* Swiss Wegelin accused of enabling U.S. tax evaders
* First a sale, then an indictment
* Spotlight on Hummler, defender of bank secrecy
By Martin de Sa'Pinto and Lynnley Browning
ST. GALLEN, Switzerland, Feb 16 On the
morning of Jan. 27, employees at the St. Gallen headquarters of
Wegelin, Switzerland's oldest private bank, were told to expect
an important announcement from Konrad Hummler, Wegelin's leading
partner. Other Wegelin branches across Switzerland, also
alerted, tuned in to the company-wide address system.
Speaking in Swiss-German, Hummler announced the bank had
sold most of its assets to another Swiss bank. According to a
person familiar with the matter, Hummler called it a last-ditch
effort to preserve employees' jobs amid withdrawals of assets by
investors who were increasingly worried about a growing problem:
a U.S. federal investigation into Wegelin's sale of tax-evasion
services to wealthy Americans. The dark-suited bankers and
conservatively dressed office clerks, said the person, were in
shock and tears.
The news for Wegelin, its headquarters nestled in the town
of St. Gallen next to the Appenzell Alps near the
German-Austrian borders, would only get worse. Six days later
the U.S. Justice Department, acting on plans it had been making
for weeks, indicted the 270-year-old bank on charges of enabling
wealthy Americans to evade taxes on at least $1.2 billion from
2002 through last year. U.S. criminal laws apply to foreign
banks that do business in the United States, even if the banks,
like Wegelin, have no U.S. branches. The charges made Wegelin
the first overseas bank in history to be indicted by U.S.
authorities and marked a milestone in a burgeoning American
crackdown on Swiss bank secrecy and efforts to force banks to
turn over client names. The sale and the subsequent indictment
effectively brought an end to the storied bank.
The Wegelin indictment also turned a spotlight on Hummler,
an outspoken defender of the Alpine tradition of bank secrecy
and an admirer of the Portuguese philosopher Fernando Pessoa's
concept of the banker as an anarchist. In an interview three
years ago with Suddeutsche Zeitung, Germany's largest newspaper,
Hummler called the concept "a charming mind game."
In a 2009 column in Neue Zurcher Zeitung, a Swiss newspaper
on whose board Hummler sits, he wrote that he was "influenced by
'68" - a reference to his time in Paris during the street riots
of 1968 - and that he had "found a philosophical father" in
Friedrich Hayek, the economist-philosopher who defended free
markets and capitalism.
Last week, representatives of Wegelin failed to show up in a
U.S. court in New York to respond to the indictment. The bank
said in a statement and legal papers that it had not been served
with a criminal summons - a legal paper that often follows an
indictment. The court declared the bank a fugitive, raising
questions over how a trial requiring the presence of Hummler and
other Wegelin executives might take place. While Hummler was not
named in the indictment against the bank, the document referred
to unidentified Wegelin executives as "co-conspirators."
After the hearing, Wegelin said in a statement that "the
circumstances create a clear dilemma for Wegelin & Co: If it
were to adhere to current U.S. legal practice aimed at Swiss
banks, it would have to breach Swiss law." Swiss law protects
client confidentiality under a tradition dating to the Middle
Ages; Switzerland does not consider tax evasion a crime for its
own citizens and residents.
Joerg Denzler, a Wegelin spokesman, declined to comment for
this story or to make Hummler available, citing the bank's legal
situation. Richard Strassberg, a U.S. lawyer for the bank at
Goodwin Procter in New York, also declined to comment.
Far from New York, the indictment drew silence from the
Swiss government; thorny questions over the fate of
Switzerland's crown-jewel industry, private banking; and
concerns about frayed relations between Washington and Bern, two
historic allies. At the center is the figure of Hummler, who
cannot travel to the United States without being arrested and so
could not attend the potential trial of the bank he ran for two
Hummler, 58, grew up in St. Gallen, playing violin as a
child, studying law at the University of Zurich and completing a
Ph.D. in economics at the University of Rochester in New
York. He joined UBS AG, the Swiss bank giant, and became a
personal adviser to then-board C hairman Robert
Holzbach, but by 1991 had left the bank to become a partner at
Wegelin. He has a Dutch wife, Elizabeth, and four daughters, is
a reserve colonel in the Swiss Army and still plays a
200-year-old violin. Bach, he wrote in his 2009 column, "is an
excellent antidote to my impatience and restlessness. "
LATEST U.S. MOVE
The indictment of Wegelin was the latest move by the U.S.
Justice Department to clamp down on Swiss banks for their role
in helping wealthy Americans dodge taxes. In 2009, in the only
settlement to date, UBS paid $780 million and admitted to
criminal wrongdoing to resolve U.S. criminal charges with the
Justice Department that it sold tax evasion services to wealthy
Americans. German, British and Italian tax authorities also
launched investigations into how Swiss banks might be abetting
tax cheats. The U.S. Justice Department has since expanded its
criminal investigation to 11 Swiss banks, including Wegelin,
Credit Suisse and Basler Kantonalbank, and Swiss officials are
seeking a settlement for the entire Swiss banking industry -
more than 300 banks.
