Bank Fails To Disclose What It Should Have But Gets Credit For The Non Disclosure

December 23, 2019

It was a big deal at the time, and the United States Department of Justice took a much-publicized victory lap -- I'm talking about the high-profile settlements under "The Swiss Bank Program." As noted in part on DOJ's "Swiss Bank Program" webpage:

The Swiss Bank Program, which was announced on August 29, 2013, provides a path for Swiss banks to resolve potential criminal liabilities in the United States.  Swiss banks eligible to enter the program were required to advise the department by Dec. 31, 2013, that they had reason to believe that they had committed tax-related criminal offenses in connection with undeclared U.S.-related accounts.  Banks already under criminal investigation related to their Swiss-banking activities and all individuals were expressly excluded from the program.

The Tax Division made comments on the Swiss Bank program on November 5, 2013, and June 5, 2014.

Under the program, banks are required to:
  • Make a complete disclosure of their cross-border activities;
  • Provide detailed information on an account-by-account basis for accounts in which U.S. taxpayers have a direct or indirect interest;
  • Cooperate in treaty requests for account information;
  • Provide detailed information as to other banks that transferred funds into secret accounts or that accepted funds when secret accounts were closed;
  • Agree to close accounts of accountholders who fail to come into compliance with U.S. reporting obligations; and
  • Pay appropriate penalties.
Swiss banks meeting all of the above requirements are eligible for a non-prosecution agreement.

READ a copy of the "Joint Statement" between DOJ and the Swiss Federal Department of Finance (August 29, 2013)


Banks seeking the valuable Non-Prosecution Agreement ("NPA") had to "advise the department by Dec. 31, 2013, that they had reason to believe that they had committed tax-related criminal offenses in connection with undeclared U.S.-related accounts." As part of the timely advice to DOJ, banks had to  "provide detailed information on an account-by-account basis for accounts in which U.S. taxpayers have a direct or intdirect interest . . ." 

Coutts & Co Ltd

Let's see how the speak-now-or-forever-hold-your-peace NPA offer worked out. In Justice Department Announces Four Banks Reach Resolutions Under Swiss Bank Program" (DOJ Release / December 23, 2015), we are told of the case of Coutts & Co Ltd:

Coutts is a Swiss private bank headquartered in Zurich with branches in Geneva, Hong Kong, Monaco and Singapore.  Coutts also has operating subsidiaries in Geneva and on the Isle of Man. During the period since Aug. 1, 2008, Coutts was part of the international Wealth Management Division of The Royal Bank of Scotland Group plc, which is majority-owned by the United Kingdom government, and had no offices, branches or subsidiaries in the United States.  Coutts closed its New York branch in 1997, and the bank closed its representative office in Florida in 2005, shortly after Coutts had acquired the Florida office as part of its acquisition of Bank von Ernst & Cie AG in 2003.

Coutts was aware that U.S. taxpayers had a legal duty to report to the IRS and pay taxes on all of their income, including income earned in accounts that these U.S. taxpayers maintained at Coutts. Coutts nonetheless opened, serviced and profited from accounts for U.S. clients who Coutts knew or had reason to know were likely not complying with these obligations.  Since August 2008, Coutts has accepted over $150 million in inflows from other Swiss banks that were being investigated by the department, and Coutts opened 465 accounts for U.S. clients, some of whom did not comply with their obligations regarding U.S. tax or Reports of Foreign Bank and Financial Accounts (FBARs).

Prior to December 2008, several relationship managers from the Coutts private banking desks traveled to the United States to maintain existing relationships with U.S. clients and recruit new clients.  After 2008, Coutts relationship managers continued to travel to the United States to meet with clients, including three relationship managers employed by other group entities located outside of Switzerland who made 11 trips to the United States.

Coutts relationship managers in Switzerland aided and assisted certain U.S. clients with undeclared accounts at Coutts to evade their income taxes by placing their assets in the names of structures formed, maintained and managed by various subsidiary trust companies of Coutts. Coutts has operated its own trust companies in Liechtenstein and Switzerland. These companies provided structuring services to Coutts clients, including the creation of foundations, trusts and companies incorporated or based in offshore locations such as the Bahamas, British Virgin Islands, Channel Islands, Liechtenstein and Panama.  By operation of Swiss bank secrecy laws, the U.S. client's ownership of these structures would not be disclosed to U.S. authorities.  In all, more than 500 of the 1,337 U.S. client accounts held at Coutts since August of 2008, with more than $1 billion in assets under management, had some type of structure with a U.S. beneficial owner.

In addition to the relationships they had with affiliated trust companies, Coutts relationship managers coordinated with external trust companies to create and administer offshore structures for its U.S. clients that were incorporated or based in offshore locations such as the British Virgin Islands, Liechtenstein and Panama.  For example, one relationship manager had three U.S. clients with undeclared accounts held in the names of British Virgin Islands companies.  These three accounts totaled approximately $130 million.

