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Swiss media, political reaction won’t comfort Wegelin

ZURICH, SWITZERLAND – Wegelin, Switzerland’s oldest private wealth management bank 2 February became the first bank outside the United States to be charged with fraud by the US Department of Justice (DOJ). It has been summoned to appear in a US District Court in Manhattan, New York 10 February.

The bank, which has no US offices, announced 27 January that it was, for business purposes, closing its doors, after selling off the bulk of its business, all non-US business, to Swiss bank Raiffeisen. It said in a statement last week that “Wegelin & Co. Private Bankers will remain in existence to finalize the closure of all remaining US client relationships and to continue the negotiations with the US justice authorities.”

The DOJ announced, in a long and detailed press release, that the bank “was indicted today for conspiring with US taxpayers and others to hide more than $1.2 billion in secret accounts and the income these accounts generated from the Internal Revenue Service (IRS).” The Justice Department announcement (read in full) 2 February notes that “This is the first time an overseas bank has been charged by the United States for facilitating tax fraud by US taxpayers.”

Several Swiss media and political figures responded to the detailed charges against the bank with astonishment that after the 2008 UBS debacle other Swiss banks could have taken the risk and flirted with breaking Swiss law in their attempts to woo former UBS American residents. TSR carries several video and audio clips, including an interview with Geneva legal specialist Marc Henzelin, who points out that there are far more “transactions” or deals in the US legal system than in Switzerland and the bank’s representatives must now start their negotiations. Politicians heading into a meeting with the Swiss Federal Council Friday were critical of Wegelin’s behaviour.

Bank used secretive methods to woo clients, says DOJ

Preet Bharara, US Attorney for the Southern District of New York, is cited in the DOJ statement: “As alleged, Wegelin Bank aided and abetted US taxpayers who were in flagrant violation of the tax code.” In particular, it is accused of using secretive methods to obtain former UBS clients after Switzerland’s largest bank paid a fine to the US and stopped servicing US-domiciled Americans in 2008.

The undeclared money was held in Wegelin accounts belonging to 100 US taxpayers, people domiciled in the US, according to the indictment, which covers the bank’s activities from 2002 to 2011.

A second indictment was filed against the bank and three employees, all residing in Switzerland: “Wegelin is charged in a superseding indictment with Michael Berlinka, Urs Frei and Roger Keller, three client advisers at the bank”, the result of Wegelin using its correspondent bank UBS to issue payments to US-based clients. Government officials seized $16 million in Wegelin’s correspondent account at UBS in Connecticut as a result of that indictment.

The trio face up to “five years in prison, a maximum term of three years of supervised release and a fine of the greatest of $250,000, or twice the gross gain derived from the offense or twice the gross loss to the victims”, according to the Department of Justice Tax Office. They have not been arrested, the indictment points out.

Warfare vs negotiations

The story is being widely covered by major US and financial media, which have mainly republished the DOJ announcement, including Bloomberg and the New York Times. Reuters writer Lynnley Browning, who frequently covers Swiss banking and US tax issues, often citing a source in the US government, has added a number of details from the indictment itself. She characterizes the ongoing Swiss-US double taxation treaty negotiations as a “row”: “On Tuesday, the Swiss finance ministry handed US authorities encrypted data on bank employees who served US clients suspected of dodging taxes, and said it would only provide the key to decipher the data once the row was settled.”

Swiss President Eveline Widmer-Schlumpf told a parliamentary tax commission that one part of the negotiations involves finding a “global solution” to charges against an additional 10 banks, including Credit Suisse.

Swiss president continues to seek “lasting solution” to avoid continually digging up the past

She met with US Secretary of the Treasury Timothy Geithner in Davos last week and said afterwards that she had made clear “Switzerland’s concern for a lasting solution to be found in the tax dispute with the USA.” She told Swiss media after Davos that both countries are interested in finding a solution that will end recurrent US investigations into Swiss banks. “We’re investing a lot of time in finding a solution, as are the Americans, and sometimes we move ahead and sometimes we aren’t able to, but we now must find a solution. I don’t want to find us, every year, discussing all over again how to resolve problems from the past.”

Martin  Naville, head of the Swiss-American Chamber of Commerce, on Swiss television over the weekend rebutted media attempts to profile that talks as warfare. “We are in a process of negotiations, not at war,” noting that Switzerland’s move to hand the US encrypted data is a normal part of negotiations, where “you have to give something from time to time.”
TSR report, Fr

Update: we have had to remove the video from this page because of a TSR technical problem that made the sound come on automatically if GenevaLunch opened on your screen; our apologies for the inconvenience.