EFTA00584243.pdf

STATEMENT OF FACTS INTRODUCTION 1. Edmond de Rothschild (Suisse) S.A. (together with its Lugano-based subsidiary, "EdR" or the "Bank") is a corporation organized under the laws of Switzerland with its headquarters in Geneva, Switzerland. The Rothschilds have occupied a leading role in Europe's financial services sector for centuries. The family's business was decimated during the Second World War, when the Nazi German government froze the Rothschild family's assets and confiscated family property. Baron Edmond de Rothschild re-launched his family's banking and business interests in Europe after the Second World War, and he established EdR in 1965. EdR has been a family-owned private bank since the time of its founding. 3. Today, EdR operates a financial services business in Geneva, Lausanne, Fribourg, and Lugano, Switzerland. It offers private banking and wealth management services for individual clients around the world, including a relatively small number of U.S. citizens, legal permanent residents, and resident aliens. 4. EdR is affiliated with the Edmond de Rothschild Group, an independent, family- controlled financial group focused on asset management and private banking with operations throughout the world. EdR is an independent Swiss legal entity, led by its own board of directors, chief executive officer, and executive committee, and is supported by its own legal and compliance functions. 5. In 2014, EdR held Assets under Management ("AuM") totaling approximately SI10.5 billion, $44.0 billion of which comprised client assets managed in Switzerland. This made EdR the (seventh] largest private banking and wealth management bank in Switzerland based on AuM. 2. U.S. INCOME TAX & REPORTING OBLIGATIONS 6. U.S. citizens, resident aliens, and legal permanent residents have an obligation to report all income earned from foreign bank accounts on their U.S. tax returns and to pay the taxes due on that income. Since the tax year 1976, U.S. citizens, resident aliens, and legal permanent residents had an obligation to report to the Internal Revenue Service ("IRS") on the Schedule B of a U.S. Individual Income Tax Return, Form 1040, whether that individual had a financial interest in, or signature authority over, a financial account in a foreign country in a particular year by checking "Yes" or "No" in the appropriate box and identifying the country where the account was maintained. 7. Since 1970, U.S. citizens, resident aliens, and legal permanent residents who had a financial interest in, or signature authority over, one or more financial accounts in a IDC1310123114.1li I DRAFT 06-06-20B1 Commented [Al]: fak: MR 10 Aalaitt Author 2M-06.0613Z:00 Commented [A2]: fdp,=ko on puipose Thai road:et 1110111011ga MI the Ovum worldwide? 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An "undeclared account" was a financial account owned by an individual subject to U.S. tax and maintained in a foreign country that had not been reported by the individual account owner to the U.S. government on an income tax return and an FBAR. 9. Since approximately the 1930s, Switzerland has maintained laws that ensure the secrecy of client relationships at Swiss banks. Swiss law prohibits the disclosure of identifying information without client authorization, especially to foreign government investigators. These are Swiss criminal laws punishable by imprisonment. Because of the secrecy guarantee that they created, these Swiss laws enabled U.S. clients to conceal their Swiss bank accounts from U.S. authorities. 10. In or about 2008, Swiss bank UBS AG ("UBS") publicly announced that it was the target of a criminal investigation by the IRS and the United States Department of Justice and that it would be exiting and no longer accepting certain U.S. clients. On February 18, 2009, the Department of Justice and UBS filed a deferred prosecution agreement in the Southern District of Florida, in which UBS admitted that its cross-border banking business used Swiss banking secrecy and privacy laws to aid and assist U.S. clients in opening and maintaining accounts and concealing undeclared assets and income from the IRS. Since UBS's announcement, several other Swiss banks have publicly announced that they were or are the targets of similar criminal investigations and that they would likewise be exiting and not accepting certain U.S. clients (UBS and the other targeted Swiss banks are