Swiss Bank Allegedly Conspired to Hide More than $1.2 Billion from the IRS

Preet Bharara, the United States Attorney for the Southern District of New York, announced today that U.S. District Judge Laura Taylor Swain entered a default judgment and final order of forfeiture for over $16 million seized from the U.S. correspondent account of Wegelin & Co., a Swiss private bank.  The funds will be deposited in the Treasury Forfeiture Fund. 

WEGELIN was indicted in February, 2012 for conspiring with U.S. taxpayers and others to hide more than $1.2 billion in secret accounts and the income they generated from the IRS.  This was the first time an overseas bank was indicted by the United States for allegedly facilitating tax fraud by U.S. taxpayers.  U.S. District Judge Jed S. Rakoff is presiding over the case.

On the same day that WEGELIN was indicted, the Government filed an in rem forfeiture complaint (the “Complaint”) against the funds in WEGELIN’s correspondent account here in the United States, which was maintained at UBS AG in Stamford, Connecticut (the “Stamford Account”).  The Government seized all funds in the Stamford Account – more than $16 million – pursuant to an arrest warrant in rem.  According to the Complaint, WEGELIN and at least two other Swiss banks used the Stamford Account and the funds therein to covertly launder funds held in undeclared accounts in Switzerland so that their U.S. taxpayer-customers could get access to their funds without being detected by U.S. authorities, thereby continuing to avoid paying taxes owed and due to the IRS. WEGELIN was provided notice of this forfeiture action, but did not file a claim to challenge the forfeiture of the funds in the Stamford Account.

Manhattan U.S. Attorney Preet Bharara said:  “As alleged, Wegelin Bank aggressively solicited business from U.S. taxpayers looking to make an end-run around the tax code.  The millions that we forfeited today were used, in part, by the bank to allow their U.S. customers to have it both ways – they could gain access to their hidden funds but still hide them from the IRS.  Today’s action should send a clear message that when a foreign bank tries to use the U.S. financial system to launder its dirty money, it will pay the price.”

According to the Superseding Indictment and the Complaint filed in Manhattan federal court:
WEGELIN, founded in 1741, is Switzerland’s oldest bank.  WEGELIN provided private banking, asset management, and other services to clients around the world, including U.S. taxpayers living in the Southern District of New York.  WEGELIN had no branches outside Switzerland, but it directly accessed the U.S. banking system through the Stamford Account. 

From 2002 through 2011, WEGELIN conspired with various U.S. taxpayers and others to hide the existence of bank accounts held at WEGELIN and the income generated in those secret accounts from the IRS.  Among other things, in 2008 and 2009, WEGELIN, through its employees, opened and serviced dozens of undeclared accounts for U.S. taxpayers in an effort to capture clients lost by UBS in the wake of widespread news reports that the IRS was investigating UBS for helping U.S. taxpayers evade taxes and hide assets in Swiss bank accounts.  By mid-2008, UBS had stopped servicing undeclared accounts for U.S. taxpayers.

In the wake of the IRS investigation, members of WEGELIN’s senior management affirmatively decided to capture the illegal business that UBS exited.  To capitalize on the business opportunity this presented and to increase the assets under management, along with the fees earned from managing those assets, individuals acting on behalf of WEGELIN told various U.S. taxpayer-clients that their undeclared accounts would not be disclosed to the United States authorities because the bank had a long tradition of secrecy.  They also persuaded U.S. taxpayer-clients to transfer assets from UBS to WEGELIN by emphasizing, among other things, that unlike UBS, WEGELIN did not have offices outside of Switzerland and was therefore less vulnerable to United States law enforcement pressure.  Members of WEGELIN’s senior management approved efforts to capture the clients who were leaving UBS and also participated in some meetings with U.S. taxpayer-clients who were fleeing UBS.

By 2010, the collective maximum value of the assets in undeclared accounts beneficially owned by U.S. taxpayer-clients of WEGELIN was more than $1.2 billion, with many accounts holding more than $10,000 in any one year.  U.S. taxpayers are required to report the existence of any foreign bank account on their federal income tax returns if it holds more than $10,000 at any time during a given year, as well as any income it earns. 

WEGELIN failed to appear at a hearing in the criminal action and has been identified as a fugitive by Judge Rakoff.   Previously, three client advisors at WEGELIN, Michael Berlinka, Urs Frei, and Roger Keller were indicted for the same crime.  They remain at large.

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Mr. Bharara praised the outstanding efforts of the Internal Revenue Service, Criminal Investigation Division in the investigation.  He also thanked the U.S. Department of Justice’s Tax Division for its significant assistance in the investigation.

This case is being handled by the Office’s Complex Frauds and Asset Forfeiture Units.  Assistant U.S. Attorneys David B. Massey, Daniel W. Levy, and Jason H. Cowley are in charge of the case.

The charges and allegations contained in the Superseding Indictment are merely accusations, and the defendants are presumed innocent unless and until proven guilty.

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