Wegelin encouraged clients not to come forward to the U.S. Internal Revenue Service and disclose their names in exchange for reduced penalties.
Clients who did so helped with the investigation providing the Justice Department with details about the bank’s inner workings, which led to the indictment, says Reuters.
“Wegelin affirmatively decided to capture for Wegelin the illegal U.S. cross-border banking business lost by UBS and deliberately set out to open new undeclared accounts for US taxpayer-clients leaving UBS,” the indictment said.
It was also noted, the U.S. government had seized more than $16 million from Wegelin’s correspondent bank, the Swiss giant UBS AG, in Stamford, Connecticut, due to a separate civil forfeiture complaint. UBS was unreachable for immediate comment.
It was revealed, from 2002 to 2011, more than 100 U.S. taxpayers conspired with Wegelin, the three Zurich bankers – Michael Berlinka, Urs Frei and Roger Keller – and others.
As a result, the bank managed to hold more than $1.2 billion in assets not declared to the Internal Revenue Service.
“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 trying to solve this problem. Wegelin was one banks under criminal investigation by the Justice Department’s tax division.
Bryan Skarlatos, a tax attorney in New York, highlighted the importance of the indictment as it demonstrates the government’s willingness to indict a foreign bank, says BusinessWeek.
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.
“Wegelin used a special code, “BNQ,” on around 70 new U.S. undeclared accounts that were opened over 2008 and 2009. It also sometimes opened accounts for U.S. citizens who held passports from other countries, and opened the accounts through the non-U.S. passports,” the justice officials said.
“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.”
Phil 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 said. “If true, this would have made any resolution short of indictment very difficult.”
In its announcement on Jan. 27, Wegelin, said its business in United States, that means all the risks and responsibilities for consequences that go with it, will remain with the current partners. Wegelin, which describes itself as the oldest Swiss bank, didn’t disclose the sale price.