The Noose Tightens: Swiss Banks Deliver Up Data (9/11/11)

Ten of the more significant Swiss bank players in assisting U.S. taxpayers hide their income from U.S. tax authorities have delivered statistical data to the U.S. The data is sufficiently broad that it does not identify individual taxpayers but almost certainly could give the U.S. ways to sharpen its focus on the information and documents that it might ultimately demand from the banks.

An article in Tax Notes (Randall Jackson, Swiss Banks Turn Over Statistical Data in Tax Evasion Investigation, 2011 TNT 177-3 (9/13/11)) reports:
The banks include the following:

HSBC
Wegelin
Julius Baer
Basler Kantonalbank
Zürcher Kantonalbank

Eveline Widmer-Schlumpf, chief of the Swiss Federal Department of Finance, on September 10 also stated that statistical data had been turned over to U.S. officials. However, she added that no personal data had been disclosed. "That would be a violation of banking secrecy," she said, as quoted in a September 11 Agence France-Presse report.
Widmer-Schlumpf stressed that reaching a mutually acceptable outcome between the United States and Switzerland over the latest tax argument is of vital importance, but that it would not require an emergency law or separate treaty.
"The fact is that we are working with a lot of commitment for a solution that Switzerland can deliver within the existing legal framework of administrative assistance in the case of tax fraud and tax evasion. This is happening in accordance with the government and in conjunction with the involved banks. There is no need for an emergency law or separate treaty," she said, as quoted in a September 11 interview with NZZ am Sonntag.

Katie Reid, U.S. Obtains Data From 10 Swiss Banks In Tax-Dodging Probe (Huffington Post/Reuters 9/10/11), here.

Breaking News 9/13/11:

As the commenter notes below, the reports are that the Swiss are caving for all banks by now allowing what I call John Doe Treaty requests as follows (US client data to be provided based on activity (swissinfo.ch), here):

In cases where US authorities are able to supply enough details to justify a suspicious pattern of behaviour, Swiss banks will hand over the names and account details of US clients suspected of tax fraud – which happened to 4,500 UBS clients in 2009.

Of course, the U.S. will only be able to supply very general characteristics, such as use of foreign entities between the swiss account and the U.S. taxpayer, failure to supply the required forms, perhaps some minimum dollar amount (say $50,000).  Many of the characteristics might be discernible from the aggregate data discussed above, and were a key component of the UBS requests.

I will post more on this as more details are known.

New Swiss Enabler Indictment (8/2/11)

Today brings a new Swiss enabler Indictment in the Southern District of Florida, a hotbed of the DOJ juggernaut against banks and enablers. Martin Lack, a citizen and resident of Switzerland, was indicted for the defraud / Klein conspiracy. The indictment is here. 

Lack operates Lack & Partner Asset Management AG in Zurich and is a confederate of Renzo Gadola, previously indicted and blogged here.

As is the way with defraud / Klein conspiracy indictments, Lack's indictment is flowered up with a lot of detailed allegations of skullduggery presented as overt acts. These are just variations on the themes of how far the -- at least some -- Swiss bankers went to accommodate the U.S. clients' needs to hide their tax evasion (for a share of the ill-gotten gains, of course). For example, it is alleged that Lack solicited cash deposits in the U.S. in furtherance of the scheme and further failing to file the required Form 8300.  Thus, the following allegation:

26. It was further a part of the conspiracy that defendant MARTIN LACK and his conspirators would and did assist United States customers with undeclared Swiss accounts at Cantonal Bank in structuring the transfer of funds, including cash, within the United States without disclosing such transfers to the United States government on a Form 8300 as required by law.

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U.S. Is Reported to Have Abandoned Negotiations with Swiss (7/18/11)

Rumors previously circulated that the Swiss Government and the U.S. were negotiating to reach their own version of the "grand bargain" over Swiss skullduggery in secret bank accounts for U.S. depositors. See U.S. Swiss Negotiations for Multi-Bank Settlement on Swiss Bank Enabled U.S. Tax Evasion (6/11/11). Now the rumors are that U.S. terminated the negotiations. (One could have speculated as much from the announcement that the U.S. is stepping up its investigation of Credit Suisse. See DOJ Investigating Credit Suisse (7/15/11) .

