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Banque Pictet Deferred Prosecution Agreement | Offshore Voluntary Disclosure Lawyer

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On December 4, 2023, Banque Pictet et Cie SA (“Banque Pictet” – a Swiss private bank) entered into a deferred prosecution agreement with the US government. In this article, I will discuss Banque Pictet Deferred Prosecution Agreement and explain its importance.

Banque Pictet Deferred Prosecution Agreement: Facts Leading Up to the Agreement

The Pictet Group was founded in 1805; it is a privately held Swiss financial institution headquartered in Geneva. It has historically operated as a general partnership and, since 2014, as a corporate partnership. A limited number of managing partners, generally eight or fewer, collectively known as “The Salon,” own and manage the Pictet Group.

As of December 31, 2014, the Pictet Group had approximately 3,800 employees in various locations, primarily in Switzerland, but also in Luxembourg, Hong Kong, Singapore and the Bahamas. The Pictet Group operates two main business divisions: institutional asset management and private banking for individuals. From 2008 to 2014, Pictet Group’s private banking division was operated by the group’s following banking entities: the Swiss bank (Banque Pictet & Cie SA); Pictet & Cie (Europe) SA, headquartered in Luxembourg; Bank Pictet & Cie (Asia) Ltd. in Singapore and the Bahamian bank, Pictet Bank & Trust Ltd.

The Pictet Group provided offshore corporation, trust formation and administration services to its US clients. It provided these services first through the Estate Planning and Trust Services unit and later through a wholly owned subsidiary called Rhone Trust and Fiduciary Services SA (“Rhone”).

As of December 31, 2014, the Pictet Group’s private banking division managed or held custody of approximately $165 billion in assets under management (“AUM”). From 2008 to 2014, the Pictet Group served approximately 3,736 private accounts that had US taxpayers as beneficial owners, whose aggregate maximum AUM, including declared assets, was approximately $20 billion.

According to documents filed in Manhattan federal court, even though Pictet Group adopted early measures to confirm that US clients complied with US international tax laws, from 2008 through 2014, the Pictet Group assisted certain US clients with Pictet Group accounts in evading their US tax obligations and otherwise hiding undeclared accounts from the IRS.

In total, from 2008 through 2014, the Pictet Group held 1,637 US Penalty Accounts (I.e. accounts that the Pictet Group and the US Department of Justice agreed that should be subject to penalty as part of the Banque Pictet Deferred Prosecution Agreement) with aggregate maximum AUM of approximately $5.6 billion in January of 2008.  The IRS estimates that the US owners of these accounts collectively evaded approximately $50.6 million in US taxes.

Banque Pictet Deferred Prosecution Agreement: How Pictet Group Assisted Its US Clients Evade US taxes

According to the IRS and the US Department of Justice, the Pictet Group assisted its US clients with evading their US taxes by opening and maintaining undeclared accounts for U.S. taxpayer-clients at the Pictet Group, either directly or through external asset managers. The Pictet Group also maintained accounts of certain US clients within the Pictet Group in a manner that allowed the them to further conceal their undeclared accounts from the IRS.  

As further detailed below, the Pictet Group used a variety of means to assist its US clients in concealing their undeclared accounts, including by:

  • forming or administering offshore entities in whose name the Pictet Group opened and maintained accounts, some of which were undeclared, for its US clients; 
  • opening and maintaining undeclared accounts in the names of offshore entities formed by others for for its US clients;
  • opening and maintaining Private Placement Life Insurance policy accounts, also called insurance wrappers, held in the name of insurance companies but beneficially owned by for its US clients and improperly managed or funded through undeclared accounts at the Pictet Group;
  • transferring funds from undeclared accounts to accounts nominally held by non-US clients but still controlled by for its US clients via fictitious donations, thus assisting for its US clients in continuing to maintain undeclared funds offshore;
  • providing traditional Swiss banking products such as hold-mail account services (where account-related mail is held at the bank rather than sent to the client) and coded or numbered accounts and
  • accepting IRS Forms W-8BEN or Pictet Group’s substitute forms that the group knew or should have known falsely stated or implied under penalty of perjury that offshore entities beneficially owned the assets in the undeclared accounts.

