LLB Verwaltung Agrees to $11M IRS Penalty – US Client Penalty Risk
Over the past few years, several foreign financial institutions (FFIs) — including many banks throughout Switzerland — have agreed to enter into offshore tax fraud settlement agreements with IRS and DOJ United States for engaging in or facilitating offshore tax fraud.
LLB Verwaltung was next in line, and agreed to pay a nearly $11,000,000 dollar penalty.
The bank conceded that it assisted nearly 100 U.S. taxpayers with concealing upwards of $200M in assets.
LLB Verwaltung Offshore Fraud
LLB Verwaltung conceded that he proactively shot out us clients in order to sell them on the idea that the clients could move money and assets into that institution and avoid IRS reporting.
“In 2003, LLB-Switzerland began a relationship with EAM 1, a Swiss citizen and resident, who owned a Swiss company that acted as a fiduciary and EAM (“EAM Firm 1”). EAM 1 offered to create nominee structures, including corporations, foundations, and trusts, that were used to conceal accounts owned by his U.S. clients at various Swiss financial institutions. In the aftermath of the investigation of UBS AG for tax and other violations, the Department of Justice indicted EAM 1 for conspiring with his U.S. clients to hide their money from the IRS in Swiss accounts.”
In the course of entering into an agreement with the Bank, EAM 1 identified the United States as his key market, but also accepted clients from other countries. EAM 1’s clients had accounts at the Bank, but EAM 1 acted as their main, if not sole, contact. As part of his contract with the Bank, EAM 1 received fifty percent of the fees that his clients paid to LLB-Switzerland. The Bank also delegated to him the authority to prepare account opening and “know your customer” documents for the Bank.
Before entering into an agreement with EAM 1, LLB-Switzerland had a small number of U.S. clients. That is, by the end of 2002, the Bank had 11 U.S. clients with assets under management of $12 million. Some of these clients were undeclared. 15. LLB-Switzerland’s relationship with EAM 1 led to a substantial increase of its U.S. client base. Although the Bank increased its undeclared U.S. population through means other than EAM 1, from 2006 onward, EAM 1 clients comprised the vast majority of LLB-Switzerland’s U.S. clients.
In a 2005 sales letter that he handed out to prospective clients, EAM 1explained that the strategy behind the layered structure was to prevent taxing authorities from obtaining information about the beneficial owners. According to EAM 1, because of the influence of U.S. and European tax authorities, “many of the offshore jurisdictions which were used in the past might not provide the optimal safety and security in the future anymore.” EAM 1 stated that the British Virgin Islands signed an information sharing agreement with the UK and the United States, making its corporations “kind of a dead instrument to use in most cases.”
EAM 1 rejected the use of Panamanian corporations as the United States had “too much power” over Panama. In contrast, he prized Hong Kong corporations on the grounds that China provided Hong Kong “great support to defend itself against the pressure from Europe as well as from the United States.” EAM 1 further emphasized “Hong Kong has no tax treaties and law enforcement treaties with any country around the world.”
Finally, given the multiple layers of nominee entities, EAM 1 asserted that, even if pressured to reveal information, no one in Hong Kong would know that the U.S. client was the real owner of the assets in the Swiss account and beneficiary. 19. LLB-Switzerland and its management knew that EAM 1 marketed his services, and the Bank’s, as a means of tax evasion as they kept a copy of the EAM 1 sales letter in their records.
One manager at the Bank, who was in charge of the EAM business and supervised Client Advisor 1, considered EAM 1’s Hong Kong corporations to be “bestsellers” because clients assumed that China would not allow Hong Kong to provide information to U.S. authorities.
In 2008, it became public knowledge that UBS AG, Switzerland’s largest bank, was the target of a U.S. criminal investigation focusing on tax and other violations. After these revelations, the amounts that LLB-Switzerland held for U.S. clients swelled.
At the end of 2007, the Bank had 72 U.S. clients with almost $80 million in assets. By the end of the next year, the number of U.S. clients increased to 107 but the assets more than doubled to over $176 million.
EAM 1 then brought about 40 U.S. clients from UBS and other banks to LLB Switzerland. By the close of 2009, EAM 1 had 93 U.S. clients at LLB Switzerland with $196 million in assets under management. When the amount peaked in 2009, the Bank held nearly $200 million for 93 U.S. clients.
Getting Into IRS Offshore Compliance
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