Forum Post: Swiss Bank Folds After US Criminal Tax Evasion Conviction

Swiss Bank Pleads Guilty to Tax Law Violations

By PETER LATTMAN

Preet S. Bharara, the United States attorney in Manhattan.Daniel Barry for The New York TimesPreet S. Bharara, the United States attorney in Manhattan.

Switzerland’s oldest private bank on Thursday admitted to helping Americans evade United States taxes, the first time a foreign financial institution has pleaded guilty to tax law violations.

Representatives for Wegelin & Company, a Swiss bank founded in 1741, appeared in Federal District Court in Manhattan and acknowledged that for nearly a decade the firm helped dozens of wealthy American customers dodge taxes by hiding more than $1.2 billion in secret accounts.

As part of guilty plea, Wegelin agreed to pay $74 million in fines, restitution and forfeiture proceeds to the United States government. Several Wegelin executives appeared at the hearing before Judge Jed S. Rakoff, including one of its managing partners, Konrad Hummler, a well-known figure in the Swiss private banking industry.

“From about 2002 through 2010, Wegelin agreed with certain U.S. taxpayers to evade the tax obligations of these U.S. taxpayer clients, who filed false tax returns with the I.R.S.” Otto Bruderer, another Wegelin partner, said in court. “Wegelin was aware the conduct was wrong.”

Mr. Bruderer said that Wegelin assisted the American clients because it believed that it would not be prosecuted in the United States because it had no offices here, and had acted in accordance with Swiss law. He also noted that the conduct was common practice in the Swiss banking industry.

Although Wegelin ceases to exist as a business, the firm’s partners sold its non-American client accounts last January to the Raiffeisen Group, an Austrian bank, just before its indictment. That move was sharply criticized by Judge Rakoff in a court hearing last year as a “fraud upon fraud.”

Nevertheless, Wegelin’s admission of guilt represents a victory for the Obama administration in its sweeping crackdown on Americans using offshore banks to evade taxes. It also demonstrates the long arm of the Justice Department, extracting a guilty plea from a foreign company with no business operations in the United States.

The case strikes another blow at Swiss banking secrecy, a shadowy world that United States authorities have penetrated recently after decades of looking the other way. For years, secrecy has been a hallmark — and an attractive selling point — of Switzerland’s private banks, which, alongside chocolate and watchmaking, are one of the country’s best-known businesses.

In 2009, UBS avoided criminal charges by striking a so-called deferred prosecution agreement in which it paid a $780 million fine and turned over the names of about 4,500 clandestine accounts believed to hold the assets of American taxpayers. Around the same time, the Internal Revenue Service initiated an amnesty program that allowed Americans to avoid criminal liability by divulging offshore accounts. The program was a success, yielding more than $2.7 billion in taxes and penalties from about 30,000 taxpayers.

As part of the push to eliminate tax cheats, a federal grand jury in Manhattan indicted Wegelin last February. The firm’s elaborate scheme involved its Swiss bankers’ opening secret accounts for American clients using code names and setting up sham entities to avoid detection in far-flung locales, including Panama and Liechtenstein.

“There is no excuse for wealthy Americans flouting their responsibilities as citizens of this great country to pay their taxes, and there is no excuse for foreign financial institutions helping them to do so,” said Preet Bharara, the United States attorney in Manhattan. “Today’s guilty plea is a watershed moment in our efforts to hold to account both the individuals and the banks — wherever they may be in the world — who are engaging in unlawful conduct that deprives the U.S. Treasury of billions of dollars of tax revenue.”

Mr. Bharara’s office had also brought an indictment against three Wegelin executives last year, but they are expected to avoid facing the charges because a treaty between Switzerland and the United States does not provide for extradition of Swiss individuals for tax crimes.

The Justice Department said that Wegelin had lured clients away from larger Swiss financial institutions like UBS after those banks came under investigation. As of December 2010, Wegelin had about $25 billion in assets under management.

From its headquarters in St. Gallen, a quiet mountain town in northeast Switzerland, Wegelin pitched itself as a safe haven for American taxpayers because it had no operations in the United States. A Web site marketing Wegelin’s services said, “Neither the Swiss government nor any other government can obtain information about your bank account.”

Included in the $74 million in penalties is about $16 million in forfeited proceeds that Wegelin held in a UBS bank account in Stamford, Conn. The account, prosecutors said, was used to launder money from Switzerland to American clients and conceal that money from United States tax authorities.

The balance of the penalties is more than $20 million in restitution for taxes evaded, about $16 million in fees on American taxpayer client accounts and a fine of about $22 million. Wegelin was represented by Richard M. Strassberg of the law firm Goodwin Procter.

Just two months after the case was brought against UBS, Wegelin raised the hackles of the Justice Department. In April 2009, Mr. Hummler, the Wegelin partner, wrote an eight-page note titled “Farewell America.” The memo by Mr. Hummler, who served as chairman of the Swiss Private Bankers Association, championed Swiss banking laws and said that Wegelin was in the process of recommending that its clients exit all direct investments in United States securities. Mainly, though, the note was a rambling jeremiad against the United States.

“The U.S.A. has fought by far the largest number of wars, sometimes with, but mostly without a U.N. mandate,” Mr. Hummler wrote. “It has broken the international laws of war, maintained secret prisons, and fought an absurd war against drugs.”

“A country,” he continued, “whose underclass enjoys neither the benefits of an adequate education, nor a halfway functional health care system; a country whose economic system is increasingly inclined to overconsumption, and in which saving and investing have increasingly become alien concepts, a situation that has undoubtedly been one of the driving forces behind the current recession, with all its catastrophic consequences for the whole world.”

After representatives of Wegelin failed to appear in federal court at the time of its indictment last February, federal prosecutors labeled the Swiss bank a “fugitive.”

The typically colorful Judge Rakoff was subdued during Thursday’s hearing. But in a court session last January, he blasted Wegelin for selling its non-United States business just before an indictment, suggesting that it was a blatant effort to shield its assets from the United States government.

If an American partnership had taken those actions, Judge Rakoff said, “the government would be here saying with perhaps considerable force that this was a fraud upon fraud compounding the prior alleged crime with patent evasions and consciousness of guilt.”

Daniel Levy, a federal prosecutor, did not disagree. “That would be one reasonable view of the facts,” he said.

http://www.dailykos.com/story/2013/01/03/1176167/-Swiss-Bank-Folds-After-US-Criminal-Conviction#