The Department of Justice announced today that Swiss-based Mirelis Holding S.A. reached a resolution with the Tax Division.
“The agreement reached today demonstrates the Department’s resolve toward ending the practice of using Swiss bank accounts to evade one’s taxes,” said Principal Deputy Assistant Attorney General Richard E. Zuckerman of the Justice Department’s Tax Division. “The Department will continue to pursue culpable banks and asset management and investment advisory firms that assist U.S. clients in their concealment of assets and the evasion of their U.S. tax obligations.”
According to the terms of the non-prosecution agreement signed today, Mirelis Holding S.A. (formerly known as Mirelis InvestTrust S.A.) agrees to cooperate in any related criminal or civil proceedings, demonstrate its implementation of controls to stop misconduct involving undeclared U.S. accounts, and pay $10.245 million to the United States, in return for the Department’s agreement not to prosecute this entity for tax-related criminal offenses.
Mirelis operated as a Geneva-based securities trading institution licensed by the Swiss Financial Market Supervisory Authority (“FINMA”). Mirelis was established in 1997 to provide independent portfolio and asset management services following the sale of a minority ownership interest held by Mirelis’s controlling family and associates in Société Bancaire Julius Baer S.A. After its establishment, Mirelis was initially permitted to offer its independent portfolio and asset management services to certain clients of the Geneva branch of Bank Julius Baer & Co. Ltd (which was formerly Société Bancaire Julius Baer S.A.) with whom the employees or officers of Mirelis had a previous relationship. The assets of clients who accepted the offer of Mirelis’s asset management services remained custodied at the Geneva branch of Bank Julius Baer & Co. Ltd. (“Julius Baer”), which has entered into a deferred prosecution agreement with the Department of Justice. In addition to providing services to individuals and entities based in Switzerland, at all relevant times, Mirelis provided custodial and independent portfolio and asset management services to U.S. taxpayer-clients.
At the end of 2012, Mirelis and Atlas Capital S.A. (“Atlas”), another securities trading institution based in Geneva licensed by FINMA, entered into a share purchase agreement, pursuant to which Mirelis acquired, and subsequently merged with Atlas effective in May of 2013. Mirelis continued to serve clients as both an independent asset manager and as a custodian until May of 2014 when Mirelis transferred its activities to Hyposwiss Private Bank Genève S.A. (“Hyposwiss”), a Swiss private bank that has entered into a non-prosecution agreement with the Department, pursuant to a reverse merger and acquisition of Hyposwiss by Mirelis.
During the Applicable Period, August 1, 2008, through December 31, 2014, the aggregate maximum balance of the assets under management of Mirelis’s U.S. taxpayer-clients was in 2008 and was approximately $315 million, consisting of both assets held in custody at Mirelis and assets held at third-party depository institutions. Mirelis provided custodial account services for approximately 177 U.S. Related Accounts and portfolio and asset management services to an additional approximately 95 U.S. Related Accounts that were custodied at third-party banks. Following the transfer of its activities to Hyposwiss in 2014, Mirelis ceased to conduct any of its former activities (including its provision of independent portfolio and asset management services and its custody of client assets) except for the custody of the accounts of 17 U.S. taxpayer-clients on a temporary basis prior to closure.
Since it began its operations, Mirelis was aware that its U.S. taxpayer-clients had a legal duty to report to the IRS, pay taxes on the basis of, all of the income, including income earned in accounts at Mirelis. Despite being aware of the obligations of its U.S. taxpayer-clients to report to the IRS and pay taxes on income earned in accounts maintained outside of the United States, Mirelis opened, maintained, and serviced accounts for U.S. taxpayer-clients where Mirelis knew or had reason to know that the U.S. taxpayer-clients were not complying with these obligations or were using their accounts outside of the United States to evade U.S. taxes and reporting requirements, filing false tax returns with the IRS, and/or concealing assets maintained outside of the United States from the IRS (hereinafter, “undeclared assets”).
On several occasions, Mirelis facilitated the concealment of U.S. taxpayer-clients’ undeclared accounts through the closure of accounts and transfer of account funds (in whole or in part and temporarily or permanently) to other accounts held at Mirelis where the named account holder and/or beneficial owner were not U.S. persons and may or may not have been related to the U.S. taxpayer-client.
