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UPDATE 1-Swiss Life speaks to DOJ about possible tax evasion by U.S. clients

(Adds detail, background)

ZURICH, Sept 14 (Reuters) - Swiss Life could face a fine in the United States after it was contacted by the U.S. Department of Justice (DOJ) about whether it helped U.S. clients avoid tax, Switzerland’s biggest life insurer said on Thursday.

The disclosure comes as U.S prosecutors have been widening their probe of Swiss banks who have been helping wealthy American clients dodge taxes to include insurance companies.

Swiss Life said the inquiry related to its cross-border business with U.S. clients.

Its portfolio with U.S. clients of Swiss Life Liechtenstein and Swiss Life Singapore was around 250 million Swiss francs ($259 million), down from 1 billion francs a few years ago.

“All insurance contracts have been categorized and been reported pursuant to the FATCA legislation,” Swiss Life said, referring to the 2010 U.S. anti-tax evasion law.

“Swiss Life will use the opportunity for dialogue and explain its past cross-border business in cooperation with the U.S.,” the company added.

Its shares opened down 1.1 percent.

The DOJ inquiry concerns Swiss Life’s insurance wrapper business, life insurance policies into which the very wealthy can place stocks, private equity holdings and other bankable assets, exploiting tax benefits on investment income held in such policies.

With the crackdown on bank secrecy in Switzerland, regulators have voiced concern that insurance wrappers could be used for tax avoidance.

The Zurich-based company started selling the products in 2006, but stopped selling them in the United States in 2012. Swiss Life returned funds to hundreds of American clients who had invested in insurance wrappers linked to bank accounts at Bank Frey in 2013, The Wall Street Journal has reported.

Banks ensnared in the matter have typically agreed to pay fines equivalent to around 1 to 7 percent of the U.S. assets under management in question. That could mean Swiss Life may face a fine of up to around $70 million if found to have helped aid tax evasion.

Swiss financial institutions have been in the crosshairs of U.S. authorities seeking to crack down on tax evasion by American citizens, a hot topic in the wake of the 2008 financial crisis.

Credit Suisse agreed to pay a $2.5 billion fine in 2014 after it admitted helping U.S. citizens evade tax, while investigations continue against other large banks.

Smaller banks have also been targeted, with Leodan Privatebank AG shutting down after paying $500,000 to reach a settlement with the DoJ in 2016.

Smaller Swiss banks, which for years benefited from clients bringing money to Switzerland to take advantage of bank secrecy rules, are struggling due to a global clampdown on tax evasion and costly regulation.

The U.S. investigation comes as Swiss Life, which last month reported a 5 percent increase in net profit during the first half of 2017, focuses on trimming costs and raising third-party asset management and investment income to offset sluggishness in its core life insurance business. ($1 = 0.9644 Swiss francs) (Reporting by John Revill and Oliver Hirt, editing by John Miller and Michael Shields)