Wegelin & Co., the 270-year-old private bank, became the first Swiss lender to face criminal charges in a broadening U.S. crackdown on offshore firms suspected of helping Americans evade taxes.
Wegelin helped Americans hide more than $1.2 billion in assets and evade U.S. taxes, according to an indictment filed yesterday in federal court in New York. The new charges expand on earlier ones filed Jan. 3 against three bankers at Wegelin’s Zurich branch accused of conspiring to help U.S. clients cheat on their taxes.
Prosecutors said that from 2002 to 2011, more than 100 U.S. taxpayers conspired with Wegelin, Zurich bankers Michael Berlinka, Urs Frei and Roger Keller, and others. The bank held more than $1.2 billion in assets not declared to the Internal Revenue Service, according to the indictment.
“Wegelin Bank aided and abetted U.S. taxpayers who were in flagrant violation of the tax code,” Manhattan U.S. Attorney Preet Bharara said in a statement.
The U.S. and Switzerland are in talks to resolve a U.S. probe of offshore tax evasion. Wegelin was one of at least 11 banks under criminal investigation by the Justice Department’s tax division. Wegelin announced on Jan. 27 that it agreed to a sale to Switzerland’s Raiffeisen Group.
U.S. authorities yesterday also used a civil forfeiture case to seize $16 million in Wegelin’s correspondent account at UBS AG in Stamford, Connecticut. That complaint alleges that Wegelin and other Swiss banks used the account to “launder” undeclared funds for U.S. clients and hide them from the IRS.
Richard Strassberg, a lawyer who represents Wegelin in the U.S., declined to comment.
Bryan Skarlatos, a tax attorney in New York, said the indictment is an important step because it demonstrates the government’s willingness to indict a foreign bank.
“The indictment shows that the U.S. government will indict a Swiss bank if they don’t get cooperation,” said Skarlatos, of Kostelanetz & Fink LLP. “It’s symbolic in that the United States is saying that if a Swiss bank doesn’t cooperate, it will be indicted. It puts pressure on other Swiss banks to cooperate.”
The Swiss must penalize Wegelin in some way for the indictment to have an impact on the bank, said George M. Clarke III, a tax attorney with Miller & Chevalier.
“There’s a big question about how this plays out and whether it means anything or whether it’s just a question of the U.S. functionally pounding its chest,” Clarke said. “Wegelin clearly knew this was coming or was preparing for this. Is the U.S. going to get a fine, penalty or restitution, or will this be an indictment in name only?”
Prosecutors said that Wegelin and the three bankers wooed U.S. clients fleeing UBS, the largest Swiss bank. UBS avoided U.S. prosecution in 2009 by admitting it aided tax evasion, paying $780 million and handing over data on 250 accounts. It later disclosed information on about 4,450 more accounts.
By attracting clients leaving UBS, Wegelin opened new undeclared accounts for at least 70 U.S. taxpayers, according to the indictment. Most of those accounts were given an internal code of “BNQ,” indicating the accounts were undeclared.
The effort to woo UBS clients was backed by Wegelin’s senior management, according to the indictment. “Managing Partner A” and “Executive A” supervised videotaped training sessions with client advisers in the Zurich branch to instruct them on selling points for clients fleeing UBS, according to the indictment.
The selling points included that Wegelin was “small, discreet, and, unlike UBS, not in the media,” according to the indictment. Wegelin bankers emphasized that because it had no offices in the U.S., it wasn’t subject to law enforcement pressure there, prosecutors said.
Philip West, a former international tax counsel at the Treasury Department, said it was “unfortunate” that the Justice Department and Wegelin couldn’t reach an agreement short of indictment.
“The Justice Department alleged that Switzerland’s oldest bank had tried to capitalize on the misfortunes of UBS and attract the clients UBS was rejecting, and assisting them in doing just what UBS was accused of doing,” West, of Steptoe & Johnson LLP, said in an e-mail. “If true, this would have made any resolution short of indictment very difficult.”
In its Jan. 27 announcement, Wegelin, based in St. Gallen, Switzerland, said its U.S. business, and the risks and responsibilities that go with it, will remain with the current partners. Wegelin didn’t disclose the sale price.
Credit Suisse AG, the second-largest Swiss bank, said July 15 that it was a target of a criminal probe by the Justice Department over former cross-border private-banking services to U.S. customers. On July 21, seven Credit Suisse bankers were indicted on a charge of conspiring to help U.S. clients evade taxes through secret accounts.
The IRS has said 30,000 U.S. taxpayers with offshore accounts have avoided prosecution since 2009 by entering a limited amnesty program, paying back taxes and saying who helped them hide their accounts from authorities. Hundreds of taxpayers in the program have given information to prosecutors that has helped them build criminal cases against bankers and advisers.
The U.S. crackdown against offshore tax evasion has led to criminal charges against at least 21 foreign bankers, advisers and attorneys and at least 40 U.S. taxpayers.
The Wegelin criminal case has been assigned to U.S. District Judge Jed Rakoff.
The criminal case is U.S. v. Berlinka, 12-cr-00002, U.S. District Court, Southern District of New York (Manhattan). The forfeiture case is U.S. v. All Funds on Deposit at UBS AG, Account No. 101-WA-358967-000, Held in the Name of Wegelin & Co., U.S. District Court, Southern District of New York (Manhattan).