The Monetary Authority of Singapore recently ordered BSI SA's unit there to shut down as Swiss authorities began criminal proceedings against the bank. BSI's troubles are related, in part, to the investigation revolving around Malaysia's 1Malaysia Development Berhad (1MDB). The U.S. Department of Justice (the DOJ) has also begun an investigation into dealings between 1MDB and certain U.S. banks which likely will extend to foreign entities. The investigations into BSI activity continue as an outgrowth of an initiative undertaken by the U.S. government relating to cross-border enforcement of U.S. income tax and other laws.
The initiative started in 2007, when the DOJ began a series of criminal investigations of the activities of foreign banks in Switzerland designed to help U.S. taxpayers maintain offshore accounts having assets undeclared to the U.S. Internal Revenue Service. As a result of information obtained in 2009 from a former employee of a Swiss investment bank, the DOJ was able to force that investment bank to enter into a highly publicized deferred prosecution agreement requiring them to close all undeclared U.S. accounts, provide the identities of certain U.S. clients and cooperate with further U.S. criminal investigations. The Swiss investment bank also paid a total of US$780 million to the U.S. government. A later and similar enforcement proceeding against an investment bank headquartered in Zurich resulted in penalties of US$2.6 billion.
According to the DOJ, the settlement with the Swiss investment bank in 2009 should have put all foreign banks, asset managers and lawyers on notice that assisting clients to open and maintain undeclared accounts was a violation of U.S. law that would result in criminal prosecution. More and more foreign banks and financial advisers found themselves targets of the expanding scope of U.S. criminal investigations. The indictment in 2012 of the oldest private bank in Switzerland, leading to its closure, made it clear that even banks with no offices or operations in the U.S. were within the reach of U.S. prosecutors.
In 2013, the Swiss government, concerned about the potential exposure of additional banks to U.S. prosecution, entered into a program designed to provide Swiss banks with a pathway to obtain nonprosecution agreements with the DOJ. By 2016, 80 Swiss banks had obtained nonprosecution agreements after providing the DOJ with detailed information on the transfer of assets from Switzerland to banks in other countries, including in Asia.
Using that information, along with similar information from voluntary disclosures of offshore accounts by U.S. taxpayers and other sources, the DOJ has expanded its enforcement actions to more countries, including targets in Asia. Both Hong Kong and Singapore have entered into agreements to provide tax information to the U.S. government.
At this point, it is likely that the DOJ knows of any individual or entity that provided material assistance to U.S. taxpayers in maintaining undeclared U.S. accounts. Compliance with the Foreign Account Tax Compliance Act, while necessary, provides no immunity from prosecution for prior actions in assisting with evasion of U.S. taxes. By the time an indictment is handed down, it will be too late. Merely by bringing charges, the DOJ, through seizure of U.S. correspondent accounts, can essentially end a foreign bank's access to the U.S. financial system and cause the arrest abroad of bank officials and their extradition to the U.S.
Therefore, it is important for banks and others facing these risks to take steps to assess their exposure and act prudently to address the findings. Using our experience with the Swiss bank program, we can conduct an analysis of records relating to U.S. client relationships in order to advise on the steps one should take in particular situations to appropriately address and mitigate any risks that may be identified.