Banque Pictet Deferred Prosecution Agreement: Pictet Group’s Knowledge of Evasion

The IRS and the US Department of Justice state the Pictet Group and certain of its employees knew or should have known that some of their US clients were evading their US tax obligations. In every instance, managing partners approved the opening of new private client relationships and were informed of the closing of US-held accounts, which included some undeclared accounts.

“As it has admitted today, Banque Pictet knowingly conspired to conceal from the IRS the income generated by accounts which held more than $5.6 billion,” said U.S. Attorney Damian Williams for the Southern District of New York.

Banque Pictet Deferred Prosecution Agreement: Fines & Cooperation Requirement

As part of the Deferred Prosecution Agreement, Banque Pictet entered into a deferred prosecution agreement and agreed to pay approximately $122.9 million. This amount consists of: (i) $52,164,201 to the United States, which represents gross fees (not profits) that the bank earned on its undeclared accounts between 2008 and 2014; (ii) $31,844,192 in restitution to the IRS, which represents the unpaid taxes resulting from Banque Pictet’s participation in the conspiracy and (iii) a $38,950,998 penalty.

In addition to the payment, Banque Pictet also agrees under the deferred prosecution agreement to accept responsibility for its conduct by stipulating to the accuracy of an extensive statement of facts. Banque Pictet further agreed to refrain from all future criminal conduct, implement remedial measures and cooperate fully with further investigations into hidden bank accounts. 

Specifically, the Bank agreed to cooperate fully with ongoing investigations and affirmatively disclose any information it may later uncover regarding US-owned accounts. The Bank should also disclose information consistent with the Justice Department’s Swiss Bank Program relating to accounts closed between January 1, 2008, and December 31, 2022.

If Banque Pictet continues to comply with its agreement, the United States has agreed to defer prosecution of Banque Pictet for a period of three years, after which time the United States will seek to dismiss the charge against Banque Pictet.

Banque Pictet Deferred Prosecution Agreement: Lessons

The Banque Pictet Deferred Prosecution Agreement is another in a long string of the IRS victories over the now-defeated Swiss bank secrecy system. The IRS is simply “mopping-up” the left-over issues in Switzerland. Yet, this Agreement is still a major event that has repercussions for US taxpayers with undeclared foreign accounts. Let’s look at the major lessons from this case.

First, the Banque Pictet Deferred Prosecution Agreement is likely to continue to impact its former US clients 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, Banque Pictet will continue to cooperate with the IRS in the identification of such noncompliant U.S. taxpayers.

Second, this continuous winning streak of the IRS over Swiss banks is likely to act as a continuous deterrent for any banks who wish to help noncompliant US clients not only in Switzerland, but other countries as well.

Finally, noncompliant US taxpayers should look very closely at how easily the IRS won over the former bank secrecy bastion of Switzerland and how eagerly the Swiss banks helped (and continue to help) the IRS and the US Department of Justice to pursue their former US clients.  It is important for these taxpayers to realize that there is no true safe haven from the IRS . Even if they have been successfully evading US taxes for years, at any point their noncompliance may be detected by the IRS. These taxpayers should also remember that a deferred prosecution agreement with the bank does not protect any individual US taxpayers from Banque Pictet Deferred Prosecution Agreement

Contact Sherayzen Law Office for Professional Help with Your Undeclared Foreign Accounts

The Banque Pictet Deferred Prosecution Agreement is another reminder on how dangerous the current tax environment is for noncompliant U.S. taxpayers. Therefore, if you have not disclosed your foreign accounts, other foreign assets or foreign income, you 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!

Contact Us Today to Schedule Your Confidential Consultation!

Singapore Solution Fraud Scheme Co-Creator Pleads Guilty |  SDOP lawyer Minneapolis

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On December 21, 2023, the IRS and the US Department of Justice announced that Mr. Rolf Schnellmann, a Swiss national, pleaded guilty to conspiring to defraud the United States for his role in the creation and implementation of a fraud scheme related to foreign accounts and foreign income called “Singapore Solution”.  In this small essay, I will discuss the Singapore Solution, the facts of the Schnellmann case and the lessons one can draw from this case.

