Two more Swiss banks have reached resolutions with the Justice Department under its Swiss Bank Program. Yesterday, DOJ announced that bank zweiplus ag (Bank Zweiplus) and Banca dello Stato del Cantone Ticino (Banca Stato) have each entered into a non-prosecution agreement for any tax-related criminal offenses and agreed to pay a penalty of just over $1 million and $3 million, respectively.

In its announcement yesterday, the DOJ described the relevant conduct of each of these banks as in relation to their U.S. accountholders as follows:

Bank Zweiplus

Bank Zweiplus was founded in July 2008 as a retail bank based in Zurich.  Offices located in Geneva and Basel, Switzerland, were closed in 2008 and 2012, respectively.  Since Aug. 1, 2008, Bank Zweiplus maintained and serviced 44 U.S.-related accounts with an aggregate value of approximately $12.1 million.

Bank Zweiplus was aware that U.S. taxpayers have a legal duty to report to the Internal Revenue Service (IRS) their ownership of bank accounts outside the United States and to pay taxes on income earned in such accounts.  Nevertheless, in disregard of U.S. laws, the bank provided a variety of traditional Swiss banking services that assisted some U.S. taxpayers in concealing their undeclared accounts.  For example, Bank Zweiplus maintained numbered accounts and accounts held in the name of structures which were effectively owned or controlled by U.S. persons, including structures in the British Virgin Islands and the Bahamas.

Bank Zweiplus cooperated with the department during its participation in the Swiss Bank Program and encouraged its U.S. clients to enter the IRS Offshore Voluntary Disclosure Program.  Bank Zweiplus will pay a penalty of $1.089 million.

Banca Stato

Banca Stato was established in 1915 and is headquartered in Bellinzona, Switzerland.  Banca Stato was aware that U.S. taxpayers had a legal duty to report to the IRS and pay taxes on the basis of all of their income, including income earned in accounts that the U.S. taxpayers maintained at the bank.  Despite this, the bank opened and serviced accounts for U.S. clients who the bank knew or had reason to know were not complying with their U.S. income tax obligations.

In 2001, Banca Stato entered into a Qualified Intermediary Agreement with the IRS.  In 2001, the bank issued an internal directive prohibiting U.S. persons without a Form W-9 on file with the bank from buying U.S. securities.  However, prior to 2011, Banca Stato’s relationship managers were not instructed to, and did not, evaluate or screen incoming U.S. clients for U.S. tax compliance status.  At that time, more than 70 percent of the assets under management were related to U.S. accountholders who had not provided a Form W-9 to the bank.

In 2011, Banca Stato implemented a project that it called “Colombo” to change the manner in which it handled U.S. clients.  The bank recognized both risks and rewards of handling U.S. clients.  As to the former, the bank recognized that “[w]e can no longer have clients who are U.S. Persons who have not signed the W-9 form.”  But the bank also recognized an opportunity to attract new U.S. clients because many Swiss banks declined to service U.S. persons from Ticino, Switzerland, and the bank perceived “a huge demand from fully tax-compliant U.S. Persons . . . attracted by the brand BancaStato (especially because we have no branches in the US).”

Banca Stato entered into a relationship with a Lugano-based U.S. Securities and Exchange-registered investment advisory firm to partner in attracting U.S. persons living and working in the Ticino region who could not open or maintain accounts at other institutions.  The bank paid the firm a one-time finder’s fee of 0.5 percent on the incoming funds.  Despite the bank’s decision to refuse to open new accounts of U.S. persons without a Form W-9, it did not always adhere to this policy.

Banca Stato offered a variety of traditional Swiss banking services that it knew would and in certain instances did assist U.S. clients in concealing assets and income from the IRS, including hold mail and code name or numbered accounts.  In addition, the bank employed a variety of other means or conduct that it knew or should have known would assist U.S. taxpayers in concealing their Banca Stato accounts, including opening accounts for U.S. taxpayers who left other banks being investigated by the department and allowing U.S. clients to direct repeated wire transfers between $9,000 and $9,900 in an effort to conceal their Swiss bank accounts from U.S. authorities.

During the applicable period, Banca Stato maintained and serviced 187 U.S.-related accounts with an aggregate maximum balance of approximately $137 million.  Banca Stato will pay a penalty of $3.393 million.

Under the Swiss Bank Program, eligible Swiss banks that had notified the DOJ by December 31, 2013 of an intent to participate in the Program were eligible to resolve any potential criminal liabilities in the U.S. by completing the following:

• Make a complete disclosure of their cross-border activities;
• Provide detailed information on an account-by-account basis for accounts in which U.S. taxpayers have a direct or indirect interest
• Cooperate in treaty requests for account information;
• Provide detailed information as to other banks that transferred funds into secret accounts or that accepted funds when secret accounts were closed;
• Agree to close accounts of accountholders who fail to come into compliance with U.S. reporting obligations; and
• Pay appropriate penalties.

Swiss banks meeting all of the above requirements are eligible for a non-prosecution agreement.

According to the terms of the non-prosecution agreements announced yesterday, each bank agrees 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 DOJ’s agreement not to prosecute these banks for tax-related criminal offenses.

The Justice Department released the following documents with its announcement:

• The Bank Zweiplus non-prosecution agreement and statement of facts (available here).
• The Banca Stato non-prosecution agreement and statement of facts (available here).