Swiss bank unfazed in face of any US legal action

Tue Jan 10, 2012 9:49am EST

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(Reuters) - Wegelin & Co, one of Switzerland's oldest banks, on Monday played down any threat by U.S. authorities to take legal action that could lead to charges that the bank enabled wealthy Americans to evade taxes.

In a statement emailed to Reuters, Wegelin said it did not fear the possibility of any such charges - sometimes a corporate death-knell, at least for American companies - by the Justice Department, which is conducting a criminal investigation of the bank's offshore private banking services.

The bank, which dates its founding to 1741, vowed to carry on what it called its interbank business - ties with other banks for moving clients' money around - and said it would maintain the support of Swiss financial authorities to do so.

Reuters, citing people with knowledge of the case, reported on Monday that U.S. authorities were moving toward taking legal action against Wegelin that could lead to an indictment on charges the bank enabled wealthy Americans to evade taxes.

The Wegelin statement said that "we must assume that the Swiss Financial Markets Authority and the Swiss National Bank - as the responsible Swiss authorities - will ensure that the interbank business is not disrupted under any circumstances."

The two Swiss agencies could not be reached for immediate comment.

"An indictment against Wegelin & Co as an entity is essentially no threat," the bank statement said.

"An indictment is not a conviction; furthermore, any subsequent conviction would be contested and thus not legally effective for a considerable period; and ultimately, the question of the enforceability of such a decision would remain."

JUSTICE DEPT PROBING 11 BANKS

The Justice Department is probing 11 Swiss and Swiss-style banks, including Wegelin, suspected of selling offshore tax evasion services to tens of thousands of wealthy Americans.

The investigations, growing out of scrutiny of Swiss financial giant UBS AG, are also focused on Credit Suisse AG and Basler Kantonalbank, among others.

Credit Suisse said in July its offshore private banking practices were under investigation and that it would "continue to cooperate with the U.S. authorities." Basler Kantonalbank confirmed a year ago that it was under investigation and in contact with U.S. authorities.

Last week prosecutors indicted three Wegelin private bankers over fraud and conspiracy in selling tax evasion services that allowed dozens of U.S. clients to evade taxes on $1.2 billion in assets.

In 2009, UBS paid $780 million to settle Justice Department criminal charges that it helped thousands of U.S. clients hide $20 billion. UBS later turned over 4,450 American client names, on top of an initial 255 at the time of the settlement. It was a watershed breach in Swiss bank secrecy, which protects client confidentiality under law and does not consider tax evasion a crime.

The Wegelin statement, provided by spokeswoman Albena Bjorck, said that "an indictment against one (or even more) Managing Partners of Wegelin & Co does not pose any immediate threat to the bank."

The statement cited the particular corporate structure of Wegelin, one of Switzerland's last "pure" private banks. It is a limited partnership in which any financial penalty directed at a single partner is the responsibility of that partner, not of the bank.

Despite its small size, Wegelin said in the statement that any indictment would "set a precedent" for all 11 banks under investigation, "which would destabilize the Swiss financial centre as a whole."

(Reporting by Martin de Sa'Pinto in Zurich and Lynnley Browning in Hamden, Conn; Editing by Kevin Drawbaugh, Howard Goller and Bernard Orr)

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Comments (1)
Insider7 wrote:
What most people do not realize is that the UBS whistleblower, Bradley Birkenfeld, specifically warned the Bush DOJ prosecutors that this was going to happen way back in the summer of 2007.

Back then, Birkenfeld voluntarily approached the DOJ and gave them all of the information they needed to prepare and serve the “John Doe Summons” on UBS. But he also warned them that using only the John Doe Summons would result in account holders moving their assets to local Swiss banks with absolutely no ties to the U.S. (commonly referred to as “cantonal” banks). The DOJ has no leverage over these banks. These threats of indictments on these banks are useless. They don’t have to answer to the DOJ.

The lead prosecutor who screwed this up is named Kevin Downing. Downing was intent on trying to deprive Birkenfeld credit for the breakthrough on Swiss private banking so he tried to work around Birkenfeld’s suggestions and instead tried to target him as “the bad guy” so the DOJ could claim all the credit for this. Downing avoided using the suggestions given by Birkenfeld which would have netted hundreds of account holders’ data before any John Doe Summons was even served. But that would have meant arresting many co-workers of Phil Gramm just 4 weeks before the 2008 Iowa Caucuses and Downing clearly didn’t have the guts to do that. Gramm was McCain’s chief economics advisor at that time and also a campaign co-chair.

Birkenfeld sensed this was going on so he went to the SEC and U.S. Senate with all the same inside information which secured the historical record as to how this entire Swiss banking scandal was uncovered…by Birkenfeld, not by DOJ.

An untold story behind all of this is how the Bush DOJ and Downing tried to pull this end run on Birkenfeld and how Birkenfeld, recognizing this, then outflanked Downing to make sure the true story got out.

Jan 11, 2012 5:41am EST  --  Report as abuse
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