The following are excerpts from a Reuters report (Swiss-US tax talks flounder as CS probed-paper (Reuters 7/17/11)) which cites a Swiss newspaper.  The key points are (although I remind readers that this is probably the Swiss spin on matters):

1. "Citing unnamed banking sources, the Tages-Anzeiger daily said that negotiations between Switzerland and the United States had stalled because the U.S. Department of Justice was not particularly interested in a deal."
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IRS Ratchets Up Its Focus on the Enablers (6/2/11)

Observers of the IRS offshore financial account initiative have known for a long time that the IRS had its sights on enablers (persons who promoted and enabled taxpayers into offshore accounts for U.S. tax evasion purposes). In the template letter required in the two programs, participants were required to identify enablers. Then IRS then took that information and built databases of names and relationships that could identify the signficiant enablers. At least anecdotally, practitioners observed that the IRS seemed to be particularly interested in enablers who had some U.S. presence -- particularly, as in the case of the UBS enablers, those who moved into and out of the country in stealth mode to sell their evasion services. This is probably not new to most of the professional readers of this blog.

In a very good article, a Bloomberg Business Week reporter discusses some of the IRS's efforts. The article is David Voreacos,The IRS Grills Taxpayers on Offshore Accounts, Bloomberg Businessweek (6/2/11). It is not a long article and is well-written, so I just link to it for you. 
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Rumors that Offshore Bank Inquiry Expands to Other Swiss Banks and even to Wall Street

Lynnley Browning of The New York Times today here passes on rumors -- presumably from a reliable unnamed source -- that

1. "federal authorities are looking at Wall Street banks that provide banking services to the regional companies, known as cantonal banks."

2. "the Wall Street banks might have been used by the regional banks to pool client money so that individual clients could not be identified by the United States authorities." The article does caution that "There is no indication that the Wall Street banks, which the two people declined to identify, have knowingly engaged in wrongdoing."

3. "The new investigation centers on Basler Kantonalbank, one of the larger regional companies, but includes other cantonal banks as well, the people briefed on the investigation said, declining to identify them." Readers will recall that Renzo Gadola worked with (not for, perhaps) Basler Kantonalbank. I blogged previously on his original charge here and on his guilty plea just two days ago here.
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Swiss Enabler for Offshore Accounts Pleads Guilty

I reported last weekend on criminal charges against Renzo Gadola, a Swiss person, previously a UBS banker who served as an intermediary between U.S. depositors and at least one Swiss bank. The blog is here. The charges were presented by criminal information which often presages a plea agreement. The criminal information is here. Yesterday, Gadola pled guilty. The guilty plea and statement of facts are here and here. Just a few comments:

1. The guilty plea document itself is mostly standard fare. The plea is to the one conspiracy count charged in the criminal information. The parties' agreements as to the sentencing factors do strike me as unusual, so I will comment on them below.
2. The Statement of Facts appears to be a restatement, perhaps verbatim of most or all of the allegations in the criminal information. I summarized certain of the key allegations in my prior post.

The agreement does not give us the Base Offense Level or the tax loss which drives the Base Offense Level. The Base Offense Level, of course, is the starting point for Guidelines calculations. The agreement does, however, give information from which the starting point can be derived, so let's see what the agreement says. Paragraph 10 provides:

10 The United States and the defendant agree that, although not binding on the probation office or the Court, they will jointly recommend that the Court make the following findings and conclusions as to the sentence to be imposed:
   a. Adjusted Offense Level: 12 (U.S.S.G §§ 2Tl.l(b))(2), 2Tl.9)
   b. Abuse of Position of Trust or Use of Special Skill: 2 (U.S.S.G. §3B1.3)
   c. Total Offense Level: 14

