FEBRUARY 3, 2012

Swiss Bank Wegelin Indicted on U.S. Tax Charges


U.S. prosecutors filed criminal charges against Switzerland's oldest bank, alleging it helped wealthy Americans hide more than $1.2 billion in secret accounts abroad, the latest move in an ongoing crackdown on overseas tax evasion.

The indictment of Swiss private bank Wegelin & Co., founded in 1741, marks the first time U.S. authorities have charged a bank rather than individuals with helping Americans evade taxes.

U.S. authorities said they also seized more than $16 million from an account Wegelin has with Swiss bank UBS AG in Stamford, Conn.

"Wegelin Bank aided and abetted U.S. taxpayers who were in flagrant violation of the tax code," said Preet Bharara, the U.S. attorney in Manhattan. "And they were undeterred by the crystal-clear warning they got when they learned that UBS was under investigation for the identical practices."

Richard Strassberg, a lawyer for Wegelin, declined to comment.

Wegelin had about $25 billion in assets under management as of December 2010. The bank has been under pressure since U.S. authorities brought criminal charges Jan. 3 against three Wegelin bankers for allegedly helping U.S. taxpayers hide Swiss bank accounts from U.S. tax authorities between 2002 and 2011. Wegelin also allegedly tried to capture business lost by UBS and another Swiss bank after those banks came under U.S. investigation in 2008 and in 2009, prosecutors said.

UBS and the other bank have since stopped servicing undeclared Swiss accounts.
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Wegelin & Co., Switzerland's oldest bank, allegedly pursued business lines vacated by UBS and another bank.

"As managing partners with unlimited liability, we will fulfill our responsibilities and stand by Wegelin's obligations," Wegelin Managing Partner Konrad Hummler told Dow Jones Newswires last week. "We are determined to see the legal negotiations through to the end."
In 2009, UBS admitted to conspiring to defraud the U.S. government of billions of dollars in taxes by helping wealthy Americans hide assets. As part of an agreement to avoid criminal charges, the Swiss bank turned over the names of more than 4,000 U.S. account holders and paid a $780 million fine.
The Wegelin indictment, which was returned by a U.S. grand jury in New York and unsealed Thursday, "shows the U.S. is willing to go after Swiss banks themselves if they don't turn over names of U.S. taxpayers who are account holders," said Bryan Skarlatos, an attorney with Kostelanetz & Fink in New York, who has handled hundreds of confessions by U.S. taxpayers declaring secret accounts.
The indictment also puts pressure on the Swiss government to conclude a sweeping settlement with U.S. authorities involving all Swiss banks, said Mr. Skarlatos. Discussions have been continuing for months. U.S. authorities want the names of U.S. taxpayers with secret Swiss accounts.
The latest indictment offers a rare glimpse into the secretive realm of Swiss private banking. U.S. prosecutors alleged that Wegelin "deliberately set out" to capture the illegal U.S. cross-border banking business lost by UBS, according to the criminal complaint.
Prosecutors alleged that bankers and others acting on the bank's behalf told U.S. clients that their undeclared accounts wouldn't be disclosed to U.S. authorities because of the bank's long tradition of secrecy.
The indictment offers vivid details of the relationship between Wegelin and about three dozen U.S. clients. It includes amounts of money not declared to U.S. authorities and details meant to illustrate the lengths both bankers and clients went to in order to hide banking transactions.
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, according to the complaint.

The indictment alleges that Wegelin decided it "could charge high fees to its new U.S. taxpayer-clients because the clients were afraid of criminal prosecution" in the U.S.

The bankers allegedly persuaded them to transfer assets from UBS by emphasizing the bank, which is based in St. Gallen, Switzerland, had no offices outside of Switzerland and was less vulnerable to U.S. law enforcement pressure, prosecutors said.
As part of the conspiracy, U.S. authorities allege the bankers 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.

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

Between 2005 and 2009, Wegelin allegedly solicited new business from U.S. clients through the website, which was operated by a third party, according to the indictment.

The bankers also sometimes communicated with U.S. taxpayers using their personal email accounts in order to avoid detection, prosecutors said. They avoided mailing account statements and other documents to taxpayers in the U.S., prosecutors said.

Wegelin split and sold its non-U.S. operations to retail bank Raiffeisen in late January in a bid to protect its assets from charges it had helped U.S. clients avoid paying taxes. Under the deal, Raiffeisen acquired the majority of the bank's business. Wegelin's half-dozen managing partners will remain with the bank.

—Brent Kendall and Goran Mijuk contributed to this article.
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