Dreyfus Sons & Co. has operated for two centuries as a private Swiss bank, catering to Jewish clients who wanted to hide assets from the Nazis during the 1930s and World War II.
More recently, it helped U.S. clients hide assets from the Internal Revenue Service by concealing their true ownership with offshore entities and by storing gold and cash in a segregated area of its vaults, according to a non-prosecution agreement, released Tuesday, that the bank reached with the Justice Department.
Dreyfus avoided U.S. prosecution by agreeing to pay $24.2 million and admitting it “did not implement strict enough controls” to ensure that its American clients paid their taxes, the agreement says.
George Clarke, a lawyer for Dreyfus, declined to comment on the accord.
The U.S. announced two other pacts Tuesday, with Credit Agricole SA’s Swiss unit, which agreed to pay $99.2 million, and Baumann & Cie., which is to pay $7.7 million.
Gold Rush
In all, 64 Swiss banks have agreed to pay almost $742 million in penalties this year. While many of the other accords spell out classic Swiss tactics, like numbered accounts and off-the-shelf corporations to help clients cheat the IRS, none detail the use of gold storage like the Dreyfus pact.
Two decades ago, Dreyfus agreed to serve as a custodian for gold and cash held by a Swiss-based British Virgin Islands entity — 315 accounts valued at $440 million, in all. Some of those accounts should have been disclosed to the IRS and weren’t, until clients came forward to tell the tax agency about them to avoid prosecution, according to the bank’s statement of facts in the agreement.
“Although some of the gold and cash client base maintained their accounts because of fears related to the collapse of the banking system,” others “show strong indicia of the concealment of assets,” the agreement says.
The British Virgin Islands entity had an account at the bank, with U.S. customers holding sub-accounts, according to the pact. The sub-accounts were often held in the names of offshore trusts, foundations or corporations.
Jewish Assets
Dreyfus was founded in 1813 in Basel by a Jewish immigrant from France. It grew to 7,000 accounts valued at 18 billion Swiss francs ($18.2 billion) in 2013, the accord says. Of those, 855 were U.S. accounts valued at $1.76 billion.
Some of those accounts were held in the name of Panamanian corporations, a practice that began after World War II because Jewish clients wanted to “protect their assets for reasons of personal safety” while also hiding them from governments, according to the pact. Of the U.S. accounts, 33 were held in the name of Panamanian entities, with bank employees serving as directors for most.
One such account disguised weekly checks ranging from $3,900 to $4,100 to a U.S. woman or her relatives from 1998 to 2013. From another account, opened with $1 million, $925,000 worth of weekly checks were sent to a U.S. man and his three sons, according to the agreement. Other clients used 34 offshore entities in Liechtenstein, the Isle of Man, Liberia, the Bahamas, Nevis and Mauritius.
‘Lack of Candor’
After 2008, when the U.S. began a criminal investigation of UBS Group AG, Switzerland’s largest bank, other Swiss firms began shutting down U.S. accounts because of the risk of being implicated in clients’ tax evasion.
The Dreyfus exit process “languished” until 2012, when a U.S.-born manager was appointed to oversee the operation.
Dreyfus showed a “deliberate lack of candor” by failing to tell the Justice Department that the manager had five accounts valued at $1 million that he didn’t declare to the IRS, according to the agreement. Dreyfus didn’t tell the Justice Department until the manager voluntarily disclosed his accounts to the IRS, giving him a chance to “discreetly regularize his U.S. tax matters.”
The bank tried to use his disclosure, among others, to lower its penalty. When the Justice Department balked, it withdrew its request.
Credit Agricole’s payment was the second-largest of the year after BSI SA, which agreed to pay $211 million in March. Alexandre Barat, a spokesman for Credit Agricole, declined to comment on its pact. Keith Krakaur, a lawyer for Baumann, didn’t immediately return a call.
