Eight Offshore Banks Under Grand Jury Scrutiny, U.S. Says

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Eight Offshore Banks Under Grand Jury Investigation
An employee exchanges one hundred euro notes for Swiss francs at a currency exchange in Effretikon, Switzerland. Photographer: Gianluca Colla/Bloomberg

Eight offshore banks are under federal grand jury investigation for facilitating tax evasion by U.S. citizens as part of a probe the Justice Department said has dealt “fabled Swiss bank secrecy a devastating blow.”

The department disclosed the probes on a section of its website detailing the Tax Division’s Offshore Compliance Initiative. In 2009, prosecutors charged UBS AG, the largest Swiss bank, with aiding tax evasion by U.S. clients. UBS avoided prosecution by paying $780 million, admitting it fostered tax evasion, and giving the U.S. Internal Revenue Service data on more than 250 accounts. It later turned over data on another 4,450 accounts.

Prosecutors opened 150 grand jury investigations of offshore-banking clients, charging 30 people, and indicting 13 other people who facilitated the hiding of assets offshore, according to the website.

“In addition, grand jury investigations have been opened into eight additional offshore banks across the world,” according to the website. “The outcome cannot be measured in litigation results alone. This enforcement effort has dealt fabled Swiss bank secrecy a devastating blow.”

The Justice Department, which didn’t identify the eight banks, hadn’t previously said how many were under investigation. Charles Miller, a spokesman for the department, declined to comment yesterday.

‘Highly Unusual’

“The fact that the department has confirmed that there are eight grand jury investigations into offshore banks shows that the government’s enforcement efforts are a lot further along than had previously been disclosed,” Jeffrey Neiman, a former federal prosecutor who worked on the UBS case, said in a phone interview.

Neiman, who is now in private practice in Fort Lauderdale, Florida, said it’s highly unusual for the government to “trumpet” the opening of a grand jury investigation.

“What makes this public acknowledgement so peculiar is the secrecy that usually surrounds grand jury investigations,” he said. “In fact, the department is prohibited by law from speaking about matters occurring before the grand jury.”

Credit Suisse Group AG, the second-largest Swiss bank, has said that U.S. prosecutors stated it’s a target of a criminal investigation. Victoria Harmon, a spokeswoman for Zurich-based Credit Suisse, declined to comment and referred to a July 21 bank statement.

July Indictments

Seven Credit Suisse bankers, including the former head of North American offshore banking, Markus Walder, were indicted that day in federal court in Alexandria, Virginia, on a charge of helping U.S. clients evade taxes through secret accounts.

“Credit Suisse is committed to a fully compliant cross-border business,” the bank said in that statement. “Subject to our Swiss legal obligations and throughout this process we will continue to cooperate with the U.S. authorities in an effort to resolve these matters.”

Since 2008, the U.S. has filed criminal tax charges against more than three dozen former U.S. clients of Zurich-based UBS, Credit Suisse, and London-based HSBC Holdings Plc, Europe’s biggest bank. Most of those clients have pleaded guilty.

On Sept. 4, SonntagsZeitung reported that Switzerland had until Sept. 6 to provide the U.S. with data as part of the Justice Department’s criminal probe into Credit Suisse.

The U.S. was requesting information about accounts held by thousands of Americans in 10 banks including Credit Suisse, the Zurich-based newspaper reported, citing correspondence between Michael Ambuehl, the state secretary to the Swiss finance ministry, and James Cole, the U.S. deputy attorney general.

HSBC, Julius Baer

Also among the 10 banks are HSBC, Julius Baer Group Ltd., Wegelin & Co., Basler Kantonalbank and Zuercher Kantonalbank, a person familiar with inquiries sent to them by U.S. prosecutors said. The person, who declined to say whether the ten banks include those under grand jury investigation, requested anonymity because the matter isn’t public.

Jan Vonder Muehll, a spokesman for Julius Baer in Zurich, declined to comment on the probe, as did Albena Bjorck, a spokeswoman for Wegelin in St. Gallen, Switzerland, Michael Buess, a spokesman for Basler Kantonalbank in Basel, and Lisa Baitup, a spokeswoman for HSBC in London.

Igor Moser, a spokesman for Zuercher Kantonalbank, the biggest of Switzerland’s publicly owned cantonal banks, said in an e-mailed statement: “The Zurich Cantonal Bank has just learned that it is said to be subject of investigations by the U.S. Department of Justice. The bank is currently looking into the details of the alleged circumstances.”

U.S. Grand Juries

U.S. grand juries, which normally consist of 16 to 23 members, meet in secret. Federal prosecutors present evidence for grand jurors to determine whether there is probable cause that an individual or a business committed a crime and should be put on trial. If a grand jury decides there is enough evidence, it can issue an indictment.

In recent years, the Justice Department charged dozens of corporations with crimes and agreed to defer prosecution in exchange for companies paying fines, making required reforms and admitting wrongdoing. Prosecutors typically agree to drop the charges after one or two years if companies meet those terms.

Aside from the UBS deferred-prosecution agreement, Credit Suisse agreed in December 2009 to pay $536 million to resolve claims that it helped process payments to let Iran and other nations avoid government sanctions and gain access to U.S. financial markets.

30,000 Taxpayers

Since 2009, about 30,000 U.S. taxpayers have avoided prosecution by disclosing their undeclared accounts to the IRS through a limited amnesty program, Douglas Shulman, the commissioner for the agency, said Sept. 15. Shulman said that 12,000 taxpayers had voluntarily disclosed their accounts in a second round of the program offered this year. He said the IRS had taken in $2.7 billion from holders of offshore bank accounts.

“You’d have to be living in a hole not to know that the U.S. government is really focused on offshore tax evasion,” Shulman said in a conference call.

The U.S. is “highly indebted and is looking for ways to collect funds abroad,” Christophe Darbellay, head of the Swiss Christian Democratic Party, said in an interview.

Strain on Relations

“It makes me uneasy that a friendly nation like the U.S. disrespects Swiss laws,” Darbellay said in an interview. “It’s a strain on the relations between both countries.”

More than 200 offshore bank clients who made voluntary disclosures to the IRS have been questioned this year by U.S. prosecutors seeking information on the bankers and advisers who helped them hide their money.

“The government had an enormous, unprecedented, reliable source of data to mine regarding the who, what, where, how and when of the non-compliant and those who aided and abetted their non-compliance,” said Miami tax attorney Robert Panoff in an e-mail.

“It is safe, if not prudent, to assume that if the data gathered so far indicates that there is a pattern of conduct by any bank’s employees which show aiding and abetting that eventually that bank will be targeted,” Panoff said.



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