Wednesday, August 15, 2018

Zürcher Kantonalbank Agreed To Pay $98.5M For Aiding US Tax Avoidance

According to Law360, Swiss bank Zürcher Kantonalbank has agreed to pay $98.5 million after admitting to helping U.S. clients dodge taxes by letting them stash money in undeclared accounts that used code names and shell companies, Manhattan federal prosecutors announced on August 13, 2018.

ZKB will hand over the amount as part of a deferred prosecution agreement, which the bank reached after admitting to helping U.S. clients collectively avoid paying more than $39 million in U.S. taxes between 2002 and 2013, according to prosecutors. The bank would have been given more credit for cooperating with the government if it hadn’t dissuaded two indicted employees from reaching out to the U.S. Attorney’s Office, prosecutors said.

Those two bankers, Stephan Fellmann and Christof Reist, were originally indicted on felony charges and pled guilty to misdemeanor charges on August 13, 2018.
“The Substantial Financial Penalties Imposed on the Bank, and the Two Bankers’ Pleas, Should Make Clear That Helping US Taxpayers to Be Tax Evaders Will Not Be Tolerated,” Manhattan U.S. Attorney Geoffrey S. Berman said in a statement
If ZKB abides by the agreement, which includes a requirement to turn over information about the U.S. client accounts, the government said it will defer prosecution on the information for three years and then seek to dismiss the charges.

According to the prosecutors’ statement, ZKB helped U.S. clients dodge taxes by opening and maintaining undeclared accounts, including by allowing the clients to be identified by a code word instead of by name. The bank also allowed U.S. clients to maintain accounts held in the names of non-U.S. entities, some of which were sham structures existing solely to hide offshore assets, prosecutors said.

At ZKB’s “high-water mark” in 2008, the bank held approximately $794 million in assets relating to undeclared accounts held by U.S. clients, according to the statement.

ZKB’s external asset manager desk “treated UBS’ decision to stop accepting U.S. taxpayer-clients as a business opportunity, and actively sought to increase its U.S. taxpayer-client base,” according to the prosecutors’ statement.

In December 2012, three ZKB bankers: Fellmann, Reist and Otto Hüppi, were charged in a New York federal court with conspiracy to defraud the U.S. and the IRS for their role in ZKB’s conduct, according to prosecutors.

Fellmann, whose name is spelled “Fellman” in the case name and Reist are scheduled to be sentenced Nov. 30 and face up to one year in prison. Hüppi remains at large.

The case is USA v. Fellman et al., case number 1:12-cr-00962, in the U.S. District Court for the Southern District of New York.

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