CORPORATE CRIME REPORTER
German Bank HVB Admits to Crimes, but Gets Deferred Prosecution
20 Corporate Crime Reporter 8(1), February 14, 2006
The German bank Bayerische Hypo-Und Vereinsbank AG (HVB) admitted
today to criminal wrongdoing for its participation in the KPMG tax shelter fraud.
But the prosecution against the company was deferred by agreement
with the U.S. Attorney in Manhattan.
The company will pay $29.6 million in fines, restitution and penalties.
A felony information
charged HVB was involved in the phony tax shelters that generated $1.8 billion
in phony losses reported on income tax returns in the United States.
The deferred prosecution agreement will last 18 months.
Under the agreement, the bank will be prohibit from engaging in any transaction
or strategy that “has a significant tax component,” unless such
transaction or strategy is accompanied by an opinion that the transaction “should”
be upheld by the courts if litigated.
The United States Attorney, Michael Garcia, said that the decision to file a
criminal charge against HVB was based on a number of factors, including:
* the seriousness of HVB’s conduct, which resulted in over $500 million
dollars in evaded taxes and other significant losses to the United States Treasury;
* the duration of HVB’s fraudulent tax shelter conduct, which lasted from
1996-2003;
* the involvement of a senior officer in HVB’s New York office, Domenick
DeGiorgio – who has previously pled guilty in the investigation –
and the knowledge of HVB’s highest-level management of HVB’s participation
in the shelters;
* HVB’s failure to cease its illegal activity despite its knowledge of
notices issued by the IRS warning the public about the shelters and advising
the public that the IRS viewed them as invalid and possibly criminal; and
* HVB’s failure to voluntarily disclose its wrongdoing to the IRS during the course of an IRS audit into HVB’s shelter activity, and HVB’s failure to provide truthful testimony and information at hearings into the tax shelters conducted by the Senate Permanent Subcommittee on Investigations.
But Garcia said that the decision to defer the prosecution of HVB was based
on a variety of factors and considerations including:
* the
relative volume of HVB's tax shelter transactions compared with other institutions;
* HVB's
prompt and complete cooperation with the criminal investigation, including by
voluntarily disclosing wrongdoing;
* HVB's
frank acknowledgment of its own illegal conduct in connection with entry of
the deferred prosecution agreement;
* HVB's
agreement to institute additional, significant reforms to its compliance program
to ensure that this conduct does not recur; and
* HVB's agreement to disgorge the fees it earned from the shelters, make restitution to the IRS and pay a penalty to the IRS for failure to register shelters.
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