On December 29, 2016, the Department of Justice (“DOJ”) announced that it had reached final resolutions with banks that have met the requirements of the Department’s Swiss Bank Program (the “Program”). Announced in August 2013, the Program provided a path for Swiss banks to resolve potential criminal liabilities in the United States and to participate in the Department’s ongoing investigations of tax evasion by U.S. taxpayers. Press Release, DOJ, Justice Department Reaches Final Resolutions Under Swiss Bank Program
, Dec. 29, 2016 (“DOJ Press Release”).
The DOJ’s review of Swiss banks’ role in tax evasion first became public in February 2012, when it obtained an indictment against the Swiss private bank Wegelin & Co. The indictment charged the bank and certain of its senior executives with conspiring to defraud the United States and the Internal Revenue Service (“IRS”), and certain tax-related offenses. Superseding Indictment, United States v. Wegelin & Co.
, No. 12-Cr-02, (S.D.N.Y. Feb. 2, 2012). In January 2013, Wegelin & Co. pleaded guilty to the Superseding Indictment’s charge of conspiracy to defraud the IRS. See id.
; see also
(Mar. 3, 2013). At sentencing, Judge Jed S. Rakoff ordered Wegelin & Co. to a pay a fine of over $22 million; to pay $20 million in restitution; and to forfeit almost $16 million. Judgment, Wegelin
(Mar. 3, 2013). Shortly thereafter, Wegelin & Co closed.
In August 2013, the DOJ implemented the Program, which offered certain Swiss banks the opportunity to communicate with DOJ regarding potential criminal tax violations, in exchange for a variety of benefits summarized below. The DOJ encouraged “[e]ach eligible Swiss bank [to] carefully weigh the benefits of coming forward, and the risks of not taking this opportunity to be fully forthcoming.” It felt that a “bank that has engaged in or facilitated U.S. tax-related or monetary transaction crimes has a unique opportunity to resolve its criminal liability under the Program.” DOJ, The Tax Division’s Comments about the Program for Non-Prosecution Agreements or Non-Target Letters for Swiss Banks
, Nov. 5, 2013.
Specifically, the Program established four categories for which Swiss financial institutions were eligible: Category 1 included those already under investigation, and were thereby excluded from the Program; Category 2 included those that advised the DOJ before the close of 2013 that they had reason to believe that they had indeed committed tax-related criminal offenses involving U.S. accounts; Category 3 included those that established, by means of an independent, internal investigation, that they had not committed such offenses and had an effective monitoring program in place; and finally Category 4 was reserved for Swiss banks that were able to demonstrate that they met certain criteria for deemed-compliance under the Foreign Account Tax Compliance Act (“FATCA”). See
DOJ Press Release.
The DOJ reported that banks that had disclosed wrongdoing—Category 2 banks—were required to: (1) pay “appropriate penalties” in exchange for a Non-Prosecution Agreement (“NPA”), thereby insulating the banks from prosecution for such crimes; (2) produce a complete disclosure of their cross-border activities and provide detailed information on accounts in which U.S. taxpayers had interest; (3) cooperate in treaty requests for account information about other banks that transferred funds into hidden accounts (or accepted funds when secret accounts were closed); and (4) cooperate in any related criminal or civil proceedings. Id
. Between March 2015 and January 2016, the DOJ executed NPAs with 80 such Category 2 banks and collected over $1.36 billion in penalties. Id
Banks that were able to establish that no wrongdoing had been committed on their behalf—Category 3 banks—were eligible for a “non-target” letter pursuant to the terms of the Program. Id
. To earn such a letter, Category 3 banks had to provide the DOJ with the results of the bank’s independent, internal investigation into these issues. Among other things, the report needed to identify the witnesses interviewed (with summaries of their statements), the files reviewed, and the conclusions of the investigations. Further, the DOJ required that such banks respond to questions that the DOJ may pose regarding the investigation, and close the accounts of any accountholders failing to comply with U.S. reporting obligations. From July to December 2016, four banks and one bank co-op satisfied these requirements for eligibility and received non-target letters. Id
Category 4 Banks—those that were able to demonstrate that they met the FATCA deemed-compliance criteria—were also eligible to receive a non-target letter. However, no banks qualified for this category. Id
The results of the Program close another chapter in the DOJ’s ongoing efforts to investigate and prosecute tax evasion, including by targeting overseas institutions that historically have helped U.S. persons commit such crimes. The Program’s emphasis on early disclosure and full cooperation is consistent with the DOJ’s stance over the past few years: the Department will heavily leverage prosecutorial discretion in order to incentivize companies and financial institutions to self-investigate and self-report any potentially illegal activity.