Founded in 1741, Weglin & Co, which has its head office in the northern town of St. Gallen, admitted to helping US citizens hide more than $1.2bn in secret accounts and the income generated from these accounts from the Internal Revenue Service.
One of the managing partners, Otto Bruderer, appeared on behalf of the bank to enter the guilty plea before a US district judge. It is the first time that a foreign bank has been indicted for facilitating tax evasion by US taxpayers, and the first time a guilty plea has been submitted by a foreign bank to tax charges.
Escalating activity
The charges relate to a string of offences during the past decade which seemed to escalate as the net closed in on other Swiss banks accused of helping US citizens shelter their assets.
When media reports in 2008 revealed that UBS was under investigation by US authorities, the IRS said Weglin deliberately targeted those clients eager to remove their money from UBS, but who wanted to continue to hide it from the taxman.
By mid-2008, UBS had completely exited the market and the IRS allege that top management at Weglin took steps to capture this illegal business. It added that, “in order to capitalize on the business opportunity this presented and to increase its assets under management, and the fees earned from managing those assets, Weglin employees told various US taxpayer-clients that their undeclared accounts would not be disclosed to the United States authorities because the bank had a long tradition of secrecy”.
As well as the bank, three client advisers, Michael Berlinka, Urs Frei and Roger Keller, have been indicted in relation to the matter and could face a maximum of five years in prison as well as a $250,000 fine. None have been arrested.
As part of its guilty plea, Weglin agreed to pay approximately $20m in restitution to the IRS as well as a $22m fine. In addition, Weglin agreed to a “civil forfeiture” of a further $15.8m, which represents the gross fees earned by the bank on the undeclared accounts, which, together with a forfeiture of $16m paid in April last year, results in a total penalty of around $74m.
No excuse
In a statement, Preet Bharara, US Attorney for the Southern District of New York, said: “There is no excuse for wealthy Americans flouting their responsibilities as citizens of this great country to pay their taxes, and there is no excuse for foreign financial institutions helping them to do so.
“Wegelin became a haven for US taxpayers seeking to circumvent the tax code by hiding their money in secret off-shore accounts, and the bank wilfully and aggressively jumped in to fill a void that was left when other Swiss banks abandoned the practice due to pressure from US law enforcement. Today’s guilty plea is a watershed moment in our efforts to hold to account both the individuals and the banks – wherever they may be in the world – who are engaging in unlawful conduct that deprives the US Treasury of billions of dollars of tax revenue. We will continue our efforts until this practice is eliminated in its entirety.”
