The DOJ asserted that, from January 1, 2008 through June 30, 2014, Zurich issued or had certain insurance policies and accounts of U.S. taxpayer customers who used their policies to evade U.S. taxes and reporting requirements. In particular, according to the DOJ, Zurich had approximately 420 U.S. related policies, 127 with Zurich Life and 293 with Zurich International Life, with an aggregate maximum value of approximately $102 million, for which the U.S. taxpayer customers did not provide evidence that they had declared their policies to U.S. tax authorities.

To qualify for favorable tax treatment under the U.S. tax code, insurance must meet certain minimal requirements. The DOJ asserted that the policies offered by Zurich Life and Zurich International Life did not meet these requirements. According to the DOJ, the increase of the principal in these policies, therefore, was subject to taxation, and the policies were required to be disclosed to the Internal Revenue Service (“IRS”) on FinCEN Form 114 Foreign Bank Account Report, commonly referred to as an FBAR. In issuing or having undeclared U.S. related policies, Zurich knew or should have known that they were helping U.S. taxpayers conceal from the IRS ownership of undeclared assets, maintained as insurance policies or accounts, the DOJ asserted.

Zurich International Life, in particular, sold insurance products to U.S. taxpayers that were “unit linked,” meaning the cash surrender value and death benefit amount were linked to the value of specified investments, the DOJ said. With such policies, the U.S. taxpayer had a suite of specialized investment options, allowing them to access potentially higher returns by taking on the market risk associated with the policies. Some of these unit-linked policies offered a base death benefit that was nearly equivalent to the cost of the policy itself, and in some instances was fully funded by transfers from offshore bank accounts. Upon redemption, the U.S. taxpayer would receive the premium amount plus any investment earnings on the policy less a very small percentage for putative risk and fees, according to the DOJ.

Despite knowing that some of these policies, which had minimal-to-no risk mitigation function and specialized investment options, were held by U.S. taxpayers, Zurich International Life failed to act appropriately to ensure timely compliance by the policyholders with U.S. tax laws, the government asserted. In at least one instance, uncovered during the course of Zurich Life's internal review, a former U.S. citizen, who pled guilty to a federal fraud offense after purchasing a Zurich International Life policy, used that insurance policy to hide substantial assets, despite owing approximately $900,000 in restitution to his victims, the DOJ said.

Following the commencement of the DOJ's Swiss Bank Program, the Zurich Group initiated a global review of the life insurance, savings and pension business sold by all of its non-U.S. operating companies to identify policies or accounts with U.S. indicia. This review prompted an extensive customer outreach to current and former customers with a possible nexus to the United States to confirm the customers' status as U.S. taxpayers, assess their compliance with applicable U.S. tax and reporting rules, and encourage participation in an IRS voluntary disclosure program, according to the DOJ.

The DOJ added that, in July 2015, Zurich contacted the DOJ to inform it of the initial findings of the self-review. Prior to the self-reporting, Zurich was neither a subject nor a target of any investigation being conducted by the Tax Division. Since this self-disclosure, Zurich has conducted a thorough investigation and reported substantial findings to the Tax Division, including dozens of detailed summaries of account information and comprehensive reports for the U.S. related policies,the DOJ said.

In addition to these efforts, the DOJ added, the companies have worked closely with non-U.S. regulators to ensure full disclosure to the DOJ. For instance, in 2016, Zurich Life applied to the Swiss Federal Department of Finance and received approval to waive Article 271 of the Swiss Criminal Code, which restricted the disclosures that Zurich Life could make to the DOJ, thereby facilitating Zurich Life's production of certain information that would have otherwise been prohibited.