Taxations
Tax avoidance

Tax avoidance ... investigation by USA authorities now going beyond Switzerland and Swiss Banks ... also about the closing of the Wegelin Bank that was founded in 1741

Burgess COMMENTARY

Peter Burgess

WASHINGTON: The U.S. has expanded its action against tax cheaters to countries such as India, Israel and Liechtenstein, a top U.S. official told lawmakers. So far, the U.S. action was primarily focused against tax cheaters on Switzerland.

'While the (Justice) Department's initial efforts and this hearing have focused on Switzerland, we have expanded our investigations to go after tax cheats and the banks assisting them in India, Israel, Liechtenstein, Luxembourg, and several Caribbean countries,' the Deputy Attorney General, James M Cole, told a Congressional committee.

Since 2009, the Department has publicly charged 73 account holders and 35 professionals with violations arising from their offshore banking activities, and 72 individuals have pleaded guilty or were convicted at trial, he said. 'Just as importantly our enforcement efforts have driven over 43,000 taxpayers with secret offshore accounts to identify themselves to the IRS, disclose their offshore accounts, and to pay a total of over $6 billion in back taxes, penalties and interest. And that number is growing,' he said.

Cole said in 2013, the Department obtained four separate orders authorizing the Internal Revenue Service (IRS) to issue John Doe summonses seeking records from banks in the U.S. for the U.S. correspondent accounts of banks located in the Caribbean, Switzerland, and other European countries and America has successfully compelled account holders to provide the U.S. with personal records of their foreign banking activities.

Since the UBS deferred prosecution agreement in February 2009, the Department has taken public action against two other banks, he said, adding that in January 2013, Wegelin Bank, one of the oldest financial institutions in Switzerland, pleaded guilty to conspiracy to defraud the U.S. and was ordered to pay substantial fines and to forfeit funds.

'As a result of its criminal conviction, Wegelin was forced to close its doors, which sent a shockwave through the community of banks and bankers in Switzerland that had been engaged in facilitating U.S. tax evasion. In July 2013, Liechtensteinische Landesbank AG entered into a non-prosecution agreement, and paid substantial fines,' he said. 'What is particularly notable about this case is that we were able to… have Liechtenstein actually change its bank secrecy laws retroactively. This enabled the department to obtain files relating to non-compliant U.S. account holders,' he said. 'In August 2013, the department publicly stated that 14 banks have been authorized for investigation concerning the use of Swiss bank accounts. This is in addition to on-going investigations concerning cross-border activities by banks in India, Israel, Liechtenstein, Luxembourg, and several Caribbean countries,' Cole added.

A logo of the Swiss bank Wegelin is pictured at a building in Bern, January 27, 2012. REUTERS-Michael Buholzer

1 OF 2. A logo of the Swiss bank Wegelin is pictured at a building in Bern, January 27, 2012. CREDIT: REUTERS/MICHAEL BUHOLZER

2 OF 2. The logo of the Swiss Wegelin bank is pictured at the headquarters building in St. Gallen, January 29, 2012. CREDIT: REUTERS/MIRO KUZMANOVIC

(Reuters) - Wegelin & Co, the oldest Swiss private bank, said on Thursday it would shut its doors permanently after more than 2 1/2 centuries, following its guilty plea to charges of helping wealthy Americans evade taxes through secret accounts.

The plea, in U.S. District Court in Manhattan, marks the death knell for one of Switzerland's most storied banks, whose original European clients pre-date the American Revolution. It is also potentially a major turning point in a battle by U.S. authorities against Swiss bank secrecy.

A major question was left hanging by the plea: Has the bank turned over, or does it plan to disclose, names of American clients to U.S. authorities? That is a key demand in a broad U.S. investigation of tax evasion through Swiss banks.

'It is unclear whether the bank was required to turn over American client names who held secret Swiss bank accounts,' said Jeffrey Neiman, a former federal prosecutor involved in other Swiss bank investigations who is now in private law practice in Fort Lauderdale, Florida.

'What is clear is that the Justice Department is aggressively pursuing foreign banks who have helped Americans commit overseas tax evasion,' he said.

Charles Miller, a Justice Department spokesman, declined to comment immediately.

Wegelin admitted to charges of conspiracy in helping Americans evade taxes on at least $1.2 billion for nearly a decade. Wegelin agreed to pay $57.8 million to the United States in restitution and fines.

Otto Bruderer, a managing partner at the bank, said in court that 'Wegelin was aware that this conduct was wrong.'

