The U.S. has asked Liechtenstein to hand over data on foundations that may have been used to hide untaxed American money from the Internal Revenue Service, a step that may threaten Swiss banks.
The U.S. wants to know the number of foundations set up by fiduciaries -- lawyers, accountants, financial advisers and asset managers -- for American taxpayers, according to a letter sent by the Department of Justice to authorities in the Alpine principality. A “formal request” to fiduciaries will follow, the DOJ said.
“Seeking documents from the Liechtenstein fiduciaries is an important investigative step,” which will shed light on “the roles of banks, of bankers outside of Liechtenstein,” the Justice Department wrote in the letter, adding that it looked forward to receiving the data by March 29.
The DOJ is investigating at least 11 financial firms, including Credit Suisse Group AG (CSGN) and Julius Baer Group Ltd. (BAER), for allegedly helping Americans hide money from the IRS. The Liechtenstein request will add to the information the IRS garnered as 38,000 Americans avoided prosecution through an amnesty program, which involved paying back taxes and penalties and disclosing their offshore accounts and bankers.
“It’s a further evolution of the Department of Justice using third-party fiduciaries to gather more information on these structures and the banks involved,” said Milan Patel, a former IRS trial attorney who is now a partner at Zurich-based law firm Anaford AG. “This could be bad news for Switzerland, as the information could be used against more Swiss banks.”
Katja Gey, director of Liechtenstein’s Office for International Financial Affairs, declined to comment. Justice Department spokesman Charles Miller declined to comment.
Banks in Switzerland are seeking a settlement with the U.S. as Liechtenstein’s larger neighbor, the world’s biggest center for offshore wealth, tries to shed its image as a haven for undeclared assets. That may involve negotiating separate deferred prosecution agreements with U.S. authorities.
UBS AG, the biggest Swiss bank, avoided prosecution in 2009 by paying $780 million, admitting it fostered tax evasion and giving the IRS data on more than 250 accounts. It later turned over data on another 4,450 accounts. Before the UBS deferred- prosecution deal, U.S. prosecutors said the bank managed $20 billion in undeclared assets for American clients.
Wegelin & Co., the oldest Swiss private bank, pleaded guilty in Manhattan federal court in January to conspiring to help hide more than $1.2 billion in assets from the IRS, while opening undeclared accounts for at least 70 U.S. taxpayers who were former UBS clients. The bank, which paid $74 million to resolve the investigation, closed its doors after 272 years.
Since 2008, U.S. prosecutors have charged at least 86 people in their crackdown on offshore tax evasion, including two dozen bankers, lawyers and advisers.
“The purpose of our request is to further our investigations of both U.S. taxpayers who, among other things, engaged in tax evasion through the use of Liechtenstein foundations and establishments, and the banks, bankers, and others who facilitated that tax evasion,” the Justice Department wrote in the letter to Liechtenstein authorities.
The DOJ’s focus is on foundations that existed since the end of 2007, according to the letter.
Beda Singenberger, a Swiss financial adviser, created sham foundations in Liechtenstein and phony corporations in Hong Kong and the British Virgin Islands to help clients hide their ownership of the accounts, federal prosecutors charged in a July 2011 indictment. Singenberger, who lives in Zurich, was charged with helping 60 people in the U.S. hide $184 million in secret offshore accounts. He has not responded to the charge in court.
Liechtenstein amended a tax law last year to allow the country of 36,000 people to comply with a U.S. request for account data on American clients of the principality’s oldest bank, Liechtensteinische Landesbank AG (LLB). The bank known as LLB had 49.9 billion Swiss francs ($53 billion) of assets under management at the end of 2012 and is one of the firms being probed by the DOJ.
Liechtenstein started to unwind secrecy after data stolen from LGT Group, the bank owned by the country’s princely family, was used by Germany to prosecute tax evaders in 2008. Former Deutsche Post AG (DPW) Chief Executive Officer Klaus Zumwinkel was convicted of tax evasion and received a two-year suspended prison sentence plus a penalty of 1 million euros ($1.3 million).
Under pressure from the U.S., Germany and France, Liechtenstein said in March 2009 that it would conform with tax standards set out by the Organization for Economic Cooperation and Development to avoid being blacklisted as a tax haven.
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