SWISS BANK WEGELIN TO CLOSE AFTER U.S. TAX EVASION GUILTY PLEA

Wegelin & Co, the oldest Swiss private bank, announced on January 3rd it would be closing after more than 2 ½ centuries. This closure is following its guilty plea to charges of helping Americans evade taxes through secret accounts. It is the first foreign bank to plead guilty to U.S. tax charges. The bank admitted to helping more than 100 U.S. taxpayers hide their assets between 2002 and 2011. It is estimated that the bank held more than $1.2 billion in assets not declared to the IRS. Under the plea agreement, the bank will pay $20 million in restitution to the U.S., pay $15.8 million in fees, and pay a fine of more than $22 million. Taken together with the $16.2 million the bank forfeited from a U.S. correspondent bank account in April, the government would receive a total of about $74 million. It is not yet known if the bank will be forced to hand over the names of US clients who held the offshore accounts.

In 2009, UBS AG, the largest Swiss bank, avoided prosecution by the U.S. by admitting it aided in tax evasion. UBS paid the U.S. $780 million and handed over data on 250 accounts and later disclosed information on about 4,450 more accounts. It is known that Wegelin began attracting ex-UBS clients after other Swiss banks abandoned the practice due to pressure from U.S. law enforcement. The effort to attract the UBS clients was backed by Wegelin’s senior management, according to the indictment. They believed that the United States would not prosecute Wegelin because it had no offices in the U.S. and had acted in accordance with Swiss law. Before its indictment, the firm’s partners sold its non-American client accounts last January to the Raiffeisen Group, an Austrian bank. This was an effort to protect its assets.

The U.S. and Switzerland are working together to resolve offshore tax evasion and Wegelin was one of at least 11 banks under criminal investigation by the Justice Department. This shows how serious the U.S. government is about pursuing foreign banks that have helped Americans commit tax evasion. Along with working with foreign governments, the U.S. has also initiated an amnesty programs that allow Americans to avoid criminal liability by voluntarily revealing their offshore accounts. [What is the 2012 Offshore Voluntary Disclosure Program?]. The US government is extremely serious about this threat and will continue to aggressively pursue banks helping US taxpayers hide assets.

People seem to think that the US government cannot assert jurisdiction over foreign banks that have no branches or employees in the US. In what comes to a surprise to foreign banks, the US government is likely to assert jurisdiction even when there has been no physical contact with the US by any bank employee. The US government may contend that if a foreign bank’s employees knowingly assist a US taxpayer to evade its tax and filing obligation, the bank itself may be held criminally liable. The US government will maintain that this is so even if the bank’s employees never set foot in the United States. If there was a conspiracy to violate US law, then the fact that the conduct took place overseas will be unlikely to dissuade the US government from considering prosecution.

Those who continue to doubt the US government’s commitment and ability to prosecute foreign banks should pay attention to the questions being asked of US taxpayers who are taking advantage of the IRS’s current Offshore Voluntary Disclosure Program. Taxpayers who are participating are being asked to identify their point of contact at the foreign bank and to explain all meetings and other communications regarding the accounts. They are also asked to provide the names, locations, and dates of these meetings or communications.

Vic Abajian, a former IRS tax attorney, continues to assist taxpayers with foreign account and asset issues before the IRS. He currently represents dozens of clients with foreign accounts both within the IRS offshore voluntary disclosure program and those that are involved in civil audits. He also represents several clients who have received grand jury subpoenas requesting information related to offshore bank accounts. Mr. Abajian has also consulted with foreign banks. To learn more about options and how to make a voluntary disclosure of an offshore bank account, please contact Los Angeles Tax Attorney Vic at 818-396-5059. We have offices in Irvine and Glendale, California and represent taxpayers throughout the nation and those located in foreign countries.