* Wegelin & Co one of last pure Swiss private banks
* Negotiations at critical stage in Wegelin case
* Investigations shake Swiss banking secrecy tradition
By Lynnley Browning
Jan 9 U.S. authorities are moving toward
taking legal action against Wegelin & Co, which could lead to an
indictment of one of Switzerland's last pure private banks, on
charges that it enabled wealthy Americans to evade taxes,
according to two persons with knowledge of the case.
Negotiations in the case have reached a critical stage, with
an indictment possible though the bank is seeking a deferred
prosecution agreement, which would be less damaging. The outcome
depends on how prosecutors, the U.S. State Department and the
U.S. Treasury Department agree to treat the matter, the sources
Founded in 1741, Wegelin is one of Switzerland's oldest
banks. An indictment of it would be a blow to a national
tradition of banking secrecy that dates back to the Middle Ages.
It would be a step forward for a U.S. crackdown on offshore tax
evasion by Americans through Swiss banks.
The crackdown started around 2007 with an investigation of
UBS AG, Switzerland's largest bank. It has since
spread to the entire Swiss banking industry. Dozens of U.S.
clients and at least two dozen Swiss bankers have been charged,
in moves that have strained U.S.-Swiss relations.
Albena Bjorck, a spokeswoman for Wegelin, declined to
comment on Friday when asked whether the bank was considering
the possibility of being indicted. Charles Miller, a Justice
Department spokesman, declined to comment.
The latest turn in the Wegelin case comes amid a broad
criminal probe by the U.S. Justice Department of 11 Swiss and
Swiss-style banks, including Wegelin, suspected of selling
offshore tax evasion services to tens of thousands of wealthy
Americans. Inquiries, growing out of scrutiny of UBS, are
focused on Credit Suisse AG and Basler Kantonalbank
Basler Kantonalbank confirmed a year ago that it was under
investigation and in contact with U.S. authorities. 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."
On a parallel track, Swiss government officials and the U.S.
Internal Revenue Service are trying to negotiate a civil
settlement for more than 300 other Swiss banks - the remainder
of the Swiss banking industry - on the matter of private banking
services that may have enabled tax evasion.
THREE BANKERS INDICTED
Wegelin confirmed on Wednesday that three of its employees
had been indicted by U.S. prosecutors in Manhattan for selling
tax evasion services to wealthy Americans. The charges outlined
the sales role of senior unnamed partners at the bank.
The office of the Manhattan U.S. Attorney said on Tuesday
that the indictment of the three bankers charged them with
trying to "capture business lost by UBS AG and another large
international Swiss bank in the wake of widespread news reports
that the Internal Revenue Service was investigating UBS" in 2008
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
If Wegelin could negotiate a deferred prosecution deal, it
could resemble the one struck by U.S. authorities with UBS.
Under such an arrangement, Wegelin would admit to criminal
wrongdoing with its offshore private banking services, pay an
undisclosed fine and agree to be monitored for a period of time.
Bjorck said in an emailed statement on Thursday that
"Wegelin & Co. acknowledges the U.S. justice authorities'
decision to press charges against three of its employees. Since
April 2011, both external and bank internal experts have, in
minute detail, examined its entire banking business
with U.S. clients over the last 10 years.
"The bank and its U.S. lawyers have prepared their legal
assessment of the matter in anticipation of the expected
She declined on Friday to elaborate what she meant by
"expected proceedings." Wegelin is based in St. Gallen, in
NO U.S. OFFICES
Wegelin is a small bank where eight partners hold unlimited
liability for its operations. It has no U.S. offices or branches
and it conducted its tax evasion business in part through
correspondent banking accounts at UBS in Stamford, Conn.,
according to the indictment of the three Wegelin bankers.
One of Wegelin's eight top managing partners, Konrad
Hummler, a leader in Swiss financial circles, has publicly
lambasted the U.S. crackdown on Swiss private banking.
In a 2009 "investment commentary" entitled "Farewell
America", which is on Wegelin's website, Hummler chastised the
United States for "breathtaking moral duplicity in maintaining
enormous offshore tax havens in Delaware, Florida and others of
its states" and "for waging wars" in foreign countries "and at
home (according to reliable sources, the tentacles of the
narcotics mafia now reach well into political circles)."
Bjorck declined to make Hummler available for interviews