Legal

US Indicts Wegelin, Seizes $16 Million From UBS Account

Harriet Davies, Editor - Family Wealth Report, February 3, 2012

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A US district court has indicted Wegelin and Co, a 270-year-old Swiss private bank, for allegedly conspiring with US taxpayers to hide more than $1.2 billion from the Internal Revenue Service.

A US district court has indicted Wegelin and Co, a 270-year-old Swiss private bank, for allegedly conspiring with US taxpayers to hide more than $1.2 billion from the Internal Revenue Service.

“This is the first time an overseas bank has been charged by the United States for facilitating tax fraud by US taxpayers,” said a statement from the Department of Justice.

Michael Berlinka, Urs Frei and Roger Keller, client advisors at the bank, were previously charged with the same conspiracy. 

Alongside the criminal charges, the US government has seized around $16.2 million on deposit at UBS held in the name of Wegelin & Co, in accordance with a civil forfeiture complaint filed by the US Attorney for the Southern District of New York.

Wegelin, which claims to be the oldest Swiss bank, was sold to Raiffeisen last month, with the transfer of “a substantial majority of its clients and staff to Notenstein Private Bank.” The financial cost of the deal was not disclosed. 

Criminal investigation

The IRS’ Criminal Investigation division conducted an inquiry into a conspiracy by Wegelin & Co and over 100 of its US taxpayer clients to defraud the US of taxes owing and due, including through the use of undeclared accounts, according to the forfeiture complaint.

Among the practices used to further the alleged conspiracy were: opening and servicing undeclared accounts in the names of sham corporations and foundations formed under the laws of Liechtenstein, Panama, Hong Kong and other jurisdictions, and allowing US taxpayer clients to open accounts using code names and numbers.

“[It] was part of this scheme to provide US taxpayer-clients of Wegelin and other Swiss banks, who had undeclared accounts in Switzerland, access to their undeclared funds in the United States in a manner that obscured the source of these funds,” the complaint read.

As part of this scheme to defraud the US, the civil complaint alleges, “Wegelin and other Swiss banks used Wegelin’s correspondent account in the United States to launder undeclared funds from Switzerland to US taxpayer-clients,” in such a way as to keep the undeclared accounts concealed.  

Correspondent banking is the provision of banking services from one bank to another, allowing banks to conduct business in jurisdictions where they have no physical presence.

Flurry of activity in 2008-2009

The complaint also notes that client advisors at Wegelin opened “dozens” of new undeclared accounts for US taxpayers around 2008-2009, after UBS and “another large international bank based in Switzerland” closed their US cross-border banking businesses.

UBS entered into a deferred prosecution with the Justice Department in 2009 on charges of conspiring to defraud the US, as part of which it paid $780 million in fines, penalties, interest and restitution.

Wegelin made a strategic decision to take advantage of the “flight” of funds resulting from the UBS affair, increasing its assets under management “substantially,” and highlighting the fact it did not have offices in the US and was therefore less vulnerable to US law enforcement, according to the complaint.

As of December 2010, Wegelin had approximately $25 billion in assets under management, the DoJ statement says.

The services concerned were offered through client advisors based in various Swiss branches of the bank, which was principally owned by a group of managing partners, and had an unlimited liability ownership structure. It had no branches in the US, but accessed the country’s banking system through a correspondent bank account that it held at UBS in Stamford, CT, according to the statement.

Potential fines

Wegelin faces a fine of the greatest of $500,000, or twice the gross gain derived from the offense or twice the gross loss to the victims, according to the statement.

Berlinka, Frei, and Keller - all Swiss residents - each face a maximum term of 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, the statement continued.

 

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