Mirelis Customers Face OVDP Fines After Non-Prosecution Settlement

Swiss bank

Customers of the Swiss financial and asset management company Mirelis Holdings, SA, may have known about changes happening at the company in recent years. But what they may not have realized is that a recent non-prosecution settlement between the firm and the U.S. Department of Justice could cost them thousands in higher OVDP fines for voluntary disclosure of unreported income to the IRS.

Department of Justice Tax Division Targets Swiss Financial Management Company Mirelis

Last month, the United States Department of Justice (DOJ) announced it had reached a non-prosecution agreement with the Swiss financial and asset management firm, Mirelis Holdings, S.A. The Geneva-based company is licensed by the Swiss Financial Market Supervisory Authority (FINMA) as a bank and an independent portfolio and asset management services. The agreement covers the conduct of Mirelis between August 1, 2008 and December 31, 2014, as well as a branch of the Swiss bank, Julius Baer & Co. Ltd, and Atlas Capital S.A., companies with which Mirelis had become affiliated through a subsidiary arrangement and a merger. All together, it affects approximately $315 million in U.S. taxpayer-held assets.

In exchange for the DOJ not pursuing the company criminally, Mirelis agreed to cooperate in any criminal or civil proceedings against its members, implement controls against clients using undeclared U.S. accounts, and pay $10.245 million in civil fines to the United States. Principal Deputy Assistant Attorney General Richard E. Zuckerman said:

"The agreement reached today demonstrates the Department's resolve toward ending the practice of using Swiss bank accounts to evade one's taxes."

DOJ Says Swiss Bank Helped U.S. Taxpayers Conceal Foreign Assets

According to the DOJ, Mirelis was legally responsible for a number of tax evasion strategies and non-disclosure practices, including:

  • Opening, maintaining, and servicing accounts for U.S. taxpayer clients it knew were not reporting their foreign assets
  • Facilitating the concealment of undeclared accounts by transferring funds to non-U.S. account holders
  • Introducing U.S. taxpayer-clients to a Singapore-based trust company to create foreign trusts and life-insurance policies
  • Transferring accounts to third-party financial institutions outside the U.S. or Switzerland to pay for non-U.S. life insurance policies and trusts
  • Opening and falsely designating accounts as non-U.S. accounts when it knew the owner was a U.S. taxpayer
  • Transferring funds and managing accounts for another Swiss bank without checking whether U.S. account holders were compliant with their tax and reporting obligations
  • Accepting control of U.S. related accounts from another Swiss bank while knowing the accounts held undeclared assets
  • Accepting accounts where IRS Forms W-9 and bank secrecy waivers were not signed
  • Violating company policy to only serve U.S. taxpayers in compliance with tax and securities laws
  • Providing "hold-mail" services, a tax avoidance strategy where U.S. taxpayers could have Mirela hold all mail until physically retrieved in Switzerland
  • Using "numbered" accounts which reduced evidence of beneficial ownership by U.S. taxpayer-clients by removing identifying information from account statements and other documentation
  • Establishing trusts and entities for U.S. taxpayer-clients when it knew they would be operated in violation of corporate formalities or for the purpose of concealing taxable assets
  • Failing to contest claims it knew to be false on W-8BEN forms related to U.S. taxpayer-clients

The non-prosecution settlement between the DOJ and Mirela means that the company can avoid substantial fines and closer U.S. regulatory control over its business practices. However, as part of the deal, the company has agreed to fully comply with the requirements of a Category 2 Swiss bank, even though it is not eligible for the program because of its work in asset management.

Non-Prosecution Settlement Means Higher OVDP Fines for U.S. Taxpayer Clients

The non-prosecution settlement will have a significant effect on any Mirelis clients not currently in compliance with their U.S. tax and reporting requirements. Of the 177 U.S. related accounts in Mirelis's portfolio, and another 95 U.S. related accounts held at third-party banks, many have already been resolved through the U.S. Offshore Voluntary Disclosure Program (OVDP). But for those who have ignored Mirelis's encouragement to come into compliance with the IRS, the delay could end up being costly.

Participating in the IRS Offshore Voluntary Disclosure Program generally allows U.S. taxpayers with undisclosed accounts in a foreign financial institution to limit the fines and penalties they have to pay. The program provides certainty, savings, and eliminates the fear of an audit in the future. In exchange taxpayers pay a penalty equal to 27.5% on the highest value of the accounts during the reporting period.

However, where a taxpayer's undisclosed assets are discovered because the financial institution in question is subject to a government investigation, John Doe summons, or has entered a non-prosecution agreement, that penalty gets bigger: increasing to 50%. The difference could easily add up to tens of thousands of dollars in higher fines for U.S. taxpayers.

Voluntary Disclosure Options For Taxpayers Further Limited as Program Closes Soon

The threat of penalties as a result of the non-prosecution settlement with Mirelis will get even greater at the end of next month. The OVDP is scheduled to close on September 28, 2018 but the IRS has set August 24, 2018 as the deadline for submitted a preclearance request to the Criminal Investigation Division. Since preclearance is not mandatory, however, is it still possible to submit OVDP initial disclosures by the September 28 deadline. For taxpayers who have not yet applied for the program, that means Mirelis's promise to cooperate with civil and criminal investigations could result in even higher costs, or federal prison sentences. That is why it is crucial for anyone with offshore accounts at foreign financial institutions to speak with an experienced tax attorney today, to make certain they are in compliance with the IRS tax and reporting requirements before the application window closes.

Attorney Joseph R. Viola is a tax attorney in Philadelphia, Pennsylvania with over 30 years experience. If you have questions about the effect of non-prosecution settlements on your tax liability, contact Joe Viola to schedule a consultation.