Ersparniskasse Schaffhausen AG Signs Non-Prosecution Agreement with DOJ
On June 26, 2015, the US Department of Justice announced that Ersparniskasse Schaffhausen AG (Ersparniskasse Schaffhausen) signed a Non-Prosecution Agreement under the department’s Swiss Bank Program.
Ersparniskasse Schaffhausen Background
Ersparniskasse Schaffhausen was founded in 1817 and is wholly owned by a Swiss charitable foundation. It is headquartered in the city and canton of Schaffhausen, Switzerland. Ersparniskasse Schaffhausen opened, maintained and serviced accounts for U.S. persons that it knew or had reason to know were likely not declared to the Internal Revenue Service (IRS) or the U.S. Department of the Treasury as required by U.S. law.
From 2004 through 2011, Ersparniskasse Schaffhausen accepted referrals of U.S. persons as new clients from an external asset manager who, until 2009, resided in the United States and conducted some of his business through a corporation organized under the laws of the United States. The majority of the accounts that came to Ersparniskasse Schaffhausen as a result of these referrals were held in the names of non-U.S. entities that were beneficially owned by U.S. persons.
In May 2008, with the knowledge and approval of Ersparniskasse Schaffhausen management, the external asset manager and an Ersparniskasse Schaffhausen relationship manager visited five U.S. cities to meet with U.S. clients and attorneys who had the potential to refer new clients. Topics discussed during their meetings included the “crisis” involving Swiss bank UBS AG, client satisfaction with Ersparniskasse Schaffhausen, the performance of client accounts at Ersparniskasse Schaffhausen and the “asset protection” benefits of Ersparniskasse Schaffhausen.
Until 2009, Ersparniskasse Schaffhausen opened numbered accounts for U.S. persons, including code-name or pseudonym accounts, upon request. Upon opening this type of account, an Ersparniskasse Schaffhausen employee would enter the accountholder’s name in a physical register rather than in the bank’s electronic records system. This action limited the number of Ersparniskasse Schaffhausen personnel who knew the client’s identity. Holders of these accounts could also provide documents to Ersparniskasse Schaffhausen using only their code names or numbers as their authorized signatures.
Ersparniskasse Schaffhausen provided all of its clients, including U.S. persons, with the option to request that Ersparniskasse Schaffhausen retain all mail related to a client’s financial accounts in exchange for a standard service fee. Ersparniskasse Schaffhausen understood that providing such hold-mail agreements upon request could allow U.S. persons to keep evidence of their Ersparniskasse Schaffhausen accounts outside of the United States and thus assist them in concealing assets and income from the IRS.
Ersparniskasse Schaffhausen also accepted IRS Forms W-8BEN for U.S.-related accounts held in the names of non-U.S. entities, such as foreign corporations, trusts or foundations. Because Swiss law required Ersparniskasse Schaffhausen to identify the true beneficial owners of the entities on a document called a Form A, Ersparniskasse Schaffhausen knew that these accounts were beneficially owned by U.S. persons. Nonetheless, Ersparniskasse Schaffhausen accepted Forms W-8BEN that it knew falsely stated that the entities were the beneficial owners of the accounts.
Ersparniskasse Schaffhausen was aware of the 2009 IRS Offshore Voluntary Disclosure Program for U.S. persons. Despite knowing of that program and knowing or having reason to know that some of its U.S. clients had likely not declared their Ersparniskasse Schaffhausen accounts to the IRS, Ersparniskasse Schaffhausen made no effort to encourage its U.S. clients to disclose their accounts through that program.
During 2009, consultants reported to Ersparniskasse Schaffhausen, among other things, that Ersparniskasse Schaffhausen had increased risks because of its relationship with the external asset manager; that it was only a matter of time until small banks came into contact with U.S. authorities; and that there was a latent risk that previous revenues from Ersparniskasse Schaffhausen’s “U.S. strategy” could be seized or corresponding fines imposed. According to minutes of a 2009 meeting of the Ersparniskasse Schaffhausen board of directors, an Ersparniskasse Schaffhausen executive stated, among other things, that “there is practically no risk if U.S. customers travel to Switzerland and a customer account is handled locally,” and that he had been informed that Swiss bank Wegelin & Co. was going to keep its previous U.S. customers.
In October 2009, the Ersparniskasse Schaffhausen board of directors voted to continue the account relationships with clients of the external asset manager, including his U.S. clients, under certain conditions, including that his business be relocated to Switzerland. The board also voted to “have the option of entering into new cross-border business relationships.”
Swiss Bank Program Penalty and Ersparniskasse Schaffhausen’s Non-Prosecution Agreement
According to the terms of the non-prosecution agreement signed on June 26, 2015, Ersparniskasse Schaffhausen agreed to cooperate in any related criminal or civil proceedings, demonstrate its implementation of controls to stop misconduct involving undeclared U.S. accounts and pay penalties in return for the department’s agreement not to prosecute Ersparniskasse Schaffhausen for tax-related criminal offenses.
Since August 1, 2008, Ersparniskasse Schaffhausen provided private banking services for 90 U.S.-related accounts with approximately $65 million in assets. Thirty-seven of these accounts were opened after Aug. 1, 2008. Ersparniskasse Schaffhausen will pay a penalty of $2.066 million.
In accordance with the terms of the Swiss Bank Program, Ersparniskasse Schaffhausen mitigated its penalty by encouraging U.S. accountholders to come into compliance with their U.S. tax and disclosure obligations.