COMMENTARY
Switzerland has been known for its 'banking secrecy' for a very long time. I visited the banks in Switzerland as a student more than 50 years ago because of an interest in 'the gnomes of Zurich' who were at the time being blamed for the deterioration in the value of the British pound sterling. I did not learn very much, but it gave me a little context for how money laundering and tax evasion could work when I was exposed to these issues several decades later.

I have been interested in 'transparency' and 'accountability' for most of my career, and increasingly appalled by how nearly all sections of society value privacy more than transparency. In other words, let's keep bad things from view and we then don't have to address them ... and better still, we can make profit from all sorts of bad things, and it does not matter because nobody will ever know. As the old British radio show ITMA (It's That Man Again), first broadcast in 1939 used to say: 'Where ignorance is bliss,/'Tis folly to be wise.' (a phrase published in 1747)

Human nature does not change very much over time!
Peter Burgess

Swiss Bank Wegelin Charged With Helping U.S. Clients Evade Taxes

Feb. 3 (Bloomberg) -- Wegelin & Co., the 270-year-old private bank, became the first Swiss lender to face criminal charges in a broadening U.S. crackdown on offshore firms suspected of helping Americans evade taxes.

Wegelin helped Americans hide more than $1.2 billion in assets and evade U.S. taxes, according to an indictment filed yesterday in federal court in New York. The new charges expand on earlier ones filed Jan. 3 against three bankers at Wegelin’s Zurich branch accused of conspiring to help U.S. clients cheat on their taxes.

Prosecutors said that from 2002 to 2011, more than 100 U.S. taxpayers conspired with Wegelin, the three Zurich bankers -- Michael Berlinka, Urs Frei and Roger Keller -- and others. The bank held more than $1.2 billion in assets not declared to the Internal Revenue Service, according to the indictment.

“Wegelin Bank aided and abetted U.S. taxpayers who were in flagrant violation of the tax code,” Manhattan U.S. Attorney Preet Bharara said in a statement.

The U.S. and Switzerland are in talks to resolve a U.S. probe of offshore tax evasion. Wegelin was one of at least 11 banks under criminal investigation by the Justice Department’s tax division.

Wegelin announced on Jan. 27 that it agreed to a sale to Switzerland’s Raiffeisen Group.

Important Step

Bryan Skarlatos, a tax attorney in New York, said the indictment is an important step because it demonstrates the government’s willingness to indict a foreign bank.

“The indictment shows that the U.S. government will indict a Swiss bank if they don’t get cooperation,” said Skarlatos of Kostelanetz & Fink LLP. “It’s symbolic in that the United States is saying that if a Swiss bank doesn’t cooperate, it will be indicted. It puts pressure on other Swiss banks to cooperate.”

Federal authorities yesterday also seized $16 million in Wegelin’s correspondent bank account in the U.S. at UBS AG.

Richard Strassberg, a lawyer who represents the bank in the U.S., declined to comment.

Prosecutors said that Wegelin and the three bankers wooed U.S. clients fleeing UBS, the largest Swiss bank. UBS avoided U.S. prosecution in 2009 by admitting it aided tax evasion, paying $780 million and handing over data on 250 accounts. It later disclosed information on about 4,450 more accounts.

UBS Clients

By attracting clients leaving UBS, Wegelin “opened new undeclared accounts for at least 70 U.S. taxpayers,” according to the indictment. The effort to woo UBS clients was backed by Wegelin’s senior management, according to the indictment. Wegelin bankers emphasized that because it had no offices in the U.S., it wasn’t subject to law enforcement pressure there, prosecutors said.

Phil West, a former international tax counsel at the Treasury Department, said it was “unfortunate” that the Justice Department and Wegelin couldn’t reach an agreement short of indictment.

“The Justice Department alleged that Switzerland’s oldest bank had tried to capitalize on the misfortunes of UBS and attract the clients UBS was rejecting, and assisting them in doing just what UBS was accused of doing,” West said in an e- mail. “If true, this would have made any resolution short of indictment very difficult.”

In its Jan. 27 announcement, Wegelin, based in St. Gallen, Switzerland, said its U.S. business, and the risks and responsibilities that go with it, will remain with the current partners. Wegelin, which describes itself as the oldest Swiss bank, didn’t disclose the sale price.

Credit Suisse

Credit Suisse AG, the second-largest Swiss bank, said July 15 that it was a target of a criminal probe by the Department of Justice over former cross-border private-banking services to U.S. customers. On July 21, seven Credit Suisse bankers were indicted on a charge of conspiring to help U.S. clients evade taxes through secret accounts.

The IRS has said 30,000 U.S. taxpayers with offshore accounts have avoided prosecution since 2009 by entering a limited amnesty program, paying back taxes and saying who helped them hide their accounts from authorities. Hundreds of taxpayers in the program have given information to prosecutors that has helped them build criminal cases against bankers and advisers.

The U.S. crackdown against offshore tax evasion has led to criminal charges against at least 21 foreign bankers, advisers and attorneys and at least 40 U.S. taxpayers.

The case is U.S. v. Berlinka, 12-cr-00002, U.S. District Court, Southern District of New York (Manhattan).

--Editors: Peter Blumberg, Michael Hytha

To contact the reporter on this story: David Voreacos in Newark at dvoreacos@bloomberg.net

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net