The United States has indicted the oldest bank of Switzerland on charges of conspiracy to hide more than $1.2 billion.
Significantly, this is the first time an overseas bank has been charged by the US for allegedly facilitating tax fraud by US taxpayers; which comes at a time when a country like India is struggling to address the issue of billions of Indian rupees stashed in various Swiss banks.
The Justice Department on Thursday announced that it has also seized more than $16 million from Wegelin & Co's correspondent bank account in the US, in accordance with a civil forfeiture complaint and seizure warrant.
Wegelin, founded in 1741, is Switzerland's oldest bank.
"As alleged, Wegelin Bank aided and abetted US taxpayers who were in flagrant violation of the tax code," said Preet Bharara, US Attorney for the Southern District of New York.
"And they were undeterred by the crystal clear warning they got when they learned that UBS was under investigation for the identical practices," he said.
"Today's indictment makes clear that we will seek to punish not only those US taxpayers who violate the law in an effort to avoid paying their fair share of taxes, but also the individuals and entities who facilitate their crimes," said Preet Bharara, an Indian American.
From 2002 through 2011, Wegelin, Berlinka, Frei and Keller conspired with various US taxpayers and others to hide the existence of bank accounts held at Wegelin and the income generated in those secret accounts from the IRS, the Justice Department said.
Berlinka, Frei, and Keller, 41, 51 and 47, respectively, reside in Switzerland.
They each face a maximum term of five years in prison, a maximum term of three years of supervised release and a fine of the greatest of $250,000, or twice the gross gain derived from the offense or twice the gross loss to the victims.
Among other things, in 2008 and 2009, Wegelin, Berlinka, Frei and Keller opened and serviced dozens of undeclared accounts for US 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 US taxpayers evade taxes and hide assets in Swiss bank accounts.
By mid-2008, UBS had stopped servicing undeclared accounts for US taxpayers, it said.
The Justice Department alleged that Wegelin, acting through Berlinka, Frei, Keller and/or others, opened and servicing undeclared accounts for US taxpayer-clients in the names of sham corporations and foundations formed under the laws of Liechtenstein, Panama, Hong Kong and other jurisdictions for the purpose of concealing some clients' identities from the IRS.
It also accepted, as part of Wegelin's client files, documents that falsely declared that the sham entities were the beneficial owners of certain accounts, when in fact the accounts were owned by US taxpayers; the Justice Department alleged.
It permitted certain US taxpayer-clients to open and maintain undeclared accounts at Wegelin using code names and numbers to minimize references to the actual names of the US taxpayers on Swiss bank documents; and ensured that account statements and other mail for US taxpayer-clients were not mailed to them in the United States.
The Swiss bank communicating with some US taxpayer-clients using their personal email accounts to reduce the risk of detection by law enforcement; and issued checks drawn on, and executing wire transfers through, its US correspondent bank account for the benefit of US taxpayers with undeclared accounts at Wegelin and at least two other Swiss banks.
In doing so, the bank sometimes separated the transactions into batches of checks or multiple wire transfers in amounts that were less than $10,000 to reduce the risk that the IRS would detect the undeclared accounts, the Justice Department alleged.
Wegelin is headquartered in St Gallen, Switzerland, and faces a fine of the greatest of $500,000, or twice the gross gain derived from the offense or twice the gross loss to the victims.