Oldest Swiss bank closes after guilty plea for US tax law violations
On January 3, 2013, Mr. Otto Bruerer of Wegelin & Company, which was founded in 1741 and Switzerland’s oldest bank, entered a plea on Wegelin’s behalf to a single count of conspiracy to commit tax evasion (the technical language of the charge is “willfully and knowingly would and did defraud the USA and the IRS for the purpose of impeding, impairing, obstructing, and defeating the lawful governmental functions of the IRS …).
Under the proposed plea agreement, Wegelin will pay $20 million in restitution to the U.S., forfeit $15.8 million representing fees on undeclared accounts, and pay a fine of more than $22 million. The expected court approval of the plea agreement and sentencing is set for March 4. Last year, in a separate civil lawsuit by the U.S., the judge entered a default judgment against the bank when it failed to appear ordering it to forfeit about $16.2 million held in its U.S. account.
Prosecutors said that from 2002 to 2011, more than 100 U.S. taxpayers conspired with Wegelin (and specified employees) and that the Bank held more than $1.2 billion in undeclared assets. The bankers allegedly persuaded Americans to transfer assets to Wegelin because it had no offices outside Switzerland and was less vulnerable to U.S. pressure.
The case has garnered considerable media attention for number of reasons, the most colourful one being Konrad Hummler, one of the bank’s partners who in 2009 had written an 8 page “farewell, America” letter to Wegelin clients in which he urged them to sell any U.S. securities they owned to thwart IRS scrutiny. The letter criticized the U.S. as an imperialist country with an underclass which “enjoys neither the benefits of an adequate education, nor a halfway functional health care system” and whose economic system is “inclined to over-consumption” and one of the “driving forces behind the current recession.” With this type of rhetoric, it was no surprise that Mr. Hummler, who once served as chairman of the Swiss Private Bankers Association, drew the ire of officials at IRS and the Justice Department.
Two further facts are worth noting. First, Prosecutors alleged that the Wegelin bankers tried to capture business lost by UBS after it came under U.S. investigation in 2009, which even hardened Swiss bankers view as being a very aggressive strategy (one once described these accounts to me as “toxic”). Second, as part of its “survival” strategy, which can only be described as asset stripping at about the time of the indictment, Wegelin sold its non-U.S. operations to Bank Raiffeisen.
The plea is viewed as a victory for the U.S. and it emboldens Justice Department prosecutors in the government’s efforts to hold banks and individuals accountable for tax evasion. This includes ongoing investigations of at least 10 other Swiss banks for potentially helping Americans seeking to evade taxes, and the pressure being placed by the U.S. on all “foreign financial institutions” with the arrival of full FATCA reporting in 2014. It is also viewed as a PR success for the IRS which continues to promote its voluntary disclosure programs for U.S. taxpayers with undisclosed offshore assets.