Switzerland’s Oldest Bank, Wegelin & Co., Pleads Guilty to Tax Violations, Agrees to Pay $74 Million to the United States
On January 3, 2013, the United States Attorneys Office for the Southern District of New York announced that Switzerlands oldest bank, Wegelin & Co. (“Wegelin”), has pled guilty “to conspiring with U.S. taxpayers and others to hide more than $1.2 billion in secret Swiss bank accounts and the income generated in these accounts from the Internal Revenue Service (the ‘IRS’).” The plea agreement is available here, and the indictment charging Wegelin with violating 18 U.S.C. 371 (commonly referred to as a “Klein conspiracy”) is available here
As the press release, indictment, and plea agreement reveal, Wegelin pled guilty to conspiring with U.S. taxpayers and others to hide more than $1.2 billion in secret Swiss bank accounts and the income generated in these accounts from the Internal Revenue Service (the “IRS”). One of the managing partners of Wegelin, Otto Bruderer, appeared on behalf of the bank to enter the guilty plea before U.S. District Judge Jed S. Rakoff. 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 by a foreign bank to tax charges.
As part of its guilty plea, Wegelin agreed to pay approximately $20 million in restitution to the IRS and a $22.05 million fine. In addition, Wegelin agreed to the civil forfeiture of an additional $15.8 million, representing the gross fees earned by the bank on the undeclared accounts of U.S. taxpayers. Together with the April 2012 forfeiture of over $16.2 million from Wegelins correspondent bank account, this amounts to a total recovery to the United States of approximately $74 million.
Publicly available documents detail the manner by which Wegelin violated U.S. law:
- Opening and servicing undeclared accounts for U.S. taxpayer-clients in the names of sham corporations and foundations formed under the laws of Liechtenstein, Panama, Hong Kong, and other jurisdictions for the purpose of concealing some clients identities from the IRS;
- Accepting documents that falsely declared that the sham entities were the beneficial owners of certain accounts, when in fact the accounts were beneficially owned by U.S. taxpayers, and making them part of Wegelins client files;
- Permitting certain U.S. taxpayer-clients to open and maintain undeclared accounts at Wegelin using code names and numbers to minimize references to the actual names of the U.S. taxpayers on Swiss bank documents;
- Ensuring that account statements and other mail for U.S. taxpayer-clients were not mailed to them in the United States;
- Communicating with some U.S. taxpayer-clients using their personal email accounts to reduce the risk of detection by law enforcement; and
- Issuing checks drawn on, and executing wire transfers through, its U.S. correspondent bank account for the benefit of U.S. taxpayers with undeclared accounts at Wegelin and at least two other Swiss banks. In so doing, Wegelin sometimes separated the transactions into batches of checks or multiple wire transfers in amounts that were less than $10,000 to reduce the risk that the IRS would detect the undeclared accounts.
As a result of its guilty plea and fines, Wegelin has announced that it will “cease to operate as a bank.”
This case demonstrates that the U.S. Department of Justice is serious about punishing foreign banks that facilitate tax evasion by enabling U.S. taxpayer to avoid their income tax obligations.
The attorneys at Fuerst Ittleman David & Joseph anticipate that the Wegelin case will be just the first in a string of prosecutions of foreign banks. Further, we anticipate that the U.S. Department of Justice will continue to be active in prosecuting those individuals that hide money in foreign banks, fail to report their foreign holdings as required by the Bank Secrecy Act, and fail to properly report and pay the correct amount of tax due and owing to the IRS.
The attorneys at Fuerst Ittleman David & Joseph have extensive experience litigation criminal and civil tax cases before the U.S. District Courts, the U.S. Tax Court, the U.S. Court of Federal Claims, and the U.S. Courts of Appeal. You can contact us by email at firstname.lastname@example.org or by calling us at 305.350.5690.
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