He said that 'from about 2002 through about 2010, Wegelin agreed with certain U.S. taxpayers to evade the U.S. tax obligations of these U.S. taxpayer clients, who filed false tax returns with the IRS.'

INITIALLY VOWED TO RESIST

When Wegelin last February became the first foreign bank in recent memory to be indicted by U.S. authorities, it vowed to resist the charges. The bank, founded in 1741, was declared a fugitive from justice when its Swiss-based executives failed to appear in U.S. court.

The surprise plea effectively ended the U.S. case against Wegelin, one of the most aggressive bank crackdowns in U.S. history.

'Once the matter is finally concluded, Wegelin will cease to operate as a bank,' Wegelin said in a statement on Thursday from its headquarters in the remote, small town of St. Gallen next to the Appenzell Alps near the German-Austrian border.

But the fate of three Wegelin bankers, indicted in January 2012 on charges later modified to include the bank, remains up in the air. Under criminal procedural rules, the cases of the three bankers - Michael Berlinka, Urs Frei and Roger Keller - are still pending.,

Although Wegelin had about a dozen branches, all in Switzerland, at the time of its indictment, it moved quickly to wind down its business, partly through a sale of its non-U.S. assets to regional Swiss bank Raiffeisen Gruppe.

A corporate indictment can be a death knell. In 2002, accounting firm Arthur Andersen went out of business after being found guilty over its role in failed energy company Enron Corp. A 2005 Supreme Court ruling later overturned the conviction, but it was too late to save the company.

Wegelin, a partnership of Swiss private bankers, was already a shadow of its former self - it effectively broke itself up following the indictment last year by selling the non-U.S. portion of its business.

Dozens of Swiss bankers and their clients have been indicted in recent years, following a 2009 agreement by UBS AG, the largest Swiss bank, to enter into a deferred-prosecution agreement, turn over 4,450 client names and pay a $780 million fine after admitting to criminal wrongdoing in selling tax-evasion services to wealthy Americans.

'WAKE-UP CALL'

William Sharp, a tax lawyer in Tampa, Florida, with many U.S. clients of Swiss banks, said Wegelin's plea 'should serve as a wake-up call' to the world banking community servicing U.S. clients to takes steps to ensure compliance with U.S. law.

Sharp called Wegelin's change of heart 'shocking.'

Banks under U.S. criminal investigation in the wider probe include Credit Suisse, which disclosed last July it had received a target letter saying it was under a grand jury investigation.

Zurich-based Julius Baer and some cantonal, or regional, banks are also under scrutiny, sources familiar with the probes previously told Reuters. So are UK-based HSBC Holdings and three Israeli banks, Hapoalim, Mizrahi-Tefahot Bank Ltd and Bank Leumi, sources also said previously.

Those banks have not commented on the inquiries.

In a statement after the plea, Assistant U.S. Attorney General Kathryn Keneally said it was a top Justice Department priority 'to find those who continue to shirk their tax obligations,' as well as those who help them and profit from it.

'The best deal now for these folks is to come in and 'get right' with the IRS, before either the IRS or the Justice Department finds them,' she said.

Under its plea, Wegelin agreed to pay the $20 million in restitution to the IRS as well a civil forfeiture of $15.8 million, the Justice Department said.

Wegelin also agreed to pay an additional $22.05 million fine, the Justice Department said. U.S. District Judge Jed Rakoff, who must approve the monetary penalties, set a hearing in the case for March 4 for sentencing.

Last year, the U.S. government separately seized more than $16 million of Wegelin funds in a UBS AG account in Stamford, Connecticut, via a civil forfeiture complaint.

Since Wegelin has no branches outside Switzerland, it used UBS for correspondent banking services, a standard industry practice, to handle money for U.S.-based clients.

In court papers, Bruderer said that Wegelin 'believed it would not be prosecuted in the United States for this conduct because it had no branches or offices in the United States and because of its understanding that it acted in accordance with, and not in violation of, Swiss law and that such conduct was common in the Swiss banking industry.'

The case is U.S. v. Wegelin & Co et al, U.S. District Court, Southern District of New York, No. 12-cr-00002.

(Additional reporting by Martin De Sa'Pinto in Zurich; Editing by John Wallace, Steve Orlofsky and Peter Cooney)

(This story was corrected to fix the spelling of Swiss bank to Raiffeisen from Raiffesen in the fourteenth paragraph)