March 30, 2015 / 4:46 PM / 4 years ago

BSI becomes first Swiss bank to settle under U.S. tax program

WASHINGTON/ZURICH (Reuters) - Swiss private bank BSI SA avoided prosecution for suspected tax-related offenses by paying a $211 million penalty, becoming the first bank to reach a deal in the U.S. Department of Justice’s voluntary disclosure program, the department said on Monday.

The U.S. government program allows Swiss banks to avoid prosecution by coming clean about their cross-border business in undeclared U.S.-related accounts before they are investigated.

For decades up to 2013, BSI assisted thousands of U.S. clients in opening accounts in Switzerland and hiding the assets and income held in the accounts from tax authorities, according to a non-prosecution agreement signed on Monday. As part of the deal, BSI agreed to cooperate in any related criminal or civil proceedings and put better controls in place.

The agreement is expected to be the first of a flood of settlements by Switzerland’s banks, which have come under intense pressure to give up the banking secrecy so embedded in Swiss culture and the world’s largest offshore financial center.

Italy’s Generali, parent of BSI, said it had provisioned the $211 million fine in 2014 results and did not expect any further material impact on 2015 results.

The agreement paves the way for Generali to complete its sale of BSI to Banco BTG Pactual SA, a Brazilian investment bank that agreed to buy the private bank in July.

BSI acknowledged that it issued pre-paid debit cards to U.S. clients without their names visible on the card to help them keep their identities secret, U.S. authorities said.

It also said the bank helped U.S. clients create “sham corporations” and trusts that masked their identities.

In some instances, U.S. clients would tell their bankers that their “gas tank is running empty” as coded language to indicate that they needed more cash on their cards, according to a statement of facts..

Swiss financial regulator FINMA said in a statement on Monday that BSI had breached its obligations to identify, limit and monitor the risks involved in its dealings with U.S. clients, having served a large volume of customers with undeclared assets.

FINMA said it hopes that, case by case, each bank in the U.S. program “will reach an agreement with the DoJ to settle their legacies related to U.S. clients subject to U.S. taxation.”

BSI, one of Switzerland’s largest private banks, apparently had more U.S. account holders than many other banks in the program, a reason for the sizeable penalty, according to Washington, D.C., attorney Scott Michel, who represents banks and individuals who have made voluntary disclosures.

Sixty or 70 other Swiss banks are expected to strike similar agreements with the Justice Department in the coming months, Michel said.

The BSI agreement also has substantial implications for account holders, the lawyer noted.

If a U.S. taxpayer has an unreported account at a Swiss bank and enters the offshore disclosure program, the account holder has to pay a penalty equal to 27.5 percent of the high balance in the account, he said.

However, once a bank becomes the publicly announced subject of an investigation or enforcement action, including the execution of a non-prosecution agreement, the 27.5 percent penalty facing a taxpayer who holds an undisclosed account rises to 50 percent.

“For any American with an unreported account at BSI, their effective cost has essentially doubled today,” Michel pointed out.

Reporting by Diane Bartz and Douwe Miedema in Washington, Karen Freifeld in New York, and Alice Baghdijian in Zurich. Additional reporting by Stephen Jewkes in Milan. Editing by Susan Heavey, Emily Stephenson and Steve Orlofsky

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