Julius Baer to Pay $547 Million Under Guilty Plea in U.S. Tax Case
Swiss bank Julius Baer Group AG on Thursday admitted to helping U.S. taxpayers hide billions of dollars in offshore accounts and agreed to pay $547 million.
Separately, two of the bank’s former client advisers—Daniela Casadei and Fabio Frazezetto—pleaded guilty to conspiring to help clients evade taxes in the U.S. The Swiss residents, initially…
Julius Baer Admits to U.S. Tax Fraud, to Pay $547 Million
Julius Baer was one of about a dozen banks put under criminal investigation for tax evasion by American clients; Credit Suisse and UBS paid fines of $2.6 billion and $780 million to settle their respective investigations; Banks still under investigation include the Swiss unit of HSBC, Europe’s biggest lender.
Switzerland’s third-largest wealth manager, Julius Baer Group Ltd., agreed to pay $547 million to avoid U.S. prosecution and admitted it helped American clients hide billions of dollars in assets from tax authorities while coaching its bankers on how to avoid detection.
The bank made detailed admissions of wrongdoing and prosecutors agreed to drop a conspiracy charge in three years if the bank abides by the terms of the deal filed Thursday in federal court in Manhattan.
Two of its client advisers, Daniela Casadei and Fabio Frazzetto, who were charged in 2011, also pleaded guilty to conspiracy charges. They each face a maximum sentence of five years in prison, and will be sentenced in August.
Julius Baer admitted conspiring with US taxpayer clients, since the 1990s, to hide up to $4.7 billion in assets from the IRS. It settled under a deferred prosecution agreement, which means the company is charged with a crime that is later dismissed if it makes a payment, complies with certain conditions, and makes a detailed statement of facts about its wrongdoing.
The IRS statement said that in furtherance of the scheme to help U.S. taxpayers hide assets from the IRS and evade taxes, Julius Baer undertook, among other actions, the following:
- Entering into “code word agreements” with U.S. taxpayer-clients under which Julius Baer agreed not to identify the U.S. taxpayers by name within the bank or on bank documents, but rather to identify the U.S. taxpayers by code name or number, in order to reduce the risk that U.S. tax authorities would learn the identities of the U.S. taxpayers.
- Opening and maintaining accounts for many U.S. taxpayer-clients held in the name of non-U.S. corporations, foundations, trusts, or other legal entities or non-U.S. relatives, thereby helping such U.S. taxpayers conceal their beneficial ownership of the accounts.
As part of the settlement, the bank admitted that it gave its bankers a memo called “U.S. Clients Do’s and Don’ts” to coach them on how to avoid suspicion when they came to visit American clients with assets not declared to the IRS.
“When filling out the entry form . . . say that you are in Banking (never lie) but if and when asked in which field, respond “EDP Dept.” “Investment Banking” or “Lending,” but certainly not Private Banking,” the memo read.
It went on: “When asked by Officer what you will do while in the USA, say Business and of course some leisure, trying to take some time to enjoy your beautiful country. Proud government employees usually love this type of statement. One can throw in skydiving or another fun sport/activity . . . (carrying a tennis racket also puts the emphasis on “fun and games,” and not on business).”
“Bank Julius Baer not only turned a blind eye to tax avoiders, but actually conspired with them to break the law,” said Manhattan US attorney Preet Bharara in a statement. “Together with our partners at the IRS, we will continue to prosecute financial institutions and individuals who facilitate tax evasion.”
Julius Baer was one of about a dozen banks put under criminal investigation by the DoJ in 2011 for tax evasion by American clients. Credit Suisse and UBS paid fines of $2.6 billion and $780 million to settle their respective investigations.
Many smaller, Swiss banks have avoided prosecution by voluntarily disclosing their wrongdoing as part of a separate DoJ programme, where total penalties stand at about $1.4 billion.
Banks still under investigation by the DoJ include the Swiss unit of HSBC, Europe’s biggest lender.
At its high-water mark in 2007, Julius Baer had approximately $4.7 billion in assets under management relating to approximately 2,589 undeclared accounts held by U.S. taxpayer-clients. From 2001 through 2011, Julius Baer earned approximately $87 million in profit on approximately $219 million gross revenues from its undeclared U.S. taxpayer accounts, including accounts held through structures.