Singapore Solution: Basic Description of the Tax Evasion Scheme

The idea behind the Singapore Solution is fairly simple. Funds owned secretly (i.e. without a proper disclosure to the IRS on FBAR, Form 8938, et cetera) by US persons in a Swiss bank are first transferred to a series of nominee accounts in other jurisdictions (for example, Hong Kong). In the meantime, the Swiss bankers established (usually indirectly through a law firm) a Singapore-based asset management firm which opens new bank accounts in its name in the Swiss bank. After passing through nominee accounts, the US-owned funds are returned to the Swiss bank and placed in the new bank accounts opened by the asset management firm.

In other words, the Singapore Solution basically represents a circular scheme where the ownership of funds is artificially obscured by involvement of third parties. Obviously, the US owners of the undisclosed funds handsomely compensated the Swiss bankers, the managers of the asset management firm and the nominees for their work. Also obviously, this scheme crosses the line between asset/tax planning and criminal tax evasion.

Singapore Solution: Basic Facts of Schnellmann Case

According to court documents and statements made in court, Rolf Schnellmann was the head of Allied Finance Trust AG, a Zurich-based financial services company and a subsidiary of the Allied Finance Group in Liechtenstein.  Between 2008 to 2014, Schnellmann and his co-conspirators helped high-net-worth US taxpayers set-up and implement the Singapore Solution concerning their undeclared bank accounts at Privatbank IHAG Zurich AG (IHAG), a Swiss private bank. 

According to the Department of Justice, Schnellmann and his colleagues transferred more than $60 million from the US-owned undeclared IHAG bank accounts through a series of nominee accounts in Hong Kong and other locations before returning the funds to newly opened accounts at IHAG in the name of a Singapore-based asset-management firm that Schnellmann helped establish. IHAG participated in the 2013 IRS Voluntary Disclosure Program for Swiss Banks. Surely, as a result of this process, IHAG disclosed a lot of information concerning the Singapore Solution.  This allowed the IRS to track down not only the noncompliant US clients of that bank, but also the Singapore Solution creators and facilitators, like Mr. Schnellamann.  He was arrested in August of 2023 in Italy and extradited to the United States.

The IRS Criminal Investigation (IRS-CI) conducted the investigation with the help of the US Justice Department’s Office of International Affairs, Interpol, Italian law enforcement authorities, the Prosecutor General’s Office of Trieste and the Italian Ministry of Justice.

Singapore Solution: Consequences of the Guilty Plea for Schnellmann

As a result of the guilty plea, Mr. Schnellmann is scheduled to be sentenced on July 19, 2024. He now faces a maximum penalty of five years in prison, a period of supervised release, restitution and monetary penalties.

Singapore Solution: Lessons

The Schnellmann case and the Singapore Solution that he co-authored allow us to deduce certain lessons.  The first and most obvious, one must respect the difference between legitimate even if aggressive tax planning and criminal tax evasion.  Mr. Schnellmann crossed that line and will pay a high price for it.

Second, US taxpayers must declare their foreign accounts to the IRS on FBAR, Form 8938 and Schedule B of Form 1040.  Failure to do so may bring very painful consequences in the form of high IRS civil and even criminal penalties.

Finally, there is really no safe place for noncompliant taxpayers to hide. Even if they have been lucky to avoid IRS detection of their noncompliance so far, a disclosure from third parties may lead to an IRS investigation that may ultimately result in the discovery of the noncompliance.  In this case, the IRS will most likely impose very heavy penalties for noncompliance (made even heavier by the fact that the IRS had to invest a lot of resources and man-hours into the case).

Contact Sherayzen Law Office for Professional Help With the Voluntary Disclosure of Your Undisclosed Foreign Assets and Foreign Income

For all of these reasons, noncompliant taxpayers should explore their offshore voluntary disclosure options before the IRS finds out about their noncompliance. Otherwise, an IRS audit will make it impossible for them to lower their IRS noncompliance penalties through a voluntary disclosure.

Sherayzen Law Office is a leader in the IRS offshore voluntary disclosures, including disclosures that involve foreign income noncompliance and foreign asset reporting noncompliance (on FBAR, Form 8938, 3520, 3520-A, 5471, 8865, 8858, et cetera).  Led by Mr. Eugene Sherayzen, a highly-experienced international tax attorney, our international tax team has helped hundreds of US taxpayers around the globe to bring their tax affairs into full compliance with the IRS while lowering and sometimes even eliminating IRS penalties.

Contact Us Today to Schedule Your Confidential Consultation!