(Bloomberg) The U.S. sought court permission to ask Citigroup Inc. and Bank of New York Mellon Corp. for records of U.S. clients of Zuercher Kantonalbank, the biggest of Switzerland’s publicly owned regional banks, to determine whether those people evaded taxes, records show.
U.S. Attorney Preet Bharara in Manhattan filed a lawsuit on Nov. 6, asking to serve Internal Revenue Service summonses on the two New York-based banks, which allowed ZKB to get access to the U.S. banking system through correspondent accounts. ZKB “conspired with U.S. taxpayers to help them conceal their foreign accounts,” according to the complaint.
The IRS concluded that “ZKB has used the Citibank and BNY Mellon correspondent accounts to provide offshore banking services to U.S. taxpayers, who in turn have failed to report the existence of their ZKB accounts to the IRS, as well as the income earned on those accounts,” according to a copy of the complaint obtained by Bloomberg News.
The complaint, known as a John Doe summons, comes amid a U.S. crackdown on offshore tax evasion. Last December, three current or former ZKB employees were indicted on charges of helping U.S. clients hide more than $420 million from the IRS.
Mark Costiglio, a spokesman for Citigroup, and Kevin Heine, a spokesman for BNY Mellon, declined to comment in e-mails. A spokesman for Zurich-based ZKB couldn’t be reached for comment.
371 Disclosures
Since 2009, 38,000 U.S. taxpayers avoided prosecution by voluntarily disclosing offshore accounts to the IRS, and 371 were ZKB clients, according to the complaint.
The U.S. has charged UBS AG, the largest Swiss bank, which avoided prosecution by paying a penalty, admitting it fostered tax evasion and handing over records. It obtained a guilty plea by Wegelin & Co., Switzerland’s oldest private bank, and is conducting criminal probes of 14 Swiss banks.
The U.S. also charged about 70 American taxpayers and 30 of their enablers. Last December, Stephan Fellmann, Otto Huppi and Christof Reist were each charged with a single count of conspiracy for allegedly helping at least 180 U.S. taxpayers maintain undeclared accounts at ZKB. They haven’t responded in court to the charges.
The complaint, citing that indictment and “other information obtained by the IRS,” said ZKB conspired from 2003 to 2009 to help hide asset from the IRS.
Clients Discouraged
“ZKB employees discouraged U.S. clients from disclosing the existence of their ZKB accounts to U.S. authorities,” according to the complaint.
The bank advised American clients not to maintain account records in the U.S. Clients “called ZKB employees collect or used prepaid calling cards to avoid having the calls appear on their phone records,” according to the complaint. ZKB also allowed U.S. clients to use code names and sham entities to conceal their ownership of accounts.
ZKB told clients it was a safer bank to hold undisclosed accounts than UBS because it had no offices in the U.S., saying the U.S. government couldn’t apply the same pressure to turn over foreign accounts, according to the complaint.
ZKB also offered correspondent services to other Swiss banks that also held undeclared accounts for U.S. taxpayers, according to the complaint.
The case is In the Matter of the Tax Liabilities of John Does, 13-Misc-378, U.S. District Court, Southern District of New York (Manhattan).