collectively referred to as -Category 1 banks"). These cases have been closely monitored by banks operating in Switzerland, including EiR, since at least the third quarter of 2008. ROLE OF EDR'S QUALIFIED INTERMEDIARY AGREEMENT 11. Effective in or about January 2001, EdR and hundreds of other Swiss banks entered into Qualified Intermediary ("QI") Agreements with the IRS. To comply with its responsibilities as a QI, EdR introduced a new form tided "Declaration of U.S. Status I or / Non-U.S. Status in relation to assets and income subject to United States withholding tax" ("DNUS"). EdR required all new and existing account holders to complete a DNUS form. It required all clients to self-certify whether they were or were not U.S. persons. If the U.S. client provided Edit with a validly signed IRS Form W-9, then the client could hold U.S. securities and Edit would conduct Form 1099 reporting in respect of any reportable amounts, in accordance with the terms of its QI Agreement with the IRS. If the U.S. client did not provide a Form W-9, then FIR prohibited the client from holding any U.S. investments, in accordance with the QI Agreement, and the client's name was not provided to the IRS. MC48883114.111 I DRAFT 06-06-2013: f Commented [AS]: Lw We w_tulel motto! hmShithil language as b. vi hlch Is <olasktent ssIth tic ^ °Ma NPAs that bait- wecili/J14 &hued the went -wicket...A li:COUllt." 12 Authm 013.06061335:00 Commented [A6]: LW - we would snot Arcot:kit 4wuuket with the 9 Ntis ntathed thus Astor 201S-06.06 1333:00 Commented [YA7): Shoodo't we reintroduce the QI shaper to beim line with the other hanks? jeW - Aare lids section is now added. AESCHLIMANN Ytes 201106.06 1333:00 EFTA00584244 12. Beginning in 2001 and continuing into the Applicable Period, certain of EdR's U.S. clients instructed the Bank not to invest in U.S. securities. EdR believed that the Bank was not required under the QI Agreement to obtain a Form W-9 for U.S. clients who did not wish to hold U.S. investments. EdR thus opened and continued to service accounts for certain U.S. clients without disclosing their identities to the IRS and without considering the impact of U.S. criminal law on that decision. 13. For certain U.S. accounts that were nominally held in the name of a non-U.S. based entity, the directors of the offshore entity provided a certification on EdR's form DNUS that falsely represented that the entity was the beneficial owner, for U.S. federal income tax purposes, of the assets in the Bank's accounts. EdR accepted and included this certification in the Bank's account records. In relation to the same accounts, however, Swiss law likewise required EdR to identify the structure's true beneficial owner on a document called a Form A. In many instances, the Form A in the Bank's account records identified the U.S. taxpayer as the beneficial owner, while the DNUS for the very same account contained the false certification that the non-U.S. entity was the beneficial owner. 14. From the inception of the QI Agreement in 2001, however, EdR implemented a policy prohibiting U.S. clients from holding U.S. investments unless the client also provided a Form W-9. This policy applied even if the U.S. client's account was nominally held in the name of a non-U.S. based entity. OVERVIEW OF EDR'S U.S. CROSS-BORDER BUSINESS 15. Unlike some other private banks in Switzerland, EdR never maintained a U.S. desk or business group dedicated to U.S. taxpayers, and it did not market its services in the United States nor to U.S. taxpayers. In addition, U.S. clients were not targeted in the Bank's business plans. However, through referrals and pre-existing relationships, the Bank opened and subsequently maintained accounts for a limited number of new U.S. taxpayer clients. 16. EcIR was aware that U.S. taxpayers had a legal duty to report to the IRS and pay taxes on all of their income, including income earned in accounts that these U.S. taxpayers maintained at EcIR. EdR knew that it was likely that certain U.S. taxpayers who maintained accounts at EdR during the Applicable Period were not complying with their U.S. reporting obligations. 