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Swiss Bank Liable In US Tax Evasion Case

by Mike Godfrey,, Washington

06 March 2013

Wegelin, Switzerland's oldest private bank, has been ordered to pay USD58 to the US authorities after being sentenced for facilitating tax evasion by US taxpayers.

It is the first time an overseas bank has both pleaded guilty to and been indicted for such activity in the US. A civil forfeiture complaint was filed against Wegelin in February, 2012, alleging that the bank had used a correspondent bank account at UBS "to help US taxpayers with undeclared accounts repatriate money that they had hidden at Wegelin." While the period covered by the charges relates to 2002-11, Wegelin was in particular charged with having opened and serviced "dozens" of new undeclared accounts for US taxpayers between 2008-09, which the US Department of Justice (DoJ) says was done in an effort "to capture clients lost by UBS" in the wake of reports that UBS was under investigation for tax evasion practices.

A guilty plea was entered by Wegelin in January this year, with managing partner Otto Bruderer admitting the charge that "Wegelin agreed with certain US taxpayers to evade the US tax obligations of these US taxpayer clients, who, among other things, filed false tax returns with the Internal Revenue Service (IRS)." Bruderer also stated that Wegelin had "opened and maintained accounts at Wegelin in Switzerland for US taxpayers" who did not complete the relevant tax disclosure forms. Wegelin has since announced that it will "cease to operate as a bank" once its transactions with the IRS are completed.

US taxpayers holding more than USD10,000 in a foreign bank account at any time during a given year must report the account's existence, along with any income it earns. The DoJ estimates that by 2010 the collective maximum value of the assets in undeclared accounts beneficially owned by US taxpayer-clients of Wegelin was approximately USD1.5bn, with many accounts holding more than USD10,000 in any one year.

It was further alleged that Wegelin opened and serviced undeclared accounts for US taxpayers in the names of sham corporations and foundations in Liechtenstein, Panama and Hong Kong, and that it accepted documents falsely declaring that these entities were the beneficial owners of these accounts. US taxpayers were also permitted to open and maintain undeclared accounts at Wegelin, using code names and numbers, and communications with clients were made in ways designed to risk detection.

Of the USD58m ordered payable, Wegelin owes approximately USD20m in restitution to the IRS, while a further USD22.05m is made up by fines. A USD15.8m forfeiture was pre-paid in January. Together with an April, 2012 forfeiture of more than USD16.2m from Wegelin’s US correspondent bank account, the total amount recoverable to the US now amounts to USD74m.

Commenting on the case, Manhattan US Attorney Preet Bharara said: "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. US 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."

Assistant Attorney General Keneally offered a further warning: "When the IRS offered the opportunity to come into compliance through the 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."

The order comes just days after accountancy firm Ersnt & Young reached a non-prosecution agreement with the US in connection with its participation in four tax shelters. It is to pay the IRS USD123m following its admission of "wrongful conduct".

TAGS: compliance | Offshore | tax | tax compliance | tax avoidance | banking | Liechtenstein | Internal Revenue Service (IRS) | tax authority | tax planning | Hong Kong | Switzerland | United States | Panama

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