Two former Julius Baer bankers pleaded guilty Thursday and the Swiss bank paid $547 million to settle a criminal case for helping clients cheat on their U.S. taxes.
Daniela Casadei, a Swiss citizen, and Fabio Frazzetto, and Italian, each pleaded guilty in Manhattan federal court to conspiracy to defraud the IRS, to evade federal income taxes, and to file false federal income tax returns.
Zurich-based Julius Baer, Switzerland’s third biggest bank, faced the same charges. It entered into a deferred prosecution agreement with the DOJ.
Casadei, 52, and Frazzetto, 42, said in court they knew they were helping U.S. citizens evade taxes by using so-called undeclared accounts at the bank.
From at least the 1990s through 2009, the DOJ said, Julius Baer helped many of its U.S. taxpayer-clients evade their U.S. tax obligations, file false federal tax returns with the IRS, and otherwise hide accounts from the IRS.
Casadei and Frazzetto worked as client advisers at Julius Baer and “directly assisted various U.S. taxpayer-clients in maintaining undeclared accounts . . . in order to evade their obligations under United States law.”
The DOJ said,
At various times, Casadei, Frazzetto, and others advised those U.S. taxpayer-clients that their accounts at Julius Baer would not be disclosed to the IRS because Julius Baer had a long tradition of bank secrecy and no longer had offices in the U.S., making [the bank] less vulnerable to pressure from U.S. law enforcement authorities than other Swiss banks with a presence in the U.S.
The defendants helped U.S. clients open and maintain accounts held in the name of non-U.S. corporations, foundations, trusts, or other legal entities or non-U.S. relatives.
In a memo called “U.S. Clients Do’s & Don’ts” circulated internally in 2006, Julius Baer told client advisers how to travel to the U.S.:
At Immigration . . . 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. Proud government employees usually love this type of statement.One can throw in skydiving or another fun sport/activity. This tends to shift the questioning away from the business purpose to the ‘fun time’ part of the trip (carrying a tennis racket also puts the emphasis on “fun and games,” and not on business).
The DOJ agreed in the deferred prosecution agreement with Julius Baer & Co, Ltd to dismiss the criminal case after three years if the bank complies. Among other undertakings, the bank agreed to identify and close any remaining undeclared accounts that might belong to U.S. taxpayers.
Casadei and Frazzetto agreed to cooperate with the DOJ in exchange for possible leniency at sentencing. They each face up to five years in prison. Sentencing is set for August 12.
They were originally charged in 2011 and remained at large until February 2 this year when they voluntarily appeared in federal court in Manhattan.
More than 80 Swiss banks have settled tax cheating cases with the DOJ under a special program. The banks together have paid $1.36 billion for the settlements.
Julius Baer wasn’t eligible for the special program because it was already under criminal investigation.
In 2014, Credit Suisse paid $2.6 billion to settle criminal charges it conspired to help U.S. taxpayers cheat on taxes.
UBS AG paid $780 million in 2009 in a criminal U.S. tax settlement.
In a statement Thursday, Daniel J. Sauter, chairman of Julius Baer, said: “Julius Baer’s ability to reach this final settlement with the U.S. Department of Justice is the result of its constructive dialogue and cooperation with U.S. authorities. I would like to thank all our employees, clients and shareholders for their ongoing trust and support.”
Richard L. Cassin is the publisher and editor of the FCPA Blog. He can be contacted here.