The US Department of Justice (DoJ)announced that EFG Bank European Financial Group SA, Geneva (EFG Group), and EFG Bank AG (EFG Bank) reached a joint resolution under the US Tax Program set up in 2013. EFG Group and EFG Bank (collectively EFG) signed a Non-Prosecution Agreement (NPA) and will pay a penalty of over $29m.
As a reminder, EFG Group is the direct and controlling shareholder of EFG International AG, which is a holding company. EFG Bank, which is headquartered in Zurich, Switzerland, and has another Swiss office in Geneva, is the main Swiss private banking subsidiary of EFG International AG. In 2003, EFG Bank acquired the Geneva-based bank Banque Édouard Constant (BEC). While EFG Group and EFG Bank are participating jointly in the Swiss Bank Program, these two EFG banks are separate legal entities with distinct management and board control.
Until 2013, EFG conducted a US cross-border banking business with private bankers traveling to the USA on a regular basis. According to the DoJ ‘at least 72 business trips to the United States took place in connection with seven EFG Bank private bankers between 2005 and 2013’. EFG offered a variety of traditional Swiss banking services that it knew could and did assist, US clients in hiding assets and income from the Inland Revenue Service (IRS).
One EFG Bank private banker had an established third-party client referral model for US clients that involved two lawyers in the United States, one US accountant and one Swiss fiduciary company. At least one member of EFG’s senior management approved and supported this private banker’s relationship with one of the two US lawyers according to the DoJ.
Even though EFG did not directly structure US clients assets it referred them to external trust companies in order to create and manage offshore structures incorporated or based in offshore locations such as the British Virgin Islands, Panama and Liechtenstein. EFG also serviced US clients with undeclared accounts held in the names of insurance companies and not the actual beneficial owner of the funds, this is referred to as insurance wrappers.
While closing US-related accounts, significant amounts also were transferred to the Bahamas, the British Virgin Islands, the Cayman Islands, Cyprus, Israel, Panama, Singapore and the United Arab Emirates.
In the EFG’s NPA, we learn that since August, 2008, EFG held a total of 919 declared and undeclared US-related accounts with an aggregate maximun of approximately $1.58bn in assets under management. About 12% of EFG’s US-related accounts were timely disclosed to the IRS through Form 1099 reporting. EFG will pay a penalty of $29.988m and continue to cooperate with the DoJ.
In the press release EFG mentions that the one-time payment of $29.988m is higher than the $10.8m already provided for, primarily as a result of certain clients taking actions inconsistent with the information provided to EFG.