IHAG, a private bank established in 1949 and based in Zurich, has signed a non-prosecution agreement by which it has to pay a penalty to the US Department of Justice to ward off criminal charges relating to secret accounts it made available to tax-dodging Americans.

Despite the fact that it knew that US taxpayers had a legal duty to report their earnings and other financial details to the Internal Revenue Service (IRS) and pay taxes on all their incomes, including income earned in accounts maintained at IHAG, IHAG intentionally opened and maintained accounts that were undeclared with the knowledge that, by doing so, it was helping them break their own laws. The US Government found fault with this.

In a few instances, IHAG helped US tax-dodgers conceal undisclosed accounts by moving the funds to another jurisdiction and returning the funds to IHAG in a different name in order to conceal their ownership of the assets while maintaining business with IHAG. One American family held assets at IHAG in the name of a Liechtenstein foundation and another unrelated US person held funds in the name of a Panama foundation. These foundation structures were designed to conceal the true beneficial ownership of the assets. In the case of the Panama foundation, IHAG helped the American to create the foundation.  The value of the assets in the two accounts together totalled approximately $63 million.

To help them further, IHAG's people, with the help of an unaffiliated fiduciary services firm in Zurich and with the knowledge and approval of the bank's top management, moved assets from the two foundation accounts to an unaffiliated bank in Hong Kong. The funds then returned to IHAG under the name of a Singapore entity wholly owned by IHAG’s parent company, IHAG Holding, so that the accounts would bear no trace of the true beneficial interests behind the assets held in them. The multi-step scheme also involved an entity in Hong Kong in which IHAG Holding owned a minority interest.

This stripped the assets of all appearence of US ownership. IHAG took advantage of Swiss law, which allowed it in this instance to treat the accounts as though the requisite know-your-customer (KYC) review of the accounts had occurred in Singapore. IHAG therefore did not apply Swiss KYC requirements when the accounts returned to IHAG under a different name. IHAG’s files for the accounts deliberately did not contain any documents showing any US persons’ interest in the assets in the accounts. This, of course, did not constitute tax fraud under Swiss law, but the DoJ believes that IHAG did commit tax fraud with respect to those accounts in some other way.

In a few other instances, IHAG helped clients set up foundations which they then used to hold their assets at IHAG. The Americans who were the beneficial owners of the foundation accounts were properly identified as beneficial owners of the foundations on certain forms pursuant to Swiss know-your-customer rules.  

However, the foundations were identified as the beneficial owners on IRS Forms W-8BEN, thereby masking the true beneficial ownership. For example, in 2006, an account held in the name of a Panamanian company was opened.  In connection with the opening of the account, bank documents identified a US person as the beneficial owner of the assets.  However, a Form W-8BEN signed by two Swiss citizens and a citizen of Liechtenstein falsely declared that the Panamanian company was the beneficial owner.  The US person instructed IHAG not to communicate with him by phone and insisted on using code names for that purpose.

IHAG also offered a variety of traditional Swiss banking services that it knew could help, and indeed did help, American taxpayers hide assets and income from the IRS. These services included hold mail and accounts opened with pseudonyms. Since August 2008, IHAG has held a total of 182 US-related accounts with a high value of approximately $791 million. It has to pay a penalty of $7.453 million. US accountholders at IHAG who have not yet declared their accounts to the IRS may still be eligible to participate in the IRS Offshore Voluntary Disclosure Programme, but the price of such disclosure has increased. There was a penalty equal to 27½% of the high value of the accounts but last year the IRS increased the penalty to 50% if, at the time the taxpayer started making his disclosure, either a foreign financial institution at which the taxpayer had an account or a facilitator who helped the taxpayer establish or maintain an offshore arrangement had been publicly identified as being under investigation, the recipient of a John Doe summons or co-operating with a government investigation, including the execution of a deferred prosecution agreement or non-prosecution agreement. With the announcement of the IHAG non-prosecution agreement, cheating US account-holders at IHAG must now pay that 50% if they wish to use this escape route.