Julius Baer: Secret Accounts, Coded Names and a Tennis Racket

Julius Baer reached a tax evasion settlement through a criminal deferred prosecution agreement, admitting that it knowingly helped U.S. clients evade taxes through undeclared offshore accounts. The Swiss bank accepted responsibility for a business that concealed customers behind code names, foreign entities and relatives. For someone inside a bank or asset manager, the revealing detail is how much the bank knew about the people its paperwork helped hide.

The Justice Department announced the agreement on February 4, 2016. IRS Criminal Investigation investigated the case with assistance from the Department of Homeland Security. Two Julius Baer client advisers entered separate guilty pleas for conspiring to help U.S. taxpayers hide offshore assets and evade taxes on their income.

This page follows Julius Baer’s customer relationships, banker instructions and changes to its U.S. account business. The broader pattern of offshore tax evasion runs through the same question: who knew the owner behind the account, and what did the tax authorities see?

How Did Julius Baer Hide Undeclared Accounts?

Julius Baer concealed U.S. account owners through coded identities and accounts held in other names. In its account of the criminal filings and the bank’s admitted statement of facts, the Justice Department described conduct running from at least the 1990s through 2009. Julius Baer opened and maintained undeclared accounts itself and allowed third-party asset managers to open them for U.S. taxpayers.

The two client advisers directly helped customers maintain those accounts. They and others reassured clients that the bank’s tradition of secrecy, and its lack of remaining U.S. offices, made it less vulnerable to pressure from U.S. authorities. We see secrecy sold as a banking service.

The bank entered code-word agreements under which customers appeared by code name or number within the bank and on bank documents. It also maintained accounts in the names of non-U.S. corporations, foundations, trusts and relatives to conceal the U.S. taxpayers’ ownership. A bank employee could therefore be serving one person while the account title identified someone else.

The Justice Department’s account makes the bank’s knowledge explicit. Internal correspondence called undeclared accounts “black money,” “non W-9,” “tax neutral,” “unofficial,” or “sensitive.” The names disappeared from the paperwork; the bank knew the category.

What Did the Julius Baer Travel Memo Tell Bankers to Do?

A Julius Baer travel memo told client advisers how to divert attention from their U.S. business and keep telephone contact from pointing back to customers. The Justice Department quoted the internal memo, U.S. Clients Do’s & Don’ts, circulated in 2006, in its account of the criminal case. Its advice reached from the immigration interview to the way a banker paid for a call.

Bankers were told to describe a trip as business mixed with leisure, praise the country and mention an activity such as skydiving. The memo suggested carrying a tennis racket to emphasize recreation. The customer relationship needed a cover story, and the suggested prop came from the sporting-goods aisle.

For calls in the United States, the memo recommended phones registered in and operating from Switzerland. It told advisers to avoid calling clients from hotels and to buy telephone calling cards, preferably with cash. For an employee who knew the customer visits, those instructions connect the bank’s services to its effort to conceal them. The memo explained the point of the calling card:

The Undeclared Accounts Were a Revenue Business

The admitted account business generated income for Julius Baer as well as assets under management. At its 2007 high-water mark, the bank managed approximately $4.7 billion tied to approximately 2,589 undeclared U.S. taxpayer accounts. From 2001 through 2011, those accounts generated approximately $219 million in gross revenue and approximately $87 million in profit, according to the Justice Department’s account of the criminal filings.

The bank earned money from relationships its staff helped keep undeclared. For a whistleblower, the connection runs through the account, the services provided and the instructions that kept its owner or income from the IRS.

Julius Baer’s Exit Plan for Undeclared U.S. Accounts

Julius Baer began changing its U.S. account controls before the agreement, and the Justice Department described those changes alongside its criminal admissions. By November 2008, the bank had begun an exit plan for U.S. accounts lacking evidence of tax compliance. That month, it also prohibited opening accounts for U.S. clients without Form W-9. An insider reviewing new accounts could see whether the required form was in the opening file. Someone handling existing clients could see what evidence supported keeping the relationship open.

Which Records Connect the Customer to the Hidden Income?

The useful tax fraud evidence connects the customer, the account activity and the reporting. A banking employee may know the owner behind a code, an asset manager may know who directed transactions, and a preparer may know what information reached the return. We examine those connections with you, including the instructions that explain why the documents differ.

The same ownership mismatch appears in UBS’s signed deferred prosecution agreement. UBS admitted that private bankers and managers helped establish offshore-company accounts and accepted ownership forms identifying the companies as the owners. In some cases those forms were false or misleading because the U.S. taxpayer actually directed and controlled the assets. The practical comparison is between the person on the form and the person giving the instructions.

The 2002 monograph No Accounting for Tax Havens, published by the Association for Accountancy & Business Affairs, describes corporate structures, misleading transaction trails and nominees as obstacles to tracing money. Julius Baer’s admissions put that problem inside an account relationship: the bank knew it was serving U.S. taxpayers while maintaining accounts in foreign names.

Bank records and taxpayer reports provide different views of that relationship. Under the Foreign Account Tax Compliance Act, foreign financial institutions identify and report covered U.S. accounts, while taxpayers have their own Form 8938 and foreign bank account reporting obligations. Our page on FATCA, FBAR and Form 8938 evidence follows those records for the relevant years, from ownership and account activity to what was reported.

Can I File a Whistleblower Claim for Offshore Tax Evasion?

Information connecting concealed offshore income to its owner and tax reporting can support an IRS whistleblower award claim. We assess how your knowledge of the account, the instructions or the return connects to the tax underpayment and the government’s potential recovery.

A whistleblower case under the False Claims Act can pay 15% to 30% of what the government recovers. Federal tax claims are excluded from that law, and the IRS program has its own awards within that range based on what the government collects because of the whistleblower’s information.

You Know the Customer Behind the Code

If you know who controlled an offshore account or why its reporting concealed that person, speak with our whistleblower experts about what happened inside the bank. We build your strongest offshore tax whistleblower case around the relationship you know, bring in tax fraud whistleblower lawyers who know offshore banking cases, and stay with you through the whole journey.