US Court Orders Wegelin to Pay a Total Penalty of $74 Million

Mar 14, 2013   

As has been widely reported, the United States District Court for the Southern District of New York sentenced Wegelin & Co, the oldest Swiss private bank, to pay an additional $58 million after it admitted to helping wealthy Americans evade taxes. The press release issued by the U.S. Attorney’s Office for the Southern District of New York is available here. Our prior report on the Wegelin indictment is available here and our prior report on the Wegelin guilty plea is available here.

As noted in the press release

Together with the April 2012 forfeiture of more than $16.2 million from WEGELIN’s U.S. correspondent bank account, this amounts to a total recovery to the United States of approximately $74 million. WEGELIN pled guilty in January 2013 to one count of conspiracy to defraud the IRS, file false federal income tax returns, and evade federal income taxes before U.S. District Judge Jed S. Rakoff, who also imposed today’s sentence. This case represents the first time that a foreign bank has been indicted for facilitating tax evasion by U.S. taxpayers and the first guilty plea and sentencing of such a bank.

Manhattan U.S. Attorney Preet Bharara said: “Wegelin has now paid a steep price for aiding and abetting tax fraud that should be heeded by other banks, bankers, and advisers who engage in the same conduct. U.S. taxpayers with undeclared accounts – wherever those accounts may be – should know that their bank may be next, and they should pay what they owe the IRS before we come find them.”

Wegelin, which had $25 billion in assets at the end of 2010, said at the time of its guilty plea in January said it would close.

Reuters described the March 4 hearing as follows:

During Monday’s hearing, [District Court Judge] Rakoff followed prosecutors’ recommendations and imposed a $22.05 million fine and ordered $20 million in restitution. He also entered an order finalizing $15.82 million in forfeitures, which he preliminarily approved at the time of the guilty plea.

But while Rakoff approved the plea deal, he said there was a “funny tension” between the U.S. Justice Department’s decision not to seek the maximum $40 million fine and its assertion Wegelin acted with “extreme willfulness.”

Rakoff said even including the $16.3 million the government recovered in April 2012 by seizing money in Wegelin’s U.S. correspondent account, the bank will be giving up just 12 percent of the 560 million Swiss francs ($613 million) it earned after it sold most of its assets to regional Swiss bank Raiffeisen last year.

“Not much pain there, is there?” Rakoff said.

Rakoff, who has previously rejected U.S. Securities and Exchange Commission settlements with Citigroup Inc and Bank of America Corp, ultimately accepted the proposal, which prosecutor Daniel Levy called “very substantial.”

What does the prosecution mean for U.S. taxpayers? While it remains to be seen, it appears that the U.S. Government’s attempt to increase the pressure on U.S. taxpayers and foreign banks that have assisted U.S. taxpayers with skirting their reporting obligations has not slowed at all. In fact, it appears to be increasing. The result is that U.S. taxpayers who still are attempting to hide their assets out of the country to avoid U.S. taxation may be losing their window of opportunity to make amends and pay civil penalties and avoid criminal prosecutions.

The attorneys at Fuerst Ittleman David & Joseph, PL have extensive experience in navigating the world of offshore bank accounts and the reporting requirements of U.S. taxpayers with the IRS. One can contact an attorney by emailing us at contact@fidjlaw.com or by calling us at 305.350.5690.