[NEW YORK] Julius Baer Group Ltd agreed to pay US$547 million to avoid US prosecution and admitted it helped American clients hide billions of dollars in assets from tax authorities while coaching its bankers on how to avoid detection.
Switzerland's third-largest lender made detailed admissions of wrongdoing and prosecutors agreed to drop a conspiracy charge in three years if the bank abides by the terms of the deal filed Thursday in federal court in Manhattan. Two of its client advisers, Daniela Casadei and Fabio Frazzetto, also pleaded guilty to conspiracy charges. As part of the accord, Julius Baer admitted that it conspired since the 1990s to help clients cheat the Internal Revenue Service. It said it gave its bankers a memo called "US Clients Do's and Don'ts" to coach them on how to avoid scrutiny when they came to visit American clients with assets not declared to the IRS.
"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," according a statement of facts by the bank. "Proud government employees usually love this type of statement. One can throw in skydiving or another fun sport/activity."
Bankers were told to use only mobile phones registered in Switzerland and avoid hotel phones when speaking with clients. They were also advised to buy telephone calling cards and use them when calling abroad, allowing the use of "practically any phone with no specific link left behind." Julius Baer follows larger Swiss rivals UBS Group AG and Credit Suisse Group AG in resolving US tax probes. UBS did so by agreeing in 2009 to pay US$780 million, while Credit Suisse reached a US$2.6 billion deal in 2014. As the UBS investigation intensified, Julius Baer opened 247 undeclared accounts from that bank in 2008, with one executive calling it "a big opportunity for us hopefully," according to the agreement.
The bank, which once held US$4.7 billion in US assets, made US$219 million in revenue and US$87 million in profit on undeclared accounts from 2001 through 2011, according to US Attorney Preet Bharara.
Helped Lawbreakers "Julius Baer not only turned a blind eye to tax avoiders, but actually conspired with them to break the law," Bharara said in a statement.
Casadei, a 52-year-old Swiss, and Frazzetto, a 42-year-old citizen of Italy and Switzerland, were indicted together in 2011 and made their first appearance in US court this week. They each pleaded guilty to a conspiracy charge.
"While I was convinced I was acting in accordance with Swiss law, I agreed to assist these US clients," Frazzetto said.
Casadei said she "agreed with these US taxpayers to help them commit these crimes." Swiss Negotiations In late 2009, Julius Baer decided to approach US authorities proactively and report its activities, but Swiss regulators requested that it not do so "in order not to prejudice the Swiss government in any bilateral negotiations with the US government on tax-related matters," according to the pact.
When it finally approached US authorities, the bank took "exemplary actions" to come clean, including conducting a "swift and robust internal investigation" and giving the US government a "continuous flow of unvarnished facts," according to Bharara.
The plea agreement calculated an US$81 million penalty, which was an 85 per cent reduction of the bank's possible payment. The rest of the payments are considered restitution and forfeiture.
"Being able to close this regrettable legacy issue is an important milestone for Julius Baer," Chief Executive Officer Boris Collardi said in a statement. "The settlement ends a long period of uncertainty for us and all our stakeholders. This resolution allows us now to again fully focus on the future and our business activities." Responsibility Accepted Frazzetto's attorney, David B. Weinstein, said his client accepted responsibility and has worked with the Justice Department and IRS to "put this chapter behind him." "He looks forward to returning home to his family and friends who have supported him throughout this process," said Weinstein of Greenberg Traurig LLP.
Frazzetto and Casadei may face prison sentences of as long as five years. Prosecutors have said they will recommend lesser sentences for the two based on their cooperation.
"From now on, the market will focus on Baer's margins and capital available for acquisitions," said Jonas Floriani, an analyst at Keefe, Bruyette & Woods with an outperform rating on the stock.
The settlement won't impact 2016 results as Julius Baer set aside provisions for the payment last year, Zuercher Kantonalbank analyst Michael Kunz wrote in a note to investors.
Julius Baer shares rose as much as 2.9 per cent in Zurich trading and were up 2.7 per cent at 40.49 francs as of 12:10 a.m.
A dozen or so Swiss banks, such as Pictet & Cie. Group SCA and the Swiss unit of HSBC Holdings Plc, are still waiting to end criminal tax investigations by the US
Another 80 Swiss banks avoided prosecution in the past year by agreeing to pay US$1.37 billion in penalties and voluntarily disclosing their wrongdoing as part of a Justice Department program. BSI SA agreed to pay US$211 million while Union Bancaire Privee settled for US$188 million.