Wegelin & Co, the 270-year-old private bank, became the first Swiss lender to face criminal charges in a broadening US crackdown on offshore firms suspected of helping Americans evade taxes.
Wegelin helped Americans hide more than US$1.2 billion in assets and evade US 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 US clients cheat on their taxes.
Prosecutors said that from 2002 to last year, more than 100 US taxpayers conspired with Wegelin, the three Zurich bankers — Michael Berlinka, Urs Frei and Roger Keller — and others. The bank held more than US$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 US Attorney Preet Bharara said in a statement.
The US and Switzerland are in talks to resolve a US 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.
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 US 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.”
Federal authorities on Thursday also seized US$16 million in Wegelin’s correspondent bank account in the US at UBS AG.
Prosecutors said that Wegelin and the three bankers wooed US clients fleeing UBS, the largest Swiss bank. UBS avoided US prosecution in 2009 by admitting it aided tax evasion, paying US$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.
The effort to woo UBS clients was backed by Wegelin’s senior management, according to the indictment. Wegelin bankers emphasized that because it had no offices in the US, it wasn’t subject to law enforcement pressure there, prosecutors said.
Phil West, a former international tax counsel at the US Department of the Treasury, said it was “unfortunate” that the Department of Justice 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 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 US business, and the risks and responsibilities that go with it, will remain with the current partners.