The Department of Justice is moving forward with several new prosecutions of a Swiss bank and employees of other Swiss banks in separate indictments that were filed recently. In an information release issued on February 2, 2012, the DOJ issued an indictment against Wegelin & Co., the oldest private bank in Switzerland which was founded in 1741. At all times relevant to the (superseding) indictment, Wegelin provided private banking, asset management and other services to clients throughout the world, including U.S. taxpayers living in the Southern District of New York. Wegelin had no branches outside of Switzerland, but accessed the U.S. banking system through a correspondent bank account it held at UBS AG in Stamford, Conn. This is the first time that a foreign bank operating outside of the United States has been criminally indicted by the United States for facilitating and concealing tax fraud committed by U.S. persons. The indictment alleges that Wegelin Bank conspired with certain U.S. citizens or residents to conceal $1.2 billion from the IRS through the use of secret accounts. The income generated from such secret accounts was also not reported to the IRS.
In response to the indictment and publication of the scandal, Wegelin was immediately sold to a competitor bank, the Raiffessen Group. At the same time that the indictment was filed, a civil forfeiture complaint was filed and asset seizure warrant issued against Wegelin’s correspondent bank account in the U.S. The government reportedly seized over $16 million from the account. Wegelin is charged in a superseding indictment with three client advisers of the bank,
Michael Berlinka, Urs Frei and Roger Keller, who were previously charged with the same conspiracy. From 2002 through 2011, Wegelin, Berlinka, Frei and Keller allegedly conspired with various U.S. taxpayers and others to hide the existence of bank accounts held with Wegelin and the income generated from such accounts. During 2008 and 2008, Wegelin, Berlinka, Frei and Keller opened and serviced many persons with secret accounts in an effort to obtain clients lost by UBS in light of the UBS investigation since by mid-2008, UBS ceased servicing undeclared accounts for U.S. taxpayers. Thus, Wegelin’s senior management allegedly purposely and knowingly wanted to capture the illegal business that had been operated by UBS. Both the criminal and civil forfeiture cases are pending with the United States District Court for the Southern District of New York.
The following allegations are based on the Superseding Indictment and civil forfeiture Complaint unsealed today in Manhattan federal court: Wegelin, founded in 1741, is Switzerland’s oldest bank. At all times relevant to the superseding indictment, Wegelin 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. As of December 2010, Wegelin had approximately $25 billion in assets under management. Berlinka, Frei and Keller began working as client advisers at the Swiss bank in 2008, 2006 and 2007 respectively. From 2002 through 2011, Wegelin, Berlinka, Frei and Keller conspired with various U.S. taxpayers and others to hide the existence of bank accounts held at Wegelin and the income generated in those secret accounts from the IRS. Among other things, in 2008 and 2009, Wegelin, Berlinka, Frei and Keller opened and serviced dozens of undeclared accounts for U.S. taxpayers in an effort to capture clients lost by UBS in the wake of widespread news reports that the IRS was investigating UBS 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.
Due to the scandal, members of Wegelin’s senior management affirmatively decided to capture the illegal business that UBS exited. To capitalize on the business opportunity this presented and to increase the assets under management, along with the fees earned from managing those assets, Berlinka, Frei, Keller and others, acting on behalf of Wegelin, told various U.S. taxpayer-clients that their undeclared accounts would not be disclosed to U.S. authorities because the bank had a long tradition of secrecy. They also persuaded U.S. taxpayer-clients to transfer assets from UBS to Wegelin by emphasizing, among other things, that unlike UBS, Wegelin did not have offices outside of Switzerland and was therefore less vulnerable to U.S. law enforcement pressure. Members of the Swiss bank’s senior management approved efforts to capture the clients who were leaving UBS and also participated in some meetings with U.S. taxpayer-clients who were fleeing UBS. In February 2009, UBS entered into a deferred prosecution agreement with the Justice Department on charges of conspiring to defraud the United States by impeding the IRS. As part of the deferred prosecution agreement, UBS paid $780 million in fines, penalties, interest and restitution.
To further the goals of the conspiracy, Wegelin, acting through Berlinka, Frei, Keller and/or others, took steps that included: (i) 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;(ii) accepting, as part of Wegelin’s client files, documents that falsely declared that the sham entities were the beneficial owners of certain accounts, when in fact the accounts were owned by U.S. taxpayers; (iii) allow 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;(iv) ensure that account statements and other mail for U.S. taxpayer-clients were not mailed to them in the United States; (v)communicate with some U.S. taxpayer-clients using their personal email accounts to reduce the risk of detection by law enforcement; and (vi) have 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 doing so, the bank 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. 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. By 2010, the collective maximum value of the assets in undeclared accounts beneficially owned by U.S. taxpayer-clients of Wegelin was more than $1.2 billion, with many accounts holding more than $10,000 in any one year.
The civil forfeiture complaint and the related seizure warrant arise out of Wegelin’s use of its correspondent bank account to help U.S. taxpayers with undeclared accounts repatriate money that they had hidden at the Swiss bank. 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 off the bank’s correspondent bank account, that represented funds held in their secret accounts at the bank. Further, 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 Swiss 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. “As alleged, Wegelin Bank aided and abetted U.S. taxpayers who were in flagrant violation of the tax code,” said Preet Bharara, U.S. Attorney for the Southern District of New York. “And they were undeterred by the crystal clear warning they got when they learned that UBS was under investigation for the identical practices. The indictment makes clear that we will seek to punish not only those U.S. taxpayers who violate the law in an effort to avoid paying their fair share of taxes, but also the individuals and entities who facilitate their crimes.” Joining in was IRS Commissioner Douglas Shulman who was quoted as saving that the indictment “[i]s another step in our ongoing effort to pursue hidden offshore assets – no matter where they are located. We are continuing our work to crack down on offshore tax evasion. Through our efforts, we are gaining access to more and more information on institutions and individuals involved in offshore tax evasion, and you can expect us to pursue all avenues to stop this abuse.”