17. During the Applicable Period, EAR held and managed approximately [481] U.S. client accounts, which included both declared and undeclared accounts, with a peak AuM of $[1.2 billion]. This latter figure represented approximately [I.3%] percent of the aggregate maximum balance of the Bank's total asset under management during the applicable period. Approximately [74] of those accounts were opened on or after August I, 2008, [66] of which have provided reliable evidence of compliance with U.S. tax obligations. lOCS881084.1I I I DRAFT 06.06-20ISI Commented [ALI]: On seurAssejleor camisole...Attalla o but oc JO not atklor Idtrzudd I " bItItkrItrednidtrettenatiddr hie h_lher_r_b_r on rradoiloa betocen the lamella.] cotter Identified on the I ol311 A (Itile add)) and the beneficial on tur Itleadlled *a tbe \ For at cadence of doubt. we note that we ant Idol aware et my LNII wee datowitudd .erased a false Venn A, At 2015-06.06 Commented [A9]: UR= 'coed peteentaat co OTC numbers came almon all of them are OTC 110 - TIM detail h orm abet At 2015-06.061325510 EFTA00584245 18. Approximately (65] private bankers were responsible for managing at least one U.S. client account during the Applicable Period. These private bankers (referred to as "Relationship Managers" or "RMs") served as the points of contact for U.S. clients at SIR and were responsible for opening and servicing U.S. client accounts at EdR. Certain RMs assisted or otherwise facilitated some U.S. individual taxpayers in establishing and maintaining undeclared accounts in a manner that concealed the U.S. taxpayers' ownership or beneficial interest in said accounts. Although U.S. clients were never a strategic focus of the Bank, throughout its history, ELIR acquired U.S. client accounts primarily from direct referrals, walk-ins, and business arrangements with external asset managers ("EAMs"). 19. Since August 2008, approximately (34] EAMs were responsible for independently managing at least one U.S. client account held at EdR. SIR compensated certain of these EAMs for the business they generated for the Bank based on a negotiated fee structure. At no time did EdR provide any EAMs with incentives specifically intended to attract U.S. clients to the Bank. 20. RMs typically communicated via telephone, fax, business email, and mail (when clients did not request hold mail services) with certain of their clients in the United States. Certain RMs also met with U.S. clients outside of the United States to provide banking services and investment advice related to their undeclared accounts. In (May 2008), EdR prohibited all business travel to the United States for the purpose of meeting with clients. However, EDR is aware that on one occasion an SIR RM traveled to the United States after August 1, 2008 and met with an existing U.S. client to discuss the client's accounts. METHODS USED TO CONCEAL ASSETS AND INCOME 21. EdR offered a variety of traditional Swiss banking services that it knew would and did assist U.S. clients in concealing assets and income from the IRS. One such service was hold mail. For an annual fee, the Bank would hold all mail correspondence for a particular client at the Bank. The Bank also offered code name or numbered account services. These services allowed U.S. clients to eliminate the paper trail associated with the undeclared assets and income they held at E1R in Switzerland. 22.1EdR opened and maintained accounts for some U.S. taxpayers that were nominally structured in the name of non-U.S. based entities, which assisted certain U.S. taxpayers to conceal their beneficial ownership of the assets held in the account and any related income. In total, approximately [42.5)% of the Bank's U.S. client accounts open on or after August 1, 2008 were nominally held in the name of offshore entities. These accounts held approximately (61.5%) of the total U.S. client assets at EdR during the Applicable Period. 23. Certain RMs assisted a limited number of U.S. clients in repatriating offshore funds by providing credit cards, cash cards, and debit cards linked to their undeclared accounts. ffbese cards allowed certain U.S. clients to withdraw fluids remotely or pay for goods and services without a paper trail back to their undeclared accounts in Switzerland. IBC4101113114.111 I DRAFT oaon.:Insi Commented [A10]: Edit. <For point Ii and td.ne would mho the the maw wooing n 051 p.1$ and (Kra p. 19 and not mason any riguiv, al all. therefoir we would not distinguish (WA and Lugano We Edit Mimed o mimeo of traditional Swim hulking unites lb!, u knew would and did own U.S. ohms in concedusg tau and so:one from the IRS. One such smith was hold mail. For an annual roes the Bank would hold all mad correspondence for a particular C114111 at the Bank The Bank alno Mitred code maw or membered ucoum mrvicoc Thie£C smites allowed U S. :Immo to titmouse the paper trail assoriated with the untkelual add'. 