank
6. swisspartners Investment Network AG, swisspartners Wealth Management AG, swisspartners Insurance Company SPC Ltd., and swisspartners Versicherung AG
7. CIBC FirstCaribbean International Bank Limited, its predecessors, subsidiaries, and affiliates
8. Stanford International Bank, Ltd., Stanford Group Company, and Stanford Trust Company, Ltd.
9. The Hong Kong and Shanghai Banking Corporation Limited in India (HSBC India)
10. The Bank of N.T. Butterfield & Son Limited (also known as Butterfield Bank and Bank of Butterfield), its predecessors, subsidiaries, and affiliates
11. Sovereign Management & Legal, Ltd., its predecessors, subsidiaries, and affiliates (effective December 19, 2014)
12. Bank Leumi le-Israel B.M., The Bank Leumi le-Israel Trust Company Ltd, Bank Leumi (Luxembourg) S.A., Leumi Private Bank S.A., and Bank Leumi USA (effective December 22, 2014)
13. BSI SA (effective March 30, 2015)
14. Vadian Bank AG (effective May 8, 2015)
15. Finter Bank Zurich AG (effective May 15, 2015) 
16. Societe Generale Private Banking (Lugano-Svizzera) SA (effective May 28, 2015)
17. MediBank AG (effective May 28, 2015)
18. LBBW (Schweiz) AG (effective May 28, 2015)
19. Scobag Privatbank AG (effective May 28, 2015)

The list above is not limited to those institutions settling under the Swiss Bank Program, as it also includes institutions in India, the Caribbean, and Israel. Therefore, given the fast pace at which the Department of Justice has announced additional bank settlements, time is of the essence for taxpayers with unreported accounts to consider an OVDP. Additionally, if a taxpayer fails to commence a disclosure prior to the IRS investigating the taxpayer, OVDP is no longer a possibility. In such circumstances, criminal penalties may apply, as well as multiple 50 percent FBAR penalties. As such, notwithstanding, the punitive nature of the penalty in the OVDP, especially for an account held at an institution on the list, taxpayers with unreported foreign accounts should immediately seek legal advice. 

If you have failed to report one or more foreign bank accounts (assets or entities, or even income tax returns), and wish to discuss your options, please contact Kevin.Packman@hklaw.com (305.349.2261).