A balding man with a short mustache, Hummler sat in the
inner circle of Swiss private banking and finance: he was
chairman of the Swiss Private Bankers Association, a trade
group, for three years through mid-2011; he was part of the
council that supervises the Swiss National Bank for seven years
until resigning last April. Under Hummler's oversight, which
began after he joined Wegelin in 1991, the bank grew rapidly,
managing some $1.2 billion in undeclared U.S. assets as of 2010
from only $240 million in 2005. The bank opened several new
branches across Switzerland, established an online private bank
and expanded to around 700 employees from a few dozen. Swiss
private bankers put Hummler's undisclosed personal wealth at at
least millions of Swiss francs.
Hummler courted press attention. In recent years, Hummler
became particularly outspoken, telling Der Spiegel in 2009 that
German tax evasion "is a legitimate defense by citizens trying
to partially escape the current grasp of the administrators of a
disastrous social welfare state and its fiscal policies." His
bi-monthly investment commentaries, which Wegelin made available
on iTunes, had 100,000 readers and urged recipients to uphold
Swiss bank confidentiality and stand up to the United States.
But in more recent weeks, Hummler's public voice grew silent
- a sign of his worries, according to some people familiar with
Justice officials were annoyed by Hummler's writing a
"Farewell, America" letter to Wegelin clients after the UBS
settlement in 2009, according to people familiar with the
matter. A Justice Department spokesman declined to comment. In
the letter, which was posted on Wegelin's website, he scolded
the United States for "breathtaking moral duplicity in
maintaining enormous offshore tax havens in Delaware, Florida
and others of its states" and urged clients to sell any U.S.
securities they owned given heightened Internal Revenue Service
scrutiny of tax dodgers.
Hummler's letter was taken as an invitation for tax evaders
to take their funds to Wegelin while UBS and other banks swept
their accounts clear of tax offenders, several Swiss private
bankers said. Hummler's error, rival Swiss bankers say, was in
thinking Wegelin was safe from a U.S. indictment just because
the bank didn't run any U.S.-based branches.
Soon after the UBS investigation hit Switzerland, Wegelin
told its U.S. clients to sell all their U.S. assets held through
the bank. But it also took at least $1.2 billion from Americans
who were fleeing the U.S. crackdown on U.S. tax evaders at UBS
over 2008 and 2009, according to the indictment. Wegelin's
spokesman declined when asked for comment on this charge.
One of Hummler's friends said he was confused by this.
"What I do not understand is that Wegelin approached all its
customers, in 2009, to sell all U.S. and U.S.-related assets -
at the same time the bank was about to acquire U.S. customers
from UBS," said the friend Heinz Zimmermann, a finance professor
at the University of Basel.
Wegelin was "undeterred by the crystal-clear warning they
got when they learned that UBS was under investigation for the
identical practices," the indictment said.
A BANK UNLIKE THE OTHERS
Wegelin stood out long before its indictment.
Unlike most Swiss banks, with headquarters in Geneva or
Zurich, Wegelin's headquarters are in the town of St. Gallen, an
upscale German-speaking town of 70,300 people in the northeast
of the country. Main attractions include a leading business
school and an 8th Century abbey. Before Zurich's ascent as the
financial capital of Switzerland, St. Gallen was an important
banking hub, its wealth built on the textile industry.
In recent years, under Hummler, Wegelin refashioned a retail
space below its headquarters into a bar it christened Nonolet
(from the Latin phrase "pecunia non olet" or "money does not
reek"). The purpose, Christian Raubach, a Wegelin partner, told
Reuters in 2009, was to ensure a glossy crowd below the
wood-paneled offices of the private bank, whose logo of a "W"
between two griffins declares in German "Private Bankers since
1741." "You cannot have a strange business there like a kebab
shop" or patrons "vomiting" after a night drinking beer, Raubach
Some conservative Swiss politicians and voters view Hummler
as a defiant hero and Wegelin and other Swiss banks as the
target of an unfair crackdown, said Robert Vogler, a Swiss
banking historian. Vogler said liberal politicians and voters
were less sympathetic because they had always thought tax
evasion would harm Switzerland's reputation. Either way, said
Boris Zuercher, Zurich-based chief economist for the
pro-business think-tank Avenir Suisse, Swiss politicians missed
an opportunity to rein in Swiss banks following UBS. "That
represents a failing of Swiss politics," he said.
Martin Naville, chief executive of the Swiss-American
Chamber of Commerce in Zurich, told Reuters that Hummler had
"exposed himself pretty heavily" around 2009 by publicly calling
America the "worst aggressor since the Second World War" while
taking in tax-evading clients fleeing other Swiss banks in the
wake of the crackdown. "Clearly, he made some people very
angry," Naville said. "And usually, the boomerang comes back."