Switzerland’s oldest bank, Wegelin & Co., has been sentenced and ordered to pay the U.S. government approximately $58 million for conspiring with its U.S. clients and others to evade income taxes in the first-ever such sentence for a foreign bank.
The Swiss private bank was sentenced Monday in a Manhattan federal court by U.S. District Judge Jed Rakoff. The bank had been charged with conspiring to hide approximately $1.5 billion in secret Swiss bank accounts held by U.S. customers, and the income generated in those accounts, from the Internal Revenue Service.
Together with the April 2012 forfeiture of more than $16.2 million from Wegelin’s U.S. correspondent bank account, this amounts to a total recovery to the United States of approximately $74 million.
The components of Monday’s order to pay approximately $58 million to the United States include approximately $20 million in restitution to the IRS; a fine of $22.05 million; and forfeiture in the approximate amount of $15.8 million, representing the gross fees earned by the bank on the undeclared accounts of U.S. taxpayers. Wegelin paid the civil forfeiture amount of $15.8 million to the United States on Jan. 4, 2013.
Wegelin pleaded guilty in January to one count of conspiracy to defraud the IRS, file false federal income tax returns, and evade federal income taxes before Judge Rakoff (see Swiss Bank Wegelin to Pay $74M to Settle Tax Charges). The 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 and sentencing of such a bank.
“Wegelin has now paid a steep price for aiding and abetting tax fraud that should be heeded by other banks, bankers and advisers who engage in the same conduct,” Manhattan U.S. Attorney Preet Bharara said in a statement. “U.S. taxpayers with undeclared accounts—wherever those accounts may be—should know that their bank may be next, and they should pay what they owe the IRS before we come find them.”
He praised the efforts of IRS Criminal Investigation in probing the case. In 2008 and 2009, Wegelin had opened and serviced dozens of new undeclared accounts for U.S. taxpayers in an effort to capture clients lost by UBS in the wake of widespread news reports that UBS was being investigated by U.S. authorities for helping U.S. taxpayers evade taxes and hide assets in Swiss bank accounts. By mid-2008, UBS had stopped servicing undeclared accounts for U.S. taxpayers.
Many of Wegelin’s clients were thus U.S. taxpayers who had moved their money out of UBS when the IRS and the Justice Department stepped up their efforts to uncover secret bank accounts there. Assistant Attorney General Kathryn Keneally noted that when the IRS offered U.S. taxpayers the opportunity to come into compliance through the IRS’s Offshore Voluntary Disclosure Initiative, “some people thought that they could beat the system by instead looking for banks that promised further concealment. We are following that money, and time is rapidly running out for taxpayers who think that they can still hide.”
Founded in 1741, Wegelin is Switzerland’s oldest bank and is headquartered in St. Gallen, Switzerland. It provided private banking, asset management, and other services to clients around the world, including U.S. taxpayers living in the Southern District of New York. Wegelin had no branches outside Switzerland, but it directly accessed the U.S. banking system through a correspondent bank account that it held at UBS AG in Stamford, Conn., prosecutors noted As of December 2010, Wegelin had approximately $25 billion in assets under management.
From 2002 through 2011, Wegelin helped various U.S. taxpayers and others hide bank accounts from the IRS, along with the income generated in those secret accounts, carrying out the scheme through client advisers and others, according to prosecutors, By mid-2008, when UBS had stopped servicing undeclared bank accounts for U.S. taxpayers, Wegelin took a number of steps to capitalize on the opportunity to help U.S. taxpayers hide their assets from the U.S. government.
From 2002 through 2011, Wegelin allegedly opened and serviced 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. The bank was also accused of 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 the false documents part of Wegelin’s client files.
Prosecutors also accused Wegelin of allowing some of its U.S. taxpayer-clients to open and maintain undeclared accounts at the bank using code names and numbers to minimize references to the actual names of the U.S. taxpayers on Swiss bank documents. Wegelin allegedly made sure that the account statements and other mail destined for its U.S. taxpayer-clients were not mailed to them in the United States. Wegelin would communicate with some of its U.S. taxpayer-clients using their personal email accounts to reduce the risk of detection by law enforcement.