On at least four occasions, in or about 2011 or 2012, Mirelis facilitated the introduction of U.S. taxpayer-clients to the Singapore-based representatives of a trust company, who advised the U.S. taxpayer-clients to create non-U.S. trusts and fund non-U.S. life insurance policies. Mirelis agreed to accept and effect the transfer of the funds held in the U.S. taxpayer-clients’ accounts pursuant to instructions despite knowing or having reason to know that these U.S. taxpayer-clients were likely to use the advice received from the trust company to conceal their ownership of undeclared assets. The funds were transferred to accounts at a third-party depository financial institution outside of Switzerland in the name of a non-U.S. life insurance company that had issued policies owned by the non-U.S. trusts created by Mirelis’s U.S. taxpayer-clients. Mirelis provided independent portfolio and asset management services for these accounts and listed the account holders and clients as the life insurance company. In all four instances, Mirelis believes that the U.S. taxpayer-clients subsequently entered into an offshore voluntary disclosure program (the “OVDP”) offered by the IRS.
In order to reduce the chances of undeclared accounts being discovered, Mirelis opened and falsely designated at least one account as a non-U.S. account when it knew the account holder was in fact a U.S. person. Prior to August 2008, Mirelis opened an account using the client’s U.S. passport. When this account was closed in 2009, the account holder withdrew all funds in cash. In 2010, Mirelis opened another account for the same client, but this time used the client’s non-U.S. passport. The account documents were completed without mention of the client’s U.S. citizenship, which was then known to Mirelis.
On at least five occasions, Mirelis effected the transfer of funds from one U.S. Related Account owned or beneficially owned by individual U.S. taxpayer-clients to other U.S. Related Accounts maintained at Mirelis owned by U.S. limited liability companies, which in turn were owned by U.S. trusts with U.S. beneficiaries. The accounts owned by the limited liability companies were all later closed and the custody of their funds transferred to another Swiss bank (a so-called Category 1 bank) while the independent portfolio and asset management services were provided by Mirelis Advisors, a wholly owned subsidiary that is a registered investment adviser with the SEC. Mirelis effected these transfers without knowing or checking whether the U.S. taxpayer-clients of the original accounts were compliant with their U.S. tax and reporting obligations.
In order to assist U.S. taxpayer-clients for whom Mirelis provided independent portfolio and asset management services, Mirelis agreed to accept custody of at least eight U.S. Related Accounts from Julius Baer, despite knowing that the beneficial owners of such accounts were U.S. taxpayers, that the accounts held undeclared assets, and that the accounts were being terminated by Julius Baer due to the U.S. taxpayer-client’s U.S. citizenship or residency. Mirelis agreed to accept these accounts at least in part on the assurances of its U.S. taxpayer-clients that they would enter into the OVDP. Mirelis’s Management Committee put in place a special policy for such accounts requiring the provision of IRS Forms W-9 and waivers of bank secrecy under the QI regime; however, in certain instances, the Form W-9 was not signed or the account did not hold U.S. securities. At least seven of the U.S. taxpayer-clients associated with these accounts ultimately entered into the OVDP.
Even after instituting a policy to only serve U.S. taxpayer-clients in full compliance with U.S. tax and securities laws in 2010, during a transition period of one year, Mirelis continued to provide both custodial and independent portfolio and asset management services to U.S. taxpayer-clients despite knowing or having reason to know that the U.S. taxpayer-clients were not in full compliance with their U.S. tax and information reporting obligations with respect to several accounts maintained at Mirelis and several accounts maintained at third-party banks.
The services provided by Mirelis to its clients also included a number of traditional Swiss banking services that Mirelis knew or had reason to know could and did in fact assist its U.S. taxpayer-clients in holding undeclared assets, including providing “hold-mail” services whereby Mirelis would hold all account correspondence and statements at its offices until physically retrieved by the client in Switzerland. In addition, Mirelis provided or assisted in the provision of “numbered” account services whereby the account holder’s name was replaced on all correspondence with just the account number or a code name even though Mirelis’s internal records would show the name and identity of the account holder. These services aided in reducing or eliminating paper trails and beneficial ownership information for undeclared accounts and assets of certain of Mirelis’s U.S. taxpayer-clients.
Mirelis also assisted in the establishment of trusts and entities (collectively, “structures”) for U.S. taxpayer-clients with both accounts maintained at Mirelis and accounts maintained at third-party depository financial institutions, in particular at a Category 1 Bank, by making referrals to known purveyors of such structures both within and outside of Switzerland. Mirelis knew or had reason to know that these purveyors often operated structures in contravention of corporate formalities and/or Mirelis’s own policies and procedures and that one purpose of these structures was to add an additional layer of nominal ownership to conceal the U.S. taxpayer-clients’ ownership of undeclared accounts.
