‘Category 2’ Swiss banks handed $1.36bn final bill

The DoJ has made Swiss banks pay a heavy price Keystone

Eighty Swiss banks have shelled out a grand total of $1.36 billion (CHF1.38 billion) to the United States on the conclusion of a non-prosecution treaty to clear up past tax evasion misdemeanors.

The programme was wrapped up on Wednesday as HSZH (formerly Hyposwiss) bank paid $49.7 million, thus becoming the final “Category 2” institution to agree a settlement with the US Department of Justice (DoJ).

“Through this initiative, we have uncovered those who help facilitate evasion schemes and those who hide funds in secret offshore accounts,” US Attorney General Loretta Lynch said in a statement. “We have improved our ability to return tax dollars to the United States.  And we have pursued investigations into banks and individuals.”

The non-prosecution programme, which allowed Swiss banks to avoid potentially ruinous US court cases by confessing their part in helping US citizens to evade taxes, was set up under the terms of an August 2013 diplomatic treaty.  

Switzerland’s willingness to negotiate such a programme followed a damaging UBS legal case in the US and the subsequent demise of Switzerland’s oldest bank, Wegelin, under the weight of a DoJ criminal prosecution.

With some 15 other Swiss banks under active criminal investigation in the US, the Swiss authorities said at the time that they had little other choice than to conclude a tough and painful deal. The legal and political clash between Switzerland and the US over tax evasion hastened the end of Swiss banking secrecy.

Familiar tale

The story of HSZH, originally founded in 1889, bears similarities to many of the other 79 Swiss banks to have pay fines to the US under the terms of the programme. According to the DoJ, HSZH poached US tax cheats from larger Swiss rivals who themselves were under investigation.

“The senior management of HSZH viewed the exit of US clients by the targeted Swiss banks as a business opportunity to be seized immediately rather than a warning to be heeded,” the DoJ stated. According to HSZH documents, the bank’s general counsel asked senior management: “Why should we freely throw away a good business opportunity?”

Further details also bear echoes of the activities of other banks that later confessed to the non-prosecution programme. Sham companies were created as fictitious owners of overseas trust funds while HSZH employees secretly handed out cash and gold bullion to account holders who wanted to withdraw funds.

From August 1, 2008, HSZH held 605 US accounts (not all tax dodgers) holding $1.12 billion in assets at their peak.

On March 30, 2015, BSI private bank became the first of the 80 Category 2 Swiss banks to settle with the DoJ, paying $211 million – the largest fine of any institution in the scheme.

The important Category 2 stage of the US tax evasion probe may now be over, but the DoJ was quick to point out that the hunt for tax dodgers and those that helped them was far from complete. In addition to the $1.36 billion in fines, banks have been forced to hand over data to the US that could be used to track lawyers and tax advisers.

“Using the flood of information flowing from various sources, the department is investigating this criminal conduct, referring appropriate matters to the Internal Revenue Service for civil enforcement and pursuing leads in jurisdictions well beyond Switzerland,” stated Acting Assistant Attorney General Caroline Ciraolo.

In addition, some nine Swiss banks that were still under US criminal investigation face fines. Julius Bär recently raised its legal provisions to cover a settlement to some $550 million.