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Julius Baer to Pay $547 Million for Helping U.S. Tax Cheats
Julius Baer Group Ltd. agreed to pay $547 million to avoid U.S. prosecution and admitted it helped American clients hide billions of dollars in assets from tax authorities while coaching its bankers on how to avoid detection.
Switzerland’s third-largest lender made detailed admissions of wrongdoing and prosecutors agreed to drop a conspiracy charge in three years if the bank abides by the terms of the deal filed Thursday in federal court in Manhattan. Two of its client advisers, Daniela Casadei and Fabio Frazzetto, also pleaded guilty to conspiracy charges.
As part of the accord, Julius Baer admitted that it conspired since the 1990s to help clients cheat the Internal Revenue Service. It said it gave its bankers a memo called “U.S. Clients Do’s and Don’ts” to coach them on how to avoid scrutiny when they came to visit American clients with assets not declared to the IRS.
“When asked by officer what will you do while in the USA, say business and of course some leisure, trying to take some time to enjoy your beautiful country,” according a statement of facts by the bank. “Proud government employees usually love this type of statement. One can throw in skydiving or another fun sport/activity.”
Bankers were told to only use mobile phones registered in Switzerland and avoid using hotel phones when speaking with clients. They were also advised to buy telephone calling cards and use them when calling abroad, which would allow use of “practically any phone with no specific link left behind.”
Julius Baer follows larger Swiss rivals UBS Group AG and Credit Suisse Group AG in resolving U.S. tax probes. UBS did so by agreeing in 2009 to pay $780 million, while Credit Suisse reached a $2.6 billion deal in 2014.
Undeclared AccountsAs the UBS investigation intensified, Julius Baer opened 247 undeclared accounts from that bank in 2008, with one executive calling it “a big opportunity for us hopefully,” according to the agreement.
The bank, which once held $4.7 billion in U.S. assets, made $219 million in revenue and $87 million in profit on undeclared accounts from 2001 through 2011, according to U.S. Attorney Preet Bharara.
“Julius Baer not only turned a blind eye to tax avoiders, but actually conspired with them to break the law,” Bharara said in a statement.
Casadei, a 52-year-old Swiss citizen, and Frazzetto, a 42-year-old citizen of Italy and Switzerland, were indicted together in 2011 and made their first appearance in U.S. court this week. They each pleaded guilty to a conspiracy charge.
“While I was convinced I was acting in accordance with Swiss law, I agreed to assist these U.S. clients,” Frazzetto said.
Casadei said she “agreed with these U.S. taxpayers to help them commit these crimes.”
Swiss NegotiationsIn late 2009, Julius Baer decided to approach U.S. authorities proactively and report their activities, but Swiss regulators requested that it not do so “in order not to prejudice the Swiss government in any bilateral negotiations with the U.S. government on tax-related matters,” according to the pact.
When it finally approached U.S. authorities, the bank took “exemplary actions” to come clean, including conducting a “swift and robust internal investigation” and giving the U.S. government a “continuous flow of unvarnished facts,” according to Bharara.
The plea agreement calculated an $81 million penalty, which was an 85 percent reduction of the bank’s possible payment. The rest of the payments are considered restitution and forfeiture.
“Being able to close this regrettable legacy issue is an important milestonefor Julius Baer,” Chief Executive Officer Boris Collardi said in a statement. “The settlement ends a long period of uncertainty for us and all our stakeholders. This resolution allows us now to again fully focus on the future and our business activities.”
Frazzetto’s attorney, David B. Weinstein, said his client accepted responsibility and has worked with the Justice Department and IRS to “put this chapter behind him.”
“He looks forward to returning home to his family and friends who have supported him throughout this process,” said Weinstein of Greenberg Traurig LLP.
Frazzetto and Casadei may face prison sentences of as long as five years. Prosecutors have said they will recommend lesser sentences for the two based on their cooperation.
Other SettlementsA dozen or so Swiss banks, such as Pictet & Cie. Group SCA and the Swiss unit of HSBC Holdings Plc, are still waiting to end criminal tax investigations by the U.S.
Another 80 Swiss banks avoided prosecution in the past year by agreeing to pay $1.37 billion in penalties and voluntarily disclosing their wrongdoing as part of a Justice Department program. BSI SA agreed to pay $211 million while Union Bancaire Privee settled for $188 million.