Clock Ticking for U.S. Holdouts as BNP Joins Swiss Tax Pact

  • 55 Swiss banks have settled this year, paying $532 million
  • KBL (Switzerland) agrees to resolve probe for $18.8 million

The clock is ticking for American tax dodgers around the world after BNP Paribas SA’s Swiss unit and two other banks joined a U.S. program to avoid prosecution, revealing the exact methods of Swiss bankers’ legendary discretion.

BNP agreed to pay $59.8 million in a program that has brought in 55 banks and $532 million. KBL (Switzerland) Ltd. and Bank CIC, a unit of Paris-based Credit Mutuel-CIC Group also joined the program Thursday, paying $18.8 million and $3.3 million, respectively.

Their accords, which let them avoid U.S. prosecution, spell out Swiss banking secrets in detail -- including assets restructured into Liechtenstein-linked insurance policies, and a banker who agreed to communicate with one U.S. client by faxes or calls to a prepaid mobile phone.

Richard Weber

Photographer: Victor J. Blue/Bloomberg

More significant than the money are the details on such techniques, which will help the Internal Revenue Service pursue tax crimes around the world, Richard Weber, chief of IRS-Criminal Investigation, said in a statement announcing the three new signatories.

“At this point, we’ve already learned so much about the formerly hidden world of offshore banking,” Weber said. “This information enables us to vigorously pursue noncompliant individual U.S. taxpayers.”

Way Out

Started in 2013 by the Justice Department, the program allows Swiss banks to avoid criminal liability in the U.S. as they’ve prodded thousands of reluctant Americans to disclose accounts hidden from the IRS. It also encourages banks to mitigate their penalties by pushing clients to disclose their undeclared accounts.

The program is designed to tighten the screw over time. Individuals who voluntarily disclose undeclared accounts pay a penalty of 27. 5 percent of their high value. If their bank has joined the program, as BNP did today, the penalty is increased to 50 percent.

The flood of information is now giving U.S. investigators intelligence to try to build new cases against individuals and institutions in other countries, according to prosecutors.

‘Sham Entities’

BNP held 760 U.S. accounts worth $1.2 billion after 2008, according to the non-prosecution agreement. Of those, $650 million was held in “sham entities” in such offshore locations as the British Virgin Islands, Panama, Liechtenstein and Liberia. Included were 338 numbered accounts -- or those where account-holders names are kept secret, and they must identify themselves with a code. The bank also agreed to hold bank statements and other related mail to eliminate a paper trail.

Other methods used to disguise U.S. nationality at BNP included accounts in the name of non-U.S. companies and foundations or trusts in which Americans concealed their ownership. In one instance, an account was partly transferred to a bank in Malaysia before a bank employee gave instructions to withdraw the balance in Swiss francs. In another, multiple employees withdrew an account in cash so the U.S. holder need not “waste time at the cash window.”

When BNP determined in 2013 that one owner of such an entity was born in the U.S., a bank employee stated: “I would be very happy if we could solve this matter in a way to make the account disappear from the sight of U.S. tax authorities,” according to the deferred-prosecution agreement.

Cash Cards

KBL provided Swiss travel cash cards from third parties and funded them with assets in the accounts so that Americans could access them, even from the U.S.

A BNP spokeswoman said in a phone interview that the bank is abiding fully with all laws and regulations in every market where it operates, and that it has taken steps since 2008 to improve compliance relating to U.S. taxpayers.

BNP paid $8.96 billion to settle a criminal case over the allegation that it violated U.S. sanctions by processing transactions with Sudan, Iran and Cuba this year.

From 2009 through last month, at least 54,000 U.S. taxpayers have disclosed offshore accounts to the IRS, paying more than $8 billion in back taxes, penalties and interest, according to the Justice Department.

Privacy Waived

Banks in the program seeking to reduce their penalties have persuaded thousands of U.S. clients to waive their privacy so that the firms can give the Justice Department evidence of their tax compliance.

Frederic Monot, a spokesman for Bank CIC, didn’t immediately respond after regular business hours to e-mails and phone calls requesting comment.

Banque International a Luxembourg SA purchased KBL (Switzerland) earlier this month, according to a press statement. Veronique Piquard, a spokeswoman for the bank, didn’t immediately respond to e-mails sent after regular business hours.

Before it's here, it's on the Bloomberg Terminal.