Because Swiss law requires Coutts to identify the true beneficial owner of structures on a document called a Form A, it knew that these were U.S. client accounts. Nonetheless, for numerous such accounts, Coutts relationship managers and other employees knowingly accepted and included in Coutts' account records IRS Forms W-8BEN or equivalent bank documents provided by the directors of the offshore companies that falsely represented under penalty of perjury that such companies were the beneficial owners, for U.S. income tax purposes, of the assets in the Coutts accounts. This aided and assisted the U.S. clients in concealing these assets and income from the IRS.

Coutts also assisted U.S. clients in concealing the assets and income in their undeclared accounts by processing requests from U.S. taxpayers to transfer assets from accounts being closed to non-U.S.-related Coutts accounts, or to Coutts accounts that were restructured to eliminate the U.S. connection.  For example, in one instance in 2001, a joint account was opened by couple living in Singapore.  The husband was a U.S. citizen, and the wife was a French citizen.  After Coutts asked the accountholder to provide an IRS Form W-9, the husband instructed Coutts to close the joint account and internally transfer assets totaling $15.1 million to a Coutts account held jointly by his wife and children.  The husband had signatory authority over the newly opened account based on a general power of attorney, and he continued to manage the assets and was the only contact person for Coutts with respect to this account.  In another case, between July 2011 and April 2014, Coutts assisted a U.S. client in transferring $33 million from an undeclared account held in the name of a Belize corporation to 11 other accounts at Coutts held in the names of nominee entities.

Since Aug. 1, 2008, Coutts held and managed 1,337 U.S.-related accounts, which included both declared and undeclared accounts, with a peak of assets under management of approximately $2.1 billion.  Coutts will pay a penalty of $78.484 million.

READ the Coutts NPA / December 23, 2015

311 Non-Disclosed Coutts Accounts

Sometimes $78 million in fines gets your attention. Sometimes not. As set forth in part in Justice Department Announces Addendum to Swiss Bank Program Category 2 Non-Prosecution Agreement with Coutts & Co Ltd.(DOJ Release / December 20, 2019)

The Swiss Bank Program, which was announced on Aug. 29, 2013, provided a path for Swiss banks to resolve potential criminal liabilities in the United States relating to offshore banking services provided to United States taxpayers. Swiss banks eligible to enter the program were required to advise the Department by Dec. 31, 2013, that they had reason to believe that they had committed tax-related criminal offenses in connection with undeclared U.S.-related accounts. As participants in the program, they were required to make a complete disclosure of their cross-border activities, provide detailed information on an account-by-account basis for accounts in which U.S. taxpayers had a direct or indirect interest, cooperate in treaty requests for account information, and provide detailed information about the transfer of funds into and out of U.S.-related accounts, including undeclared accounts, that identifies the sending and receiving banks involved in the transactions.

The Department executed non-prosecution agreements with 80 banks between March 2015 and January 2016. The Department imposed a total of more than $1.36 billion in Swiss Bank Program penalties.  Pursuant to today's agreement, Coutts will pay an additional sum of $27,900,000 and will provide supplemental information regarding its U.S.-related account population, which now includes 311 additional accounts. 

Every bank that signed a non-prosecution agreement in the Swiss Bank Program had represented that it had disclosed all known U.S.-related accounts that were open at each bank between Aug. 1, 2008, and Dec. 31, 2014.  Each bank also represented that it would, during the term of the non-prosecution agreement, continue to disclose all material information relating to its U.S.-related accounts.  In reaching today's agreement, Coutts acknowledges that there were additional U.S.-related accounts that it knew about, or should have known about, but that were not disclosed to the Department at the time of the signing of the non-prosecution agreement. Coutts has fully cooperated with the Department with respect to the additional U.S.-related accounts.  

Pursuant to an Addendum to a Non-Prosecution Agreement ("NPA"), Coutts acknowledged that it should have disclosed additional U.S.-related accounts to DOJ when it had signed the original NPA on December 23, 2015. 

Bill Singer's Comment

In December 2015, DOJ executed an NPA with Coutts, at which time the bank was hit with about $78 million in penalties. At that time, the bank fessed up to 1,337 subject accounts. You'd sort of think that given the dollars at issue and the threat of a criminal prosecution, that Coutts would have made damn sure that it disclosed every damn covered account. What Coutts did disclose was 1,337 U.S.-related accounts with about $2.1 billion in assets under management. What Coutts didn't disclose as part of its 2015 settlement were some 311 accounts, which is about 19% of the total of 1,648 total U.S.-related accounts. Making matters worse, in reference to the 311 undisclosed accounts, the Addendum NPA states in part that:

[C]outts acknowledges that it was aware of, or should have been aware of, many of these accounts at the time of the signing of the Agreement. The Department acknowledges Coutts' self-disclosure of the additional U.S. Related Accounts and Coutts' full cooperation under the program. 

Maybe it's the cynic in me. Maybe I've watched too many Christmas Carols in the run-up to the holiday. Whatever the explanation, I doubt that some Wall Street shlub would simply be directed to the nearest cashier's window and told to pay some additional  dollars in fines if it was discovered that said numbskull had previously failed to fully disclose as part of a federal settlement the number of defrauded customers or hidden, offshore accounts.