Liechtensteinische Landesbank AG, the oldest bank in the Alpine principality, won’t be prosecuted by the U.S. government after agreeing to pay $23.8 million and admitting it helped American clients evade taxes.
The bank, based in Vaduz, admitted using secret accounts from 2001 to 2011 to help clients hide as much as $341 million from the Internal Revenue Service. It gave the U.S. Justice Department files on more than 200 secret accounts after Liechtenstein amended its law last year to allow such transfers.
“LLB-Vaduz knew that certain U.S. taxpayers were maintaining undeclared accounts at LLB-Vaduz in order to evade their U.S. tax obligations,” the bank said in a non-prosecution agreement released yesterday by the Justice Department. “LLB-Vaduz knew of the high probability that other U.S. taxpayers who held undeclared accounts” did so “for the same unlawful purpose.”
The U.S. chose not to prosecute, citing the bank’s “extraordinary” cooperation. The admissions and handover of account data make LLB-Vaduz the third bank, after Switzerland’s UBS AG and Wegelin & Co., to acknowledge wrongdoing in a five-year U.S. crackdown on offshore tax evasion.
LLB rose 5.2 percent to 37.55 Swiss francs in Zurich. The stock had climbed 27 percent this year, more than triple the gain in the 44-member Bloomberg Europe Banks and Financial Services Index.
UBS, Switzerland’s largest bank, avoided prosecution by paying $780 million in 2009, admitting it aided U.S. tax evasion and handing over data on 4,500 accounts. Last year, the U.S. indicted Wegelin, the oldest Swiss private bank. Wegelin pleaded guilty in January, handing over $74 million.
LLB-Vaduz admitted that it used foundations, trusts or other legal structures to help hide the true owners of accounts from the IRS. It held bank statements in Liechtenstein, rather than mail them to the U.S., to avoid creating a paper trail. The bank also kept records “in which U.S. taxpayers expressly instructed LLB-Vaduz not to disclose their names to the IRS.”
“With this agreement, one of Liechtenstein’s most important banks has put an era behind it,” Manhattan U.S. Attorney Preet Bharara said in a statement. The accord “reflects the unprecedented nature of the bank’s cooperation, and serves as another reminder for U.S. tax cheats who mistakenly believe that their offshore bank will never turn over their account files to U.S. authorities.”
In 2008, after learning that UBS was under investigation, LLB-Vaduz began voluntarily to take remedial steps “to stop helping undeclared U.S. taxpayers evade U.S. income tax,” according to the non-prosecution agreement. Those steps included deciding in June 2008 to stop opening new accounts in the names of entities that hid their true ownership.
The number of undeclared accounts dropped from 1,203 in 2002 to 856 in 2007 to 60 last year, according to the agreement.
A former federal tax prosecutor, Jeffrey Neiman, said the accord will help the U.S. obtain data about tax evasion from Switzerland. More than two years of talks between the U.S. and Switzerland to resolve a Justice Department probe of Swiss banks have yet to produce a settlement.
“Behind every Liechtenstein foundation is a Swiss bank account,” Neiman said. “This will lead to more disclosures about underlying Swiss banking activity.”
The U.S. has investigated at least 14 Swiss financial firms, including Credit Suisse Group AG, Julius Baer Group Ltd. and LLB’s Swiss unit. Some of those firms are negotiating bilaterally with the Justice Department.
The Swiss government is also working with the U.S. on agreeing to a joint statement that will outline how other banks that helped Americans dodge taxes can avoid the fate of Wegelin.
LLB-Vaduz’s accord requires the bank to forfeit $16.3 million, or the gross revenue it made by maintaining undeclared accounts, and pay $7.5 million in restitution to the IRS, representing the unpaid taxes caused by the evasion of its clients.
The agreement applies only to the bank and not its subsidiaries or any individuals, prosecutors said. The bank will close its wholly owned Swiss unit, Liechtensteinische Landesbank Switzerland Ltd. and another unit, Jura Trust AG, Bharara said.
“The bank is very pleased that the inquiry concerning LLB-Vaduz has now been resolved under the terms negotiated,” said Benjamin Brafman, a lawyer in New York who represents LLB-Vaduz.
Brafman said the bank gave “extraordinary cooperation” to the U.S. He said LLB advocated changing the law on administrative assistance on tax matters with the U.S. to allow information about American taxpayers to be turned over without violating Liechtenstein bank secrecy laws.
The case is U.S. v. $15.9 Million in U.S. Currency, 13-CV-5296, U.S. District Court, Southern District of New York (Manhattan).