Julius Baer has finally been able to settle the tax dispute in the U.S. – albeit at a cost. Apart from the hefty fine, the bank also has to deal with prison sentences for two of its staff.
After months of speculation about the timing of the agreement, the U.S. Department of Justice (DoJ) released the terms of the deal with Julius Baer last night. The term of the paper signed is 'Deferred Prosecution Agreement' and it entails among other matters a payment of $547.25 million.
The Zurich-based private bank in June and December made provisions to cover for the payment, which is in line with what it expected and has already been included in last year's results. Julius Baer was in the so-called Category I of the Swiss Bank Program of the U.S. authorities. Ten banks still have to come to an agreement, notably Zuercher Kantonalbank.
Lengthy Prison Terms Expected
The agreement had been in the pipeline for quite a while, and now we know why: the U.S. authorities opened criminal proceedings against two employees of Julius Baer in 2011. The two this week in Manhatten pleaded guilty to having helped U.S. citizen to evade paying their taxes.
Following the acceptance of their guilt, the DoJ was able to close the case. The employees will be sentenced in August and face prison terms of as long as five years.
«Being able to close this regrettable legacy issue is an important milestone for Julius Baer,» Julius Baer CEO Boris Collardi said in the statement. «The settlement ends a long period of uncertainty for us and all our stakeholders.»
Finma Scolds Baer
The Swiss banking regulator, Finma, today scolded the private bank for its conduct: «Finma found that the bank was in breach of its obligations to record, limit and monitor the risks associated with U.S. clients,» the authority said in a statement, adding that «deficiencies in governance, as manifested in a lack of controls and a problematic incentives system, additionally heightened the risks to which Bank Julius Baer was exposed.»
Finma, which had concluded its proceedings in November 2011, said it had instructed the bank to «continue with steps which it had already taken to withdraw from parts of its U.S. business and to bring this process to a conclusion.» The regulator authorized an independent third party to verify the required measures and with this process concluded, Finma doesn't expect that further action will have to be taken against the bank.
Swiss Prepay Phones
Julius Baer in 2009 decided to cooperate with the U.S. authorities, the DoJ said today. The authorities today described how Julius Baer operated in the U.S.: in the advice to clients, the bank emphasized the advantage of not having a U.S. presence and the long tradition of Switzerland's banking secrecy laws.
Over time, the bank got more experienced in its dealings and advised its own staff how to conduct themselves when traveling to the U.S. They were to use only Swiss prepay mobile phones and tell the U.S. customs authorities that they were there for business purposes and to enjoy the beautiful country, in a bid to flatter the national pride of the officers.
The maximum amount in untaxed assets the bank harbored was $4.7 billion in 2007. The business was lucrative: the bank made a profit of some $87 million on those assets in the ten years through 2011, according to the DoJ. Julius Baer started doing business with untaxed U.S. assets in the 1990s, according to the U.S. authorities.
