Swiss Court Blocks Julius Baer Data Transfer to U.S.

Switzerland’s Federal Administrative Court blocked tax authorities from disclosing Julius Baer Group Ltd. customer account data to the U.S. after a request was found invalid.

The Swiss Federal Tax Administration “unlawfully granted the request for administrative assistance” submitted by the Internal Revenue Service on April 17, concerning the disclosure of bank-account data of clients of Julius Baer, the St. Gallen, Switzerland-based court said yesterday in an e-mailed statement. The court referred to a decision made on Jan. 6.

The IRS’s request under a 1996 double taxation agreement between the U.S. and Switzerland asked for information about clients of Julius Baer, Switzerland’s third-largest wealth manager, and accused the bank of having employees that helped customers conceal assets and income from the IRS, the court said.

The request “abstractly described the alleged conduct of” the bank’s clients and didn’t provide evidence of “tax fraud and the like,” which is required for Switzerland to fulfill U.S. demands under the accord, the court said.

Julius Baer is one of 14 banks under investigation by the U.S. for allegedly helping Americans hide money from the IRS. The Zurich-based bank has said it expects to pay a fine and provide client data as it seeks to strike an agreement with the U.S. to avoid or defer prosecution.

Voluntary Disclosures

The U.S. received voluntary disclosures from at least 400 American taxpayers with accounts at Julius Baer, according to the Jan. 6 court ruling. The ruling also reprised some of the information in a 2011 U.S. indictment of two of the bank’s advisers. The indictment described the company as Swiss Bank No. 1 at the time.

The two advisers conspired to help Americans hide $600 million using fictional account names such as “Hydrangea” and “Red Rubin,” according to an October 2011 statement by U.S. Attorney Preet Bharara. The advisers told clients their accounts wouldn’t be disclosed to the IRS as Swiss Bank No. 1 “had a long tradition of bank secrecy and no longer had offices in the U.S.,” Bharara said at the time.

UBS AG, the biggest Swiss bank, avoided prosecution in 2009 by paying $780 million, admitting it fostered tax evasion and eventually giving the IRS data on about 4,700 accounts. That set a precedent for the transfer of data from other Swiss banks as the U.S. widened its probe of the Swiss cross-border wealth management industry.

Data Request

Julius Baer informed some American clients in May that their accounts meet the criteria of a U.S. request for data. The IRS is seeking information on accounts “owned through a domiciliary company” and held at any time between the beginning of 2002 and the end of 2012, the Zurich-based bank wrote in a letter obtained by Bloomberg News and dated May 16.

The banks under investigation by the U.S. Justice Department, which also include Credit Suisse Group AG, HSBC Holdings Plc’s Swiss private bank and Zuercher Kantonalbank, can use the 1996 tax agreement to respond to requests for names of American clients, the Swiss government said on May 29. That depends on the U.S. authorities providing a sufficiently detailed description of the matter to establish suspicion of fraud or similar offenses.

Tax Evasion

The court, which judges cases of appeal against decrees issued by Swiss federal authorities, reaffirmed in the statement that under the 1996 accord, “administrative assistance shall not be granted for presumed tax evasion, even if high amounts are at stake.” The court also confirmed that “the mere failure to declare a bank account may be qualified -- at the utmost -- as a tax evasion, which is not subject to administrative assistance.”

Jan Vonder Muehll, a spokesman for Julius Baer, said the bank “takes note of the ruling” and declined to comment on the details. Vonder Muehll also declined to comment on whether the client information Julius Baer has supplied to the Swiss government to date would be sufficient to satisfy the U.S. authorities.

The U.S. Senate has yet to ratify a 2009 protocol revising the 1996 accord to make it easier for Swiss banks to hand over data on clients suspected of tax evasion to the IRS.

In a separate decision on Jan. 6, the Federal Administrative Court threw out an appeal by a Julius Baer client that missed a deadline and as a consequence the client’s account data may be transferred to the U.S. Both decisions by the Federal Administrative Court can be referred to the Federal Supreme Court within 10 days.

The Swiss government is promoting cooperation with the U.S. to prevent another bank being indicted after Wegelin & Co. pleaded guilty about a year ago to conspiring to help conceal more than $1.2 billion from the IRS.

The Swiss government supported a Justice Department program announced on Aug. 29 for Swiss banks not already under investigation to volunteer information on undeclared American accounts in exchange for non-prosecution agreements or letters declaring they didn’t break U.S. tax laws.