Switzerland’s third-largest wealth manager, Julius Baer Group Ltd., agreed to pay $547 million to avoid U.S. prosecution and admitted it helped American clients hide billions of dollars in assets from tax authorities while coaching its bankers on how to avoid detection.
The bank made detailed admissions of wrongdoing and prosecutors agreed to drop a conspiracy charge in three years if the bank abides by the terms of the deal filed Thursday in federal court in Manhattan.
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Two of its client advisers, Daniela Casadei and Fabio Frazzetto, who were charged in 2011, also pleaded guilty to conspiracy charges. They each face a maximum sentence of five years in prison, and will be sentenced in August.
Julius Baer admitted conspiring with US taxpayer clients, since the 1990s, to hide up to $4.7 billion in assets from the IRS. It settled under a deferred prosecution agreement, which means the company is charged with a crime that is later dismissed if it makes a payment, complies with certain conditions, and makes a detailed statement of facts about its wrongdoing.
The IRS statement said that in furtherance of the scheme to help U.S. taxpayers hide assets from the IRS and evade taxes, Julius Baer undertook, among other actions, the following:
- Entering into “code word agreements” with U.S. taxpayer-clients under which Julius Baer agreed not to identify the U.S. taxpayers by name within the bank or on bank documents, but rather to identify the U.S. taxpayers by code name or number, in order to reduce the risk that U.S. tax authorities would learn the identities of the U.S. taxpayers.
- Opening and maintaining accounts for many U.S. taxpayer-clients held in the name of non-U.S. corporations, foundations, trusts, or other legal entities or non-U.S. relatives, thereby helping such U.S. taxpayers conceal their beneficial ownership of the accounts.
As part of the settlement, the bank admitted that it gave its bankers a memo called “U.S. Clients Do’s and Don’ts” to coach them on how to avoid suspicion when they came to visit American clients with assets not declared to the IRS.
“When filling out the entry form . . . say that you are in Banking (never lie) but if and when asked in which field, respond “EDP Dept.” “Investment Banking” or “Lending, ” but certainly not Private Banking, ” the memo read.
It went on: “When asked by Officer what you will do while in the USA, say Business and of course some leisure, trying to take some time to enjoy your beautiful country. Proud government employees usually love this type of statement. One can throw in skydiving or another fun sport/activity . . . (carrying a tennis racket also puts the emphasis on “fun and games, ” and not on business).”
“Bank Julius Baer not only turned a blind eye to tax avoiders, but actually conspired with them to break the law, ” said Manhattan US attorney Preet Bharara in a statement. “Together with our partners at the IRS, we will continue to prosecute financial institutions and individuals who facilitate tax evasion.”
Julius Baer was one of about a dozen banks put under criminal investigation by the DoJ in 2011 for tax evasion by American clients. Credit Suisse and UBS paid fines of $2.6 billion and $780 million to settle their respective investigations.
Many smaller, Swiss banks have avoided prosecution by voluntarily disclosing their wrongdoing as part of a separate DoJ programme, where total penalties stand at about $1.4 billion.
Banks still under investigation by the DoJ include the Swiss unit of HSBC, Europe’s biggest lender.
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.
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