The Swiss private bank is to pay the US Department of Justice a penalty of $31.026 million for helping US taxpayers dodge their taxes.

According to the terms of a non-prosecution agreement that it has signed, Deutsche Bank Suisse has agreed to co-operate in any criminal or civil proceedings related to its settlement, demonstrate its implementation of controls to stop misconduct involving undeclared US accounts and pay a penalty in return for the department’s agreement not to prosecute it for tax-related criminal offences.

In 2001, Deutsche Bank Suisse signed a 'qualified intermediary' agreement with the Internal Revenue Service. Under this, if an accountholder wished to trade in US securities without being subjected to mandatory US tax withholding, the accountholder’s bank was required to obtain the consent of the account-holder to disclose his or her identity to the IRS. However, after signing its agreement, Deutsche Bank Suisse continued to service certain US customers without disclosing their identities to the IRS and without regard for the impact of US criminal law on that decision.

Before October 2008, Deutsche Bank Suisse’s position was that it could service a US client without reporting the US taxpayer’s interest in the account to the IRS as long as it prohibited the account-holder from trading in US securities or the account was an account nominally structured in the name of a non-US entity accompanied by an IRS Form W-8BEN or equivalent bank document. In the latter circumstances, US clients, with the assistance of their external advisors, would create an entity, such as a Liechtenstein foundation, a Panamanian corporation or a British Virgin Islands corporation, and pay a fee to third parties to act as corporate directors. Those third parties, at the direction of the US client, would then open a bank account at Deutsche Bank Suisse in the name of the entity or transfer funds from a pre- existing account from another bank. Deutsche Bank Suisse employees provided prospective US clients with referrals to external advisors who could help with the creation and management of such entities. In some instances, Deutsche Bank Suisse did not make much of an effort to determine whether such an entity was valid for US tax purposes.

Since 1 Aug 2008, Deutsche Bank Suisse had 1,072 US-related accounts with an aggregate maximum value of approximately $7.65 billion. It will pay a penalty of $31.026 million.