Purpose:
Uncovering the backstory behind charges for a Swiss Banking tax evasion case.
Learning Objectives:
Participants will learn how to:
- Describe potential penalties for tax evasion.
- Understand how deceit can negatively affect a company.
- Explain how taking accountability can lessen court sentencing.
- Identify ways compliance programs can help during jury proceedings.
- Understanding the purpose of a Swiss finance company.
Intended Audience:
People involved in the banking industry, individuals employed in the finance departments of multinational corporations, and companies engaging in cross-border transactions.
Key Terms:
Mirelis, Swiss Market, Atlas Capital, Geneva, Tax Evasion.
Current State of the Industry:
Swiss bank accounts have widely been used to shield assets from government and tax authorities. Swiss banks, under rigid Swiss laws, provide confidentiality protections as a safety net to their banking clients. Privacy is one of the main benefits that interest clients when searching for the right place to park their financial assets. Wealthy customers typically find ways to bank with Swiss accounts to ensure that their capital will be protected during any economic downturns.
Unfortunately, Swiss accounts do not provide complete protection. Our federal government has guidelines and regulations that all American citizens must follow. People who live in the United States still must pay federal and state taxes even if they possess offshore accounts. Failure to abide by these laws can result in government investigation and legal action.
Future State of the Industry:
Banking companies and their clients should have a thorough understanding of their responsibility to comply with the law. Authorities consider tax evasion a serious crime. Felony convictions for tax evasion face steep financial penalties, and judges may sentence offenders to lengthy terms in prison. Deceiving the government can lead to investigations and damage a company’s reputation. Recognizing the consequences that follow for those convicted of violating tax laws may deter companies from committing and assisting with fraudulent activity and other white-collar crimes.
Situation:
Mirelis Holding, a securities trading company operated with the knowledge of their clients disregarding United States tax guidelines. Despite their awareness, banking executives at Mirelis continued to do business with clients that knowingly violated tax laws. After all, those executives could reap huge profits on banking transactions. Since the United States prosecuted tax-evasion cases that originated in Switzerland, the bankers may have felt immune for the role they played in illicit transactions. Executives at Mirelis felt emboldened to forge documents and accounts in order to manipulate the U.S government into thinking some of their clients were non-citizens. In fact, Mirelis knew that the people in question had U.S. citizenship they were.
Investigators within the Justice Department became aware of these unnatural transactions and launched an investigation. Upon finding of guilt, Mirelis signed an indemnity deal that would exempt them from criminal offenses upon paying $10 million in fines.
Background:
Mirelis Holding S.A. functioned as an offshore trading company through the Swiss Financial Market. Mirelis provided financial services related to resource and securities management, with particular attention to portfolio and asset care. Mirelis also provided banking services, wealth management guidance and facilitated client portfolio assets. The holding company, moreover, provided many different areas of financial management. An abundance of responsibilities carries great challenges regarding overseeing hundreds of individual client portfolios.
Swiss bank accounts have historically been highly rated for their stability and secrecy which makes them attractive to investors from around the world. The Swiss tradition of banking secrecy, however, make these accounts susceptible to misuse by clients.
From a period of 2008 to 2014 Mirelis oversaw $315 million in client assets. Mirelis knew the rules and regulations that their clients must follow regarding paying their taxes. Certain bankers at Mirellis, however, turned a blind eye and sometimes even went so far as to assist clients in the illegitimate avoidance of taxes, in a misguided business scheme that hoped to avoid detection.
In an attempt to hide their scheme, those bankers created false IRS forms and records to account for the nonexistent customers. As the US crackdown on offshore accounts expanded and tightened its grip on several Swiss institutions, principals at Mirellis’ management became aware of the internal machinations which made them nervous about the potential legal exposure. It could have resulted in a total shutdown of the company and potential incarceration of its principals. The company, nonetheless, continued down this dangerous path wondering what to do should the company come under investigation.
The IRS Criminal Investigation Unit became aware of the scheme, while investigation certain clients who also held unreported accounts at other more well-known Swiss banks. The government indicted Mirellis, pressuring the company for additional information.
Analysis:
Considering the circumstances, Mirelis seems to be a reputable company that became overwhelmed by the number of accounts they had to manage. Operating a company where there are numerous clients and millions of dollars at stake can be a daunting task. Management at Mirellis also gave too much discretion to lower-level bankers who put the company at great risk. Mirelis should have been more discerning to who they opened and operated accounts for, they should also have implemented better internal controls to more quickly and independently discover the illicit behavior of junior bankers. Mirelis should have done more to protect itself through proper scrutiny to ensure their clients paid their government taxes. Once the fraud starts, it can become difficult to end due to the time that passes and the money that accrues.
The impact a select few of people can have on an entire company can be devastating from a financial point of view. Yet, it remains the company’s duty to certify all employees are compliant and that clients abide by all government laws, in order to protect themselves and their clients. Failure to comply leads to targeting that cause government investigations.
Upon finding of guilt, Mirelis signed and agreed to a non-prosecution deal. The company agreed to pay over $10 million in fees, to terminate dealings with illicit U.S accounts in exchange for legislative immunity in this case and commit to extensive cooperation with the US government.
Recommendations:
The Federal government and Justice Department have regulations in place that all United State citizens must follow. Oftentimes, people get filled with greed and decide to find ways to not pay their taxes. Through deception, they choose to put money and assets in Swiss accounts under different names and citizenship statuses. They use these accounts to save and make transactions under the radar so the U.S federal government has a hard time tracing the paper trails. This deceit can cause for fines and lengthy prison time. Fortunately for this company, they only had to pay fines with the non-prosecution agreement that was reached. Many of the company’s clients did not fare as well and faced stiff fines and exposure to significant prison time.
Mirellis, of course, could have avoided this mess altogether had the company put better barriers in place. Compliance needs to be thorough, robust and continuous in order to protect a company. Failure to actively engage in compliance can lead to significant risk and damage to both companies and individuals.
Though Mirelis was found to be guilty, they used a compliance tactic that ensured they received a less severe penalty had they not complied otherwise. Compliance programs can help educate businesses on the ramifications they may face when they neglect to make morally sound decisions. Compliance programs can help lessen sentencing and prevent lawsuits from occurring.