411,1 aonx they held at FOR in Switzerland., LW -1his ICS Ilion is now Incorporated Into the tell, Aitr 2015-06.06 IS ?RIM Commenteel (YA11]: I don't see hate any sham entitles Si BO Isce bdow <nommen, 151 LW - Sec moment SWAY le 01 wellm AESCHLIMANN Yses 2015-06.00 ?YOU Comments (YA121: anti what our policies stated AESCIILIMANN Yves 101$-06.06 15:21:00 Commented VALI]: In he mem ed In (SI Chapter AESCHLIMANN Yves 2015.06.061525:00 Commented VAS]: AlreaM said In the lint paragraph as US CAWS harder wills no k desk AESCHLIMANN Yves 201S-06.061525:00 Commented DSO): Wks not regroup this chapter and the ant two Is one that could be named ?Closlith of amounts nod other milted' of concealment el assets"? aad nay be start sib the 7 paragraphs regard* the Madam of &Awaits AESCHLIMANN Yves 2015.06001525:00 Comments VAI611: Used Moth AESCHLIMANN Yves 2015-06.06 15 :21:00 Comments' (YA171: Same as abuse. hs aid regroup this In one< banter t 11Y aluss AESCHLIMANN Yves 2015.00.00I525:00 Commented [YAM: NS e are rte only Mies di, Ins sod, details numbers. Can's we lost °mown clime cards? 11Y alutas AESCHLIMANN Yves 201S-06.06 15 25:00 EFTA00584246 24. On very limited occasions, certain RMs assisted U.S. clients in structuring transfers from their undeclared accounts in amounts less than 510,000 to avoid detection by U.S. authorities. (This conduct aided U.S. clients in avoiding United States currency transaction reporting requirements. 25. Edit assisted certain U.S. clients to close their accounts at EdR in a manner that the Bank knew was likely intended to prevent detection of the clients' undeclared accounts by U.S. authorities. As a result of an EdR initiative beginning in 2009 requiring all U.S. clients either to provide a Form W-9 or to close their account, Edit asked many U.S. clients who declined to provide a Form W-9 to leave the Bank. In the haste to cut all ties with undeclared U.S. clients, FAR permitted a small number of these U.S. clients to close their accounts through withdrawals of large sums of cash, by taking physical possession of gold or other precious metals, or by purchasing luxury goods. In connection with the process of closing the accounts of U.S. clients who declined to provide a Form W-9, Edit helped certain U.S. clients donate assets to other accounts held at EdR by non-U.S. taxpayers, including non-U.S. relatives or friends. 26. In one instance in 2010, EdR made an exception to its policies requiring new U.S. client accounts to be opened with a Form W-9 to permit two existing U.S. clients to open new nominative accounts without a Form W-9. These new, nominative accounts were opened for the sole purpose of helping the U.S. clients wire assets to fund insurance wrapper accounts in Liechtenstein when exiting the Bank. ADDITIONAL MITIGATING FACTORS 27. Beginning in mid to late 2008, EdR instituted policies that were intended to: (a) close undeclared U.S. client accounts that refused to provide EdR with evidence of U.S. tax compliance; (b) remediate certain U.S. accounts that previously were undeclared, including by encouraging U.S. clients to make a voluntary disclosure to U.S. authorities; and (c) prohibit the opening of new accounts for U.S. clients without evidence of U.S. tax compliance. EdR undertook these efforts as part of a broader initiatives at EdR intended to augment compliance across its private banking business through enhanced rules of conduct for businesses in many markets, including with respect to U.S. clients. With respect to the U.S. client market in particular, EdR was aware of the U.S. Department of Justice's investigation of UBS AG and took it as a further reason to review and enhance its compliance with respect to the handling of U.S. clients. 