BHF-Bank (Schweiz) AG has signed a so-called 'resolution' with the US Department of Justice to offset criminal charges for the help it gave wealthy Americans to avoid the gaze of the US Internal Revenue Service.

BHF opened and maintained accounts for US taxpayers that they did not declare to their voracious home tax authority, which attempts to tax them wherever they live in the world - a policy shared only by Eritrea. The bank chose to continue to service these Americans without disclosing their identities to the Internal Revenue Service (IRS) or taking steps to ensure that the clients were obeying US tax laws and without considering the illegality of doing so under US criminal law.

BHF offered a variety of traditional Swiss banking services that it knew could help, and did help, high-net-worth Americans to conceal assets and income from the IRS, such as 'hold mail' services, which minimised the paper trails between the clients and their undeclared assets and incomes, and debit cards, which allowed them to access their undeclared accounts without having to visit BHF.

In 1982, according to the DoJ, Plinius Management Limited of Zurich, a trust company, was formed as a wholly-owned subsidiary of BHF to provide special services for wealthy clients, which included advice regarding trusts, foundations, fiduciary agreements and holding companies in order to protect assets and minimize tax liability. Plinius had no employees and BHF provided it with staff and infrastructure.

Plinius also helped with referrals to establish various types of structures, including Liechtenstein Anstalten and Stiftungen, and entities in the British Virgin Islands and Panama. Plinius did not create the structures; instead, it always contacted an external trust company or law firm in Liechtenstein to do so in whatever jurisdiction had been agreed upon. Although Plinius’ relationship managers did not have access to the 'Forms A' held by BHF that identified the beneficial owners, in some cases they were aware of the ultimate beneficial owner(s) of the accounts. Four subsidiary-related structured accounts were established for Americans, which sheltered them and hid their assets from the IRS improperly.

A fateful agreement

In 2000, BHF signed a 'qualified intermediary' (QI) agreement with the IRS. Why it did so, the DoJ does not say.

The QI regime provided a comprehensive body of law for US information reporting and tax withholding by a non-US financial institution with respect to US securities. The QI agreement was designed to help ensure that, with respect to US securities held in an account at BHF, non-US persons were subject to the proper US withholding tax rates and generally paying their due amount of tax to the IRS.

BHF implemented a policy that every client had to sign either a Form W-9 or a Declaration of Non-US Person Status, which required the customer to declare whether he or she was a US person for tax purposes.  Some US clients who did not want to have their identities disclosed to the IRS could avoid detection by, in the DoJ's odd phrase, "declining US securities," by which it might mean declining to use them. Approximately five clients refused to sign a Form W-9, but BHF nevertheless continued to service these clients’ accounts and kept them open.

An agreement broken

US-related accounts, including offshore structured accounts, 'came into' BHF (the DoJ's phrase) through its relationship managers, through external asset managers or otherwise. For example, one account in the name of an offshore entity was referred to a BHF manager 'from' a US structuring lawyer (again, the DoJ's way of putting it) before 2008 and transferred to BHF from another Swiss bank. The file contained a Form W-8BEN and certification of non-US persons for the offshore corporate account-holder. BHF’s top managers approved the opening of the account even though it held US securities - a bad thing to do in view of the agreement of 2000. No Form W-9 was completed or given to BHF by or on behalf of the US beneficial owner. The DoJ says that BHF did not confirm that the US beneficial owner was compliant with US tax obligations, as was its duty in accordance with the QI agreement.

The Swiss Bank Programme

The Swiss Bank Programme is an American initiative launched in August 2013 which provides a path for Swiss banks to sign humiliating agreements to disclose information and pay penalties in exchange for keeping American prosecutors away from their doors. Swiss banks eligible to take advantage of it had till 31 December 31 2013 to tell the IRS whether they had reason to believe that they had committed tax-related criminal offenses in connection with undeclared US-related accounts.  

While subjecting itself to that programme, BHF encouraged existing and former account-holders and beneficial owners of US-related accounts to provide evidence of tax compliance (a phrase that the DoJ does not define) or of participation in any IRS offshore voluntary disclosure programmes or initiatives or to disclose things about their accounts to the IRS through such programmes. BHF sought waivers of Swiss bank secrecy from all account-holders and obtained waivers for more than 50% of its accounts.

$203 million in dodgy AuM

Since 1 August 2008, BHF has held a total of 125 US-related accounts, comprising total assets under management of approximately $203 million.  BHF will pay a penalty of $1.768 million.

Although US accountholders at BHF who have not yet declared their accounts to the IRS may still be eligible to participate in the IRS Offshore Voluntary Disclosure Programme, the price of such disclosure has increased.

The magic words for BHF in the agreement are: "On the understanding specified below, the DoJ will not prosecute BHF for any tax-related offences under Titles 18 or 26 of the United States Code, or for any monetary transaction offences under Title 31, USC, ss5314 and 5322, in connection with undeclared US Related Accounts held by DHF during the applicable period. BHF admits, accepts, and acknowledges responsibility for the conduct...and agrees not to make any public statement contradicting the statement of facts."