The Guidelines and its earlier iterations require that the Base and Adjusted Offense Levels be determined for conspiracies either under first under § 2T1.9.  However, the § 2T1.1 calculation may apply if it (i) "most closely addresses the harm that would have resulted had the conspirators succeeded" in the Klein conspiracy and (ii) produces an Adjusted Offense Level in excess of 10. The agreement does not spell out exactly how the Adjusted Offense Level of 12 was reached, but it appears that number was likely reached by applying § 2T1.1 (a signal may be the reference to 2T1.1 in paragraph 10.a. of the Plea Agreement). So, focusing on § 2T1.1, an adjusted offense level of 12 would mean that the Base Offense Level was 10, because the use of foreign accounts would require a sophisticated means enhancement of 2 under § 2T1.1(b)(2). (Actually, that is not technically correct, for the Base Offense Level could have been less than 10 and § 2T1.1(b)(2) would increase the adjusted offense level to 12, but bear with me on the assumption that the Base Offense Level is 10.) Now, what is the tax loss under the tax table, § 2T4.1, that produces a level of 10? It is between $5,000 and $12,500. (If the Base Offense Level were less than that range, of course, so would the Base Offense Level be less than 10, but § 2T1.1(b)(2) would then kick up the Adjusted Offense Level to 12.) So, we can conclude that the tax loss assumed in the Adjusted Offense Level was $12,500 or less.

That number -- $12,500 -- is very low for the type of conspiracy alleged in the criminal information and repeated in the Statement of Facts. Even just considering the family mentioned in the conspiracy, an intended tax evasion of only $12,500 or less would hardly have justified the efforts alleged and admitted. Moreover, Gadola was doing it for other U.S. Swiss bank depositors and their achieved and intended tax evasion would far exceed that number and would -- at least should -- be considered as relevant conduct. So, what does this mean? It means that the prosecutors and Gadola's lawyer gerrymandered the Guideline's factors in order to produce a sentencing range that would induce Gadola to plead. At least that is how I read the tea leaves; others may read them differently, and if so I hope they will comment.

Of course, there is the standard disclaimer that the Probation Office and the Court are not bound by their agreements as to the Guideline factors.  (Plea Agreement paragraph 10.)

Now, looking at the agreed Total Offense Level of 14, the defendant will likely qualify for the acceptance of responsibility downward adjustment of 2 (3 only if above 16). (The prosecutors agreed to recommend the acceptance of responsibility adjustment in paragraph 6 of the Plea Agreement.) So the sentencing level for applying the Sentencing Table in Chapter 5, Part A contemplated by the Plea Agreement is 12 which is a Zone C range of 10-16 months, requiring some actual incarceration. The Government agreed to recommend sentencing at the low end of the range. (Plea Agreement paragraph 6.) But the parties have agreed that they may argue for variance (Plea Agreement paragraph 3), so, presuming that Gadola does not stub his toe in this process, his lawyer may be able to make serious variance arguments.  Still, one has to wonder whether courts will find the enablers are attractive for mercy as the depositors who they enabled.

Another Swiss Bank Enabler is Charged with Tax / Klein Conspiracy

On December 15, 2010, another Swiss Bank enabler, one Renzo Gadola, was charged with a tax / Klein conspiracy to defeat the lawful functioning of the IRS by assisting United States clients evade U.S. taxes through the use of Swiss banks. The U.S. Attorney Press Release (containing a link to the criminal information is here).

At all relevant times, Gadola was a citizen and resident of Switzerland and a registered investments advisor with the U.S. SEC. He was employed as a private banker by UBS from 1995 through August 2008. In February 2009, he began working as an independent investment adviser under the business name of RG Investment Partner AG. For the matters alleged in the indictment, he partnered with an unindicted co-conspirator names in the indictment under the pseudonym SWISS BANKER, who is alleged to have been executive director UBS's North American business until 2003 and then an investment advisor in Switzerland after that. Gadola and SWISS BANKER assisted U.S. clients in establishing and maintaining undeclared accounts (i.e., accounts not declared to the U.S. in the tax returns or FBARs). Gadola and SWISS BANKER had numerous U.S. clients and met frequently with some of these clients in the U.S.
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