Swiss Bank pleads guilty to tax fruad, Oldest Swiss bank Wagelin & Co shutting down

By CHAD BRAY

In the latest blow to Switzerland’s centuries-old banking practices, the country’s oldest bank pleaded guilty to a criminal conspiracy charge in the U.S. on Thursday and admitted that it helped wealthy Americans for years avoid tens of millions of dollars in taxes by hiding their income from secret accounts abroad.

Wegelin & Co., founded in 1741, is the latest Swiss bank to reach a deal with U.S. prosecutors as they crack down on Americans who kept their money in secret accounts overseas and the entities which helped them. Three Wegelin bankers also were charged criminally in the U.S. last year.

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Getty ImagesWegelin & Co., founded in 1741, plans to shut after the matter is closed.

However, the private bank, which plans to close its doors once the matter wraps up, is the first to plead guilty to a criminal charge in the U.S. government’s probe.

The broad investigation, which began in 2008, has set off tensions between the U.S. and Switzerland over its bank secrecy laws. U.S. authorities have pressured the Swiss for the names of Americans with Swiss accounts.

Meanwhile, Swiss authorities last year gave banks permission to provide some information to U.S. authorities. They have since been hoping to reach a sweeping settlement with the U.S. that would address handing over information about Swiss accounts to the U.S. and the U.S. taxing of assets held in Switzerland.

Otto Bruderer, Wegelin’s managing partner, entered a guilty plea on the bank’s behalf at a hearing in Manhattan federal court on Thursday and said the bank, between 2002 and 2010, knew U.S. taxpayers maintained secret accounts at Wegelin in order to evade U.S. taxes.

“Wegelin was aware that this conduct was wrong,” Mr. Bruderer said during the hearing. “However, Wegelin believed that, as a practical matter, 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.”

As part of its plea, Wegelin, based in St. Gallen, Switzerland, agreed to forfeit $15.8 million and give up another $20 million representing the amount of taxes avoided as a result of its conduct. The bank also faces a fine of between $14.7 million and $29.4 million.

Sentencing is set for March 4.

In court documents, the U.S. claimed that Wegelin “deliberately set out” to capture illegal banking business lost by UBS AG UBSN.VX +2.71% and another, unnamed Swiss bank after the U.S. began investigating their operations in 2008 and in 2009. UBS and the other bank have since stopped servicing undeclared Swiss accounts, according to prosecutors.

UBS entered a deferred prosecution agreement in 2009, in which it admitted to conspiring to defraud the U.S. government out of billions of dollars in taxes and avoided criminal charges. As part of the agreement, UBS turned over the names of more than 4,000 U.S. account holders and paid a $780 million fine.

The U.S. claimed that more than $1.2 billion was hidden by Wegelin from tax authorities in undeclared accounts overseas.

The bank allowed some U.S. clients to open accounts using code names or numbers in order to minimize references to their real names, prosecutors said.

Bankers also opened accounts in the name of offshore sham corporations and foundations in order to avoid detection, including entities formed under the laws of Liechtenstein, Panama and Hong Kong, prosecutors said.

Wegelin bankers went to great lengths to hide transactions, including communicating with U.S. taxpayers using their personal email accounts and avoided mailing account statements, prosecutors said.

One unnamed client traveling to Africa on safari allegedly sent an envelope with a single piece of paper on which the client had written only the amount of money needed pay for the safari, approximately $37,000, prosecutors said.

Wegelin sold its non-U.S. operations to Swiss retail bank Raiffeisen in January 2011 in a bid to protect its assets from charges it had helped U.S. clients avoid paying taxes.

courtesy: wsj.com, OxBridge Research