In addition, the bank would issue checks drawn on, and execute 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. To reduce the risk that the IRS would detect the undeclared accounts, Wegelin sometimes separated the transactions into batches of checks or multiple wire transfers in amounts under $10,000. U.S. taxpayers are required to report the existence of any foreign bank account on their federal income tax returns if it holds more than $10,000 at any time during a given year, as well as any income it earns.
At the time of Wegelin’s guilty plea before Judge Rakoff on Jan. 3, 2013, Wegelin managing partner Otto Bruderer admitted on behalf of Wegelin that “[f]rom about 2002 through about 2010, Wegelin agreed with certain U.S. taxpayers to evade the U.S. tax obligations of these U.S. taxpayer clients, who, among other things, filed false tax returns with the IRS.”
Bruderer also admitted that “[i]n furtherance of its agreement to assist U.S. taxpayers to commit tax evasion in the United States, Wegelin opened and maintained accounts at Wegelin in Switzerland for U.S. taxpayers who did not complete W-9 tax disclosure forms,” which are IRS forms U.S. taxpayers can use to identify themselves as such to a bank, thereby causing the bank to report income generated in the U.S. taxpayers’ account to the IRS.
Bruderer further admitted, “Wegelin knew that certain U.S. taxpayers were maintaining non-W-9 accounts at Wegelin in order to evade their U.S. tax obligations, in violation of U.S. law, and Wegelin knew of the high probability that other U.S. taxpayers who held non-W-9 accounts at Wegelin also did so for the same unlawful purpose.”
“Wegelin intentionally opened and maintained non W-9 accounts for [certain U.S.] taxpayers with the knowledge that, by doing so, Wegelin was assisting these taxpayers in violating their legal duties,” Bruderer also admitted.
“Wegelin was aware that this conduct was wrong,” he added.
By the end of 2009, the collective maximum value of the assets in undeclared accounts beneficially owned by U.S. taxpayer-clients of Wegelin was approximately $1.5 billion, with many accounts holding more than $10,000 in any one year, according to prosecutors.
The April 2012 forfeiture of approximately $16.2 million from Wegelin’s correspondent bank account was the result of a civil forfeiture complaint filed in February 2012 alleging thatWegelin used its correspondent bank account at UBS to help U.S. taxpayers with undeclared accounts repatriate money that they had hidden at Wegelin. This was often done in a manner designed to evade detection by U.S. authorities.
For example, U.S. taxpayers routinely asked Wegelin to issue and send them checks, which were drawn on Wegelin’s correspondent bank account, representing funds held in their secret accounts at the bank. In addition, Wegelin permitted at least two other Swiss banks to issue checks drawn on its correspondent bank account for the benefit of U.S. taxpayers holding undeclared accounts at these other banks.
The sheer volume of transactions in Wegelin’s correspondent bank account served to conceal the repatriation of money from U.S. taxpayers’ undeclared accounts at Wegelin and the other banks, prosecutors noted. On April 24, 2012, U.S. District Judge Laura Taylor Swain entered an order forfeiting over $16.2 million seized from the U.S. correspondent account of Wegelin. As part of its plea agreement, Wegelin agreed not to contest the April 2012 forfeiture.
In addition to praising the efforts of IRS Criminal Investigation in the investigation, Bharara also thanked the Justice Department’s Tax Division and the U.S. Immigration and Customs Enforcement’s Homeland Security Investigations Miami Foreign Corruption Investigations Group for their assistance in the investigation. This criminal case is being handled by the Office’s Complex Frauds Unit and the civil forfeiture proceedings are being handled by the Office’s Asset Forfeiture Unit. Assistant U.S. Attorneys David B. Massey, Daniel W. Levy and Jason H. Cowley are in charge of the prosecution and civil forfeiture proceedings.
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