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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