DOJ’s non-prosecution deal with Swiss firm illustrates the benefits of cooperation

The Department of Justice (“DOJ”) and Internal Revenue Service (“IRS”) announced that a non-prosecution agreement (“NPA”) has been entered into by the DOJ and Swiss asset management firm Prime Partners SA (“Prime Partners”), whereby Prime Partners has agreed to pay $5 million in forfeiture and restitution for assisting U.S. taxpayers in opening and maintaining undeclared overseas bank accounts and evading U.S. tax obligations. Tax evasion, and particularly the use of offshore arrangements to facilitate tax evasion, has been the subject of increasing media and regulatory scrutiny both before and after the “Panama Papers”. Prime Partners appears to have managed its exposure to the issues in this case by providing “extraordinary cooperation” to U.S. authorities.

Prime Partners admitted to certain misconduct detailed in the NPA’s Statement of Facts – in particular, that it assisted U.S taxpayer-clients between 2001 and 2010 in concealing their beneficial ownership of undeclared foreign assets (including in Switzerland and Singapore) from the IRS. 

The NPA requires Prime Partners to forfeit $4.32 million to the U.S. government, representing fees that Prime Partners earned by helping its U.S. clients open and maintain undeclared foreign bank accounts, and to pay $680,000 in restitution to the IRS, representing unpaid taxes resulting from those U.S. clients’ tax evasion.

In announcing the deal, Acting U.S. Attorney for the Southern District of New York Joon H. Kim said:

“Prime Partners admits to helping its clients conceal their ownership of foreign bank accounts to avoid their U.S. tax obligations. They created sham entities and even counseled their clients to use pay phones and prepaid debit cards to avoid detection of their tax fraud scheme. The resolution of this matter through a non-prosecution agreement, along with forfeiture and restitution, reflects the extraordinary cooperation provided by Prime Partners to our investigation. It should serve as proof that cooperation has tangible benefits. We will continue to pursue financial services firms around the world that help their clients evade U.S. taxes.”

The DOJ entered into the NPA based on several factors, including Prime Partners’:

• voluntary and extraordinary cooperation, including its voluntary production of account files containing the identities of U.S. taxpayer-clients;
• voluntary implementation of various remedial measures beginning in or around early 2009, before the investigation of its conduct began;
• willingness to continue to cooperate to the extent permitted by applicable law; and
• representation – based on an investigation by outside counsel, the results of which have been reviewed by the U.S. Attorney’s Office and the DOJ’s Tax Division – that the misconduct under investigation did not, and does not, extend beyond that described in the NPA’s Statement of Facts.

Notably, Prime Partners’ remedial actions in early 2009 occurred at around the same time as the DOJ’s announcement of its deferred prosecution agreement with Swiss bank UBS in February 2009. In the latter agreement, UBS agreed to pay $780 million in fines, penalties, and restitution, on charges of conspiring to defraud the U.S. government and evade the IRS. Beginning with the UBS deal, the DOJ undertook a significant crackdown on Swiss financial institutions for hiding U.S. taxpayers’ offshore accounts, including Credit Suisse’s landmark guilty plea in 2014 to conspiracy for aiding and assisting U.S. taxpayers in filing false tax returns with the IRS, along with the bank’s agreement to pay $2.6 billion to U.S. authorities – the highest ever payment in a U.S. criminal tax case.

Whether and how to cooperate with regulatory authorities is a critical part of risk management in many organizations. Cooperation can take many forms, depending on the regulator and the jurisdiction. It is also important for the target of regulatory scrutiny to know the quid pro quo that may be available in exchange for cooperation. For example, deferred prosecution agreements (“DPAs”), which are agreements whereby charges are usually laid but waived after the corporation has met the terms of the DPA (including cooperating with authorities and fulfilling other conditions such as taking remedial measures to address misconduct) are currently not available in Canada. However, the federal government appears to be considering their utility. In a similar vein, Securities Commissions have only relatively recently made provision for no-contest settlements. Understanding what will be considered cooperation, and what the payoff may be, is a critical part of the equation. Nevertheless, these cases illustrate that proactive cooperation, even to the extent of admitting wrongdoing, can bring significant benefits. Those benefits have to be weighed against the risks associated with making public admissions, including in particular the use that may be made of such admissions in other forums and other jurisdictions. However, striking a deal with a regulator may give an organization a measure of input into the timing and the message, which can be extremely valuable in managing the damage done.