Deutsche Bank has entered into a non-prosecution agreement to pay $553.6 million penalty for participating in fraudulent tax shelters that let clients hide billions of dollars from the Internal Revenue Service (IRS) and dodge taxes, U.S. prosecutors said.
The Frankfurt-based major international bank has admitted to criminal wrongdoing for helping rich Americans report more than $29 billion in bogus tax profits.
According to the office of the U.S. Attorney of the Southern District of New York, the $553.6 million payment represents the total of the fees Deutsche Bank earned from its participation in the tax shelter activity, the amount of taxes and interest the Internal Revenue Service (IRS) was unable to collect from taxpayers because of the misconduct and a civil penalty of more than $149 million.
U.S. government has been cracking the whip on banks that helped to evade taxes of rich Americans. Last year, Swiss bank UBS paid a fine of $780 million for helping clients with roughly $20 billion in assets hide their accounts from the Internal Revenue Service (IRS).
The bank had participated in about 1,300 deals with some 2,100 customers related to the shelters. They had names like Foreign Leveraged Investment Program, Bond Linked Issue Premium Structure, and Partnership Option Portfolio Securities and they were marketed using the acronyms like FLIP, BLIPs, COBRA, HOMER and POPS LITE, which were set up between 1996 and 2002.
The government said they allowed high net worth individuals to avoid some $5.9 billion in U.S. income taxes.
According to the agreement, an independent expert will be appointed for reviewing the implementation and effectiveness of its compliance measures. The expert, Bart Schwartz, chairman of private investigator Guidepost Solutions LLC and former chief of the office's criminal division, will oversee the bank's compliance with tax laws.
Under the agreement, the bank must comply with terms of the non-prosecution agreement for two years or until Schwartz has concluded his tenure - whichever period is longer.
The deal also requires the bank should cooperate with tax authorities and prosecutors continuously.
The prosecutors also said that the agreement bans the bank's involvement with any of the pre-packaged tax products that gave rise to the investigation.
The bank, which was represented in the matter by Mark F. Pomerantz of Paul Weiss Rifkind Wharton & Garrison LLP, said in a statement the agreement would resolve the probe of transactions for clients and also said it has previously taken appropriate provisions for the full amount of the fine - so the payment will not have any impact on current net income.
Deutsche Bank is pleased that this investigation, which concerned transactions that ceased more than eight years ago, has come to a resolution. Since 2002, the bank has significantly strengthened its policies and procedures as part of an ongoing effort to ensure strict adherence to the law and the highest standards of ethical conduct, the bank said.