With respect to at least 24 U.S. Related Accounts maintained by Mirelis, Mirelis obtained or accepted IRS Forms W-8BEN (or substitute self-certification forms) from these entity account holders that falsely indicated the beneficial owner of the undeclared account was the non-U.S. entity itself and not the U.S. taxpayer-client. These false Forms W-8BEN directly contradicted the Swiss Forms A that Mirelis obtained identifying the U.S. taxpayer-clients as the true beneficial owners of the accounts. Despite knowing that one of the purposes of these arrangements was to further conceal the ownership of undeclared accounts, Mirelis did not contest the claims made on the Forms W-8BEN or equivalent.
With respect to its asset management services to U.S. taxpayer-clients, Mirelis’s responsibility was solely to manage the investment of the assets of the external U.S. taxpayer-clients held on deposit at the third-party financial institutions. Those institutions undertook all other aspects of managing the client relationship, including the responsibility for procuring, updating, and maintaining all “know your customer” and anti-money laundering and terrorism financing information regarding account holder and beneficial owner.
Mirelis, in connection with the due diligence performed following the Atlas acquisition, learned, among other things, that Atlas provided hold mail and numbered account services, assisted in the establishment of structures for U.S. persons, accepted (or did not contest) false IRS Forms W-8BEN regarding the true beneficial ownership of the account; and opened at least 107 accounts in the names of Panamanian corporations in which the beneficial owners were U.S. persons. Most of those 107 accounts were established by one Swiss attorney.
Mirelis took remedial steps starting in 2011 with respect to its then-existing U.S. taxpayer-clients, including implementing a new cross-border policy in June 2011, encouraging clients to enter the OVDP, and shifting its declared clients to its then-newly SEC-registered subsidiary, Mirelis Advisors, S.A.
Mirelis submitted a letter of intent to participate as a Category 2 bank in the Department’s Swiss Bank Program in December 2013. Although it was ultimately determined that Mirelis was not eligible for the Swiss Bank Program due to its structure as both an asset management firm and a bank, Mirelis is required under today’s agreement to fully comply with the obligations imposed under the terms of that program. Mirelis has fully cooperated with the Department of Justice in this investigation, including undertaking a separate and thorough review of the provision of independent portfolio and asset management services to U.S. taxpayer-clients with accounts maintained at third-party depository financial institutions and encouraging a significant number of its remaining non-compliant U.S. taxpayer-clients to participate, or provide proof of prior participation, in OVDP covering many of the U.S. Related Accounts maintained by Mirelis during the Applicable Period.
While U.S. account holders at Mirelis who have not yet declared their accounts to the IRS may still be eligible to participate in the IRS Offshore Voluntary Disclosure Program, the price of such disclosure has increased. Most U.S. taxpayers who enter the IRS Offshore Voluntary Disclosure Program to resolve undeclared offshore accounts will pay a penalty equal to 27.5 percent of the high value of the accounts. On Aug. 4, 2014, the IRS increased the penalty to 50 percent if, at the time the taxpayer initiated their 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 cooperating with a government investigation, including the execution of a deferred prosecution agreement or non-prosecution agreement. With today’s announcement of this non-prosecution agreement, noncompliant U.S. clients of Mirelis must now pay that 50 percent penalty to the IRS if they wish to enter the IRS Offshore Voluntary Disclosure Program. The IRS recently announced that the Offshore Voluntary Disclosure Program will close on September 28, 2018.
Principal Deputy Assistant Attorney General Zuckerman of the Justice Department’s Tax Division thanked the IRS and in particular, IRS-Criminal Investigation and the IRS Large Business & International Division for their substantial assistance. Principal Deputy Assistant Attorney General Zuckerman also thanked Trial Attorneys Charles M. Duffy and Henry C. Darmstadter, who served as counsel on this matter, as well as Senior Counsel for International Tax Matters and Coordinator of the Swiss Bank Program Thomas J. Sawyer, Senior Litigation Counsel Nanette L. Davis, and Attorney Kimberle E. Dodd.
Additional information about the Tax Division and its enforcement efforts may be found on the division’s website.
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Author: July 27, 2018