28. Beginning in approximately (September 2008], and earlier than many other Swiss banks, EdR instituted a formal policy prohibiting RMs from opening new accounts for U.S. clients unless the U.S. client first provided a Form W-9. This policy applied irrespective of whether the U.S. client wished to hold U.S. investments. Thereafter Eat declined to open accounts for certain prospective U.S. clients who refused to provide a Form W-9. During this same period, other banks in Switzerland actively solicited business from and/or continued to open undeclared accounts for U.S. clients. IDCS881084.Ill I DRAFT 0606.20151 Cenvnented VA1911: Is this rek.uni if the client n no* US? I.W -Piz is a detail that the trial team might expect tote:bade in the Si:dementof Pacts. We agree. however. that it is defensible eat to include this. particular example because ii alma m ISNP 11000tlill AESCIILINIANN Yves 200-06.06 Conmentel (YA20]: a. thls account la scope? a yes. oh? wasn't It Included a the talsconductat Need to cheek and talk Amain. 1.1%' - This example was included in the mocoo:lo:t totratives.as. GEN06 lBPF.RIC07731. The OCU trial team may wax to include this airtimenom in time. but we agree data= be left out of pnposed AESCIILINIANN Yates 201-06.061525:00 EFTA00584247 29. Beginning in May 2008, EdR's management also formally advised RMs and other Bank employees against traveling to the United States for business reasons and required employees to report to the Executive Committee any planned U.S. travel. In January 2009, EdR formally prohibited relationship managers from making business trips to the United States. 30. Recognizing that certain accounts had been opened under prior policies without a Form W-9, EdR instituted a legacy account remediation project beginning in [October 2008]. As of then, EdR affirmatively required every existing U.S. client account to provide a signed, valid Form W-9, regardless of whether the U.S. client's account held U.S. securities. If the existing U.S. client did not provide a Form W-9, EdR eventually terminated the account relationship. Although these policies did remediate most of its undeclared U.S. accounts, not all such accounts were immediately closed. With few exceptions, EdR had successfully exited most of its undeclared U.S. client accounts by the end of [2011]. EdR closed approximately [358] U.S. accounts between August 1, 2008 and June 30, 2014, totaling approximately ($664.56 million). Many of these U.S. account were closed in connection with EdR's remediation efforts. 31. Also beginning in October 2008, EdR adopted a policy of encouraging U.S. clients who had undeclared accounts to declare those accounts to the IRS. Under this policy, RMs and Bank management proactively encourage U.S. clients to make a voluntary disclosure to U.S. authorities, through the Offshore Voluntary Disclosure Program ("OVDP") or otherwise, if and when EAR has learned of a client's non-compliance with U.S. tax obligations. However, SIR identified one RM who violated this policy by discouraging U.S. clients from declaring their accounts. 32. In July 2012, EAR began requiring all new and existing U.S. clients to provide a signed FBAR or other proof of U.S. tax compliance since the opening of the U.S. client account, such as evidence of participation in an IRS Offshore Voluntary Disclosure Program. IrHE BANK'S COOPERATION THROUGH THE SWISS BANK PROGRAM 33. In December 2013, EdR entered into the United States Department of Justice's Program for Non-Prosecution Agreements or Non-Target Letters for Swiss Banks (referred to as "Swiss Bank Program" or "SBP") as a Category 2 bank. 34. Since 2013, FAR has cooperated with the DOJ to comply with the Swiss Bank Program. At the outset, EdR formed a Steering Committee consisting of EdR representatives and U.S. and Swiss law firm partners who, along with independent accountants, oversaw and executed each phase of Program compliance. Along with its outside advisors, FAR established a multi-tiered review protocol to identify and analyze all U.S. accounts in accordance with the Program. Specifically, the Bank, with the assistance of U.S. and/or Swiss counsel and/or its independent accountants, performed an electronic search of U.S. indicia across all of its accounts, manually conducted a MI paper record search of hundreds of physical account files, interviewed dozens of current and former RMs and Commented DWI]: Same., above. Why not regroup this in cane chapter LitathelYS AESCIILE MANN Vies 2015.06.061525:00 CAMMented WA: La= Wouldn't we add here the AUM exited? jay, ThiLlefithathionitaflo_edetth Author 201.4)6,06 5:219(0 Commented (A23]: LW - Kt Seth consider inedih ninth to mid Aumot I 200* to December II SOIL the ion-ashen al) eaten nape:rind through 2nam 30, 20141.16 se do not ha, e timed m tote 2014, Audio; 1015.00.06132S:00 Commented VA241: e o pen too tie • -Ps mfora- b. x slit' related? I.W - We understand