ZURICH—Julius Baer Group AG may face a lightened
financial penalty from U.S. authorities for its alleged role in
helping Americans evade taxes because the Swiss bank earlier tried
to volunteer related information, according to people familiar with
the matter.
The penalty, which is expected within the next two months, could
be reduced because the bank's board of directors sought to disclose
details about the undeclared American accounts it had maintained to
the U.S. Justice Department in 2009, these people said. The bank
was prevented from doing so by the Swiss financial regulator, the
Swiss Financial Market Supervisory Authority, they said.
Six years later, Julius Baer is close to paying a penalty that
analysts estimate could be as much as $900 million to end a Justice
Department probe started in 2011. The investigation has proved
costly and distracting: Zurich-based Julius Baer spent 3.6 million
francs ($3.8 million) last year on related legal costs.
A Justice Department spokeswoman declined to comment.
Julius Baer's travails illustrate a broader problem that has
faced Swiss banks struggling to find the best approach to a
long-standing U.S. legal crackdown. The bank's failure to step
forward a half-dozen years ago left it in the cross hairs of the
Justice Department, which still has it and several other Swiss
banks under investigation for allegedly aiding tax evasion.
Zurich-based Credit Suisse Group AG resolved its investigation last
year by agreeing to pay $2.6 billion and pleading guilty to a
criminal charge.
Dozens of other Swiss banks have entered a Justice Department
program started in 2013 that allows them to disclose undeclared
U.S. accounts in exchange for assurances they won't be criminally
prosecuted.
Switzerland's bank secrecy laws once attracted American tax
evaders, and Swiss banks could assume they wouldn't be prosecuted
for taking U.S. clients' money that hasn't been declared to the
Internal Revenue Service. That changed in 2008, when U.S.
authorities went after UBS AG, the country's biggest bank. In
February 2009, UBS settled its case with the Justice Department for
$780 million.
That year, Julius Baer's board members huddled to discuss the
extent of the bank's U.S. business and the problems it might cause.
Following the advice of a U.S.-based attorney, the board members
decided Julius Baer would step forward and inform the Justice
Department that it, too, had U.S. accounts that could be
problematic.
Julius Baer's decision may be included in a statement of facts
to be published alongside the bank's settlement, according to
people familiar with the matter.
The Swiss Financial Market Supervisory Authority, or Finma,
didn't permit the bank to provide disclosures to U.S. authorities,
the people said. Swiss banks seeking to pass information relating
to clients to foreign authorities risk breaching Switzerland's
strict privacy laws, and draw close scrutiny from Swiss regulators.
Finma has mediated for Swiss banks dealing with the Justice
Department, and helped broker the UBS settlement.
Experts and attorneys say at the time many Swiss officials
didn't expect the U.S. to aggressively pursue individual banks
apart from UBS. Instead, officials came to envision a collective
settlement for Swiss banks similar to a $1.25 billion deal in 1999
that resolved complaints by Holocaust survivors over unclaimed
funds.
The people familiar with Julius Baer's situation say officials
therefore viewed the bank's bid to voluntarily disclose its
individual issues with U.S. clients six years ago as an unnecessary
distraction and a potential impediment to crafting such a
settlement.
In 2011, the Justice Department ratcheted up the pressure on
Julius Baer with an indictment of two of its employees for
allegedly helping U.S. clients hide at least $600 million in
assets. The employees haven't responded to the charges.
Finma, meanwhile, has recently advocated for banks to start
cooperating with U.S. authorities.
The question of the size of Julius Baer's U.S. penalty has
become so pervasive that the bank now enlists a research firm to
gather estimates, and distributes them in a report to analysts.
The most recent report, which was issued this February but not
made public, included analyst estimates ranging from 300 million
francs to 850 million francs.
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