U.S. Department of Justice Indicts Swiss Bank Weglin & Co. for Assisting in Tax Fraud
On February 2, 2012, the U.S. Department of Justice announced the indictment of Wegelin & Co., a Swiss private bank, for conspiring with U.S. taxpayers and others to hide more than $1.2 billion in secret accounts and the income these accounts generated from the Internal Revenue Service (IRS). This is the first time an overseas bank has been charged by the United States for facilitating tax fraud by U.S. taxpayers.
The Justice Department press release also notes that the U.S. Government seized more than $16 M from Wegelins U.S. correspondent bank accounts, pursuant to a civil forfeiture complaint. The press release details the allegations in the criminal indictment, the thrust of which are succinctly summarized as follows:
In the wake of the IRS investigation of UBS, members of Wegelins senior management affirmatively decided to capture the illegal business that UBS exited. To capitalize on the business opportunity this presented and to increase the assets under management, along with the fees earned from managing those assets, Berlinka, Frei, Keller and others, acting on behalf of Wegelin, told various U.S. taxpayer-clients that their undeclared accounts would not be disclosed to U.S. authorities because the bank had a long tradition of secrecy. They also persuaded U.S. taxpayer-clients to transfer assets from UBS to Wegelin by emphasizing, among other things, that unlike UBS, Wegelin did not have offices outside of Switzerland and was therefore less vulnerable to U.S. law enforcement pressure. Members of the Swiss banks senior management approved efforts to capture the clients who were leaving UBS and also participated in meetings with U.S. taxpayer-clients who were fleeing UBS.
However, the timing of indictment is conspicuous. On January 30, 2012, eight Swiss banks (Credit Suisse, Julius Baer, and Basler Kantonalbank, among others) handed over to the United States government data on U.S. clients suspected of evading U.S. income taxes. This disclosure was made in order to avoid prosecution in the United States. However, remarkably, the data was encrypted at the Swiss governments request, and Switzerland has indicated that it will not provide the encryption key to unlock the data until the Swiss and the United States reach a broader agreement on exchange of information.
The clear implication of the Wegelin indictment is that the Department of Justice is making good on its threats of prosecution. Indeed, in taking the unprecedented move to indict a foreign bank that has no branches to the United States, the Justice Department is sending a clear message to foreign banks, and U.S. taxpayers, that income tax evasion, and assisting those that evade income taxes, will not go unpunished.
The press release is available here.
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