On February 4, 2016, the US DOJ announced that it filed criminal charges against Bank Julius Baer & Co. Ltd. (“Julius Baer” or “the company”). At the same time, the DOJ announced a Julius Baer Deferred Prosecution Agreement. Let’s explore this event in more detail.
Julius Baer Deferred Prosecution Agreement Background
Unlike many other Swiss Banks, Julius Baer could not participate in the Swiss Bank Program due to its classification as a Category 1 bank. Hence, the Julius Baer Deferred Prosecution Agreement comes as an independent agreement with the DOJ after the DOJ filed criminal charges against Julius Baer.
According to the IRS and the court documents, 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.
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.
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.
However, the IRS noted that the behavior of Julius Baer started to change. 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 extensive actions to demonstrate acceptance and acknowledgment 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.
Julius Baer Deferred Prosecution Agreement Details
Under the Julius Baer Deferred Prosecution Agreement, the bank admitted to helping U.S. taxpayers hide assets and 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 February 9, 2016, including through a parallel civil forfeiture action also filed today in the Southern District of New York.
Julius Baer Deferred Prosecution Agreement Impact on U.S. Taxpayers
The Julius Baer Deferred Prosecution Agreement signifies yet another IRS victory over the now-defeated Swiss bank secrecy system. The IRS is simply “mopping-up” the left-over issues in Switzerland as it shifts its focus to other major offshore tax havens. Yet, the Julius Baer Deferred Prosecution Agreement is still a major event that has repercussions for U.S. taxpayers with undeclared foreign accounts.
First, the Julius Baer Deferred Prosecution Agreement is likely to continue to impact former Julius Baer U.S. taxpayers who transferred their funds out of this Swiss bank to another country or another bank in the hopes of avoiding IRS detection of their prior non-compliance. Under the agreement, Julius Baer will continue to cooperate with the IRS in the identification of such noncompliant U.S. taxpayers.
Second, Julius Baer is an important Swiss bank and the fact that the Julius Baer Deferred Prosecution Agreement was reached encourages other noncompliant banks (not only in Switzerland, but other countries) to follow its example. Therefore, U.S. taxpayers who believe they are safe outside of Switzerland are now in the ever increasing danger of IRS detection.
Contact Sherayzen Law Office for Professional Help with Your Undeclared Foreign Accounts
The Julius Baer Deferred Prosecution Agreement is another reminder on how dangerous is the current tax environment for noncompliant U.S. taxpayers. Therefore, if you have not disclosed your foreign accounts, foreign assets or foreign income, please contact Sherayzen Law Office as soon as possible. Our team of tax professionals is highly experienced in handling these matters and we can help you!