and avow ate the con:ern. ad we agree that it am be left out of MIS death. AESCIILIMAIthe Vies 200.06.06 IS 21:00 Commented (SOS]: EdR Wouldn't it be more powerful and soling if we fo:us on more specific etIons that she Bonk did ad with were not requested explicitly M. the Program rather dun ham the Program requirements? For instance. we could mention the halm:ins elTens. .EdR adapting its US policies stoning 20h1(see Rothschild SOF 4231 4EdR enforcing its exit policy lice Reductild SOF 424 and 427) •24R enoouramint spa US cheat to enter in OVDP (sec LBBW 422) .EdR fully cooperating within the thogram Roe LRBW 425) Actor am to nmation she dotage of Govenunie during the Prop= (change of latthers. change of VEX/ Group- I.W The line two of these stems are now incorporated tit the "Addmonal &bowman Eldora" swum those, which addresses solumary remedial pleasures. The shad and founh items are addrthicd in the season regarding she Ranks cooth-rmion under the Program. We are happy to di ions. tin id strategic reasons we would not suggest addressing the fifth item in she Statement of Feet. Anchor 2004646 IS IROO IDC11888384.111 I DRAFT %dn.:wit' EFTA00584248 members of management, and contacted hundreds of current and former U.S. clients or their representatives, among other efforts. 35. EdR's efforts to contact its current and former U.S. clients to vekify that their accounts were disclosed have been extensive. Since it has done since 2008, through the Swiss Bank Program EdR has continued to proactively encourage U.S. clients to make a voluntary disclosure to U.S. authorities through the OVDP if and when EdR has learned of a client's non-compliance with U.S. tax obligations. 36. The overwhelming majority of the Bank's outreach efforts in connection with the Swiss Bank Program concerned former clients who no longer had a relationship with EdR. Many of those former clients left EdR, or were asked to leave, years ago, as a result of EdR's increasingly active compliance efforts with respect to U.S. clients. EdR has devoted significant time and effort to convince certain U.S. clients to participate in the OVDP, including through in-person meetings and numerous follow-up discussions to ensure that those individuals follow through on the commitment to enter the OVDP. To date, approximately (112] of EdR's U.S. clients have participated or may be in the process of participating in the OVDP as a result of the Bank's effortsThroughout its participation in the Swiss Bank Program, EdR also has made comprehensive disclosures regarding its U.S. cross-border business. Specifically, EdR, with the assistance of U.S. and Swiss counsel, forensic investigators, and in compliance with Swiss banking secrecy and privacy laws has: a. Conducted an expansive internal investigation, which included but was not limited to: (I) interviews of key RMs, supervisory RMs, EAMs, and members of EdR's management (2) reviews of client account files and correspondence; (3) analysis of relevant management policies; and (4) review of relevant electronic communications; b. Provided information concerning numerous U.S. client accounts held at EdR in Switzerland since August of 2008 sufficient to make treaty requests to the Swiss competent authority for U.S. client account records; c. Described in detail the structure of EdR's U.S. cross-border business, which included but is not limited to: (I ) the policies or lack of policies that contributed to misconduct committed by RMs, supervisory RMs, and Bank management; (2) the supervisory chain overseeing RMs; and (3) the names of senior management and legal and compliance officials; d. Provided detailed information concerning the operation of its U.S. cross-border business, which included but is not limited to: (1) misconduct committed by EdR; and (2) names of RMs who committed misconduct e. Provided the names and information of key EAMs who made significant contributions to the operation of EdR's U.S. cross-border business as well as the RMs who assisted those EAMs; and itposmm.in MRAFT 06.06-2013j Commented VA26): A limited number of KM? LIIL‘f sin AESCIILIMANN Wet 200.06.06ISISM EFTA00584249 f. Provided responsive, specific, and actionable infonnation to the Department of Justice concerning associated persons, entities, and areas of concern for use in other ongoing and potential Department of Justice investigations. • • • MC4888384.111 I DFtAIT 06-06-20Bj EFTA00584250