ZKB, the biggest of Switzerland’s publicly owned regional banks, “conspired with U.S. taxpayers to help them conceal their foreign accounts,” according to a lawsuit filed Nov. 6 by U.S. Attorney Preet Bharara in Manhattan.
U.S. District Judge Kimba Wood in Manhattan signed an order Nov. 7 allowing the Internal Revenue Service to serve summonses on Citibank and BNY Mellon. The banks allowed ZKB to get access to the U.S. banking system through correspondent accounts, according to Bharara’s suit, filed on behalf of the IRS.
The IRS concluded that “ZKB has used the Citibank and BNY Mellon correspondent accounts to provide offshore banking services to U.S. taxpayers, who in turn have failed to report the existence of their ZKB accounts to the IRS, as well as the income earned on those accounts,” according to the complaint.
The complaint, known as a John Doe summons, comes amid a U.S. crackdown on offshore tax evasion. Last December, three current or former ZKB employees were indicted on charges of helping U.S. clients hide more than $420 million from the IRS.
Mark Costiglio, a spokesman for Citigroup, and Kevin Heine, a spokesman for BNY Mellon, declined to comment on the court order in e-mails. Both banks are New York-based. A spokesman for Zurich-based ZKB couldn’t be reached for comment.
U.S. District Judge Richard Berman in New York signed an order today authorizing the IRS to issue summonses requiring five banks to produce information about undisclosed accounts at The Bank of N.T. Butterfield & Son Ltd. The order also covers affiliates in the Bahamas, Barbados, Cayman Islands, Guernsey, Hong Kong, Malta, Switzerland, and the U.K., Bharara said in statement.
Taxpayers made 81 voluntary disclosures about accounts at Hamilton, Bermuda-based Butterfield.
“These John Does summonses will provide information about individuals using financial institutions from Switzerland to the Cayman Islands to Hong Kong to avoid their U.S. tax obligations,” Assistant Attorney General Kathryn Keneally said in a statement.
“U.S. taxpayers still holding accounts who have not come clean should come forward and do the right thing before it’s too late,” she said.
An e-mail sent to Butterfield after hours wasn’t immediately returned.
Since 2009, 38,000 U.S. taxpayers avoided prosecution by voluntarily disclosing offshore accounts to the IRS, and 371 were ZKB clients, according to the complaint.
The U.S. charged UBS AG (UBSN), the largest Swiss bank, which avoided prosecution by paying a penalty, admitting it fostered tax evasion, and handing over records. The government obtained a guilty plea by Wegelin & Co., Switzerland’s oldest private bank, and is conducting criminal probes of 14 Swiss banks.
The U.S. also charged about 70 American taxpayers and 30 of their enablers. Stephan Fellmann, Otto Huppi and Christof Reist were charged in December with a single count each of conspiracy and accused of helping at least 180 U.S. taxpayers maintain undeclared accounts at ZKB. They haven’t responded in court to the charges.
The ZKB complaint, citing the indictment and “other information obtained by the IRS,” said ZKB conspired from 2003 to 2009 to help hide assets from the IRS.
“ZKB employees discouraged U.S. clients from disclosing the existence of their ZKB accounts to U.S. authorities,” according to the complaint.
The bank advised American clients not to maintain account records in the U.S. The clients “called ZKB employees collect or used prepaid calling cards to avoid having the calls appear on their phone records,” according to the complaint. ZKB also allowed U.S. clients to use code names and sham entities to conceal their ownership of accounts.
ZKB told clients it was a safer bank to hold undisclosed accounts than UBS because it had no offices in the U.S., saying the U.S. government couldn’t apply the same pressure to turn over foreign accounts, according to the complaint.
ZKB also offered correspondent services to other Swiss banks that also held undeclared accounts for U.S. taxpayers, according to the complaint.
The case is In the Matter of the Tax Liabilities of John Does, 13-Misc-378, U.S. District Court, Southern District of New York (Manhattan).
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