The devil in details – Swiss bank indictment bares tax evasion ploys
It was a cool August Tuesday in 2007 when Swiss banker Urs Frei walked
into a Manhattan restaurant for meetings with two US clients. One of the
clients carried an unmarked envelope containing $16,000 in cash.
For an extremely expensive lunch? Hardly.
For an extremely expensive lunch? Hardly.
For what a new federal indictment
alleges was a secret rendezvous in a plot that enabled more than 100
wealthy Americans to evade federal taxes on at least $1.2 billion in
assets hidden in foreign bank accounts. Federal prosecutors in New York
on Thursday announced criminal conspiracy charges against Wegelin &
Co, Switzerland’s oldest bank; Frei, a client adviser in the bank’s
Zurich branch, and two fellow bankers there.
Prosecutors separately used a civil
forfeiture action to seize more than $16 million in Wegelin funds held
in a correspondent account at Swiss banking giant UBS’ Stamford, Conn.,
location. Wegelin, which has no US branches of its own, used that
account for transactions with its American clientele.
The charges provide a rare inside
glimpse at anti-spy maneuvers the well-heeled account holders and their
bankers allegedly used in an effort to avoid detection and prosecution.
The techniques included recruiting American clients via a website titled
SwissPrivateBank.com, identifying the clients’ accounts only by
numbers, by a special code marked “BNQ” or, in one case, by an “Elvis”
pseudonym.
“It’s standard procedure for private
bankers like this to go to extreme lengths to conceal their clients’
transactions. You hear stories about hiding money in ski poles or using
phony names and things like that,” said George Clarke, a Miller &
Chevalier law firm partner in Washington, DC, who has represented
clients with foreign accounts.
The charges, the first time a foreign
bank has been indicted on charges of facilitating US tax fraud, mark the
latest escalation of a long-running Justice Department crackdown on
offshore tax evasion that has shattered Switzerland’s vaunted tradition
of banking secrecy. UBS in 2009 paid a $780 million settlement to avoid
criminal prosecution on charges that its bankers helped thousands of
American clients duck federal taxes.
UBS ultimately gave US authorities the
names and account data for more than 4,500 of those clients. The
handover resulted in dozens of tax-related indictments and convictions,
and prompted thousands of others with undisclosed offshore accounts to
take advantage of IRS voluntary disclosure programs that promised
leniency for those who decided to come clean.
Wegelin and 10 other Swiss banks are now
in the legal cross hairs as federal prosecutors attempt to force them
to make similar disclosures for additional American clients. Swiss
finance authorities, hoping for a universal legal settlement for all
their country’s banks, on Tuesday gave US counterparts encrypted data on
bank employees who served American clients suspected of tax evasion.
The key to unlocking the encryption would be turned over once a
settlement is reached, the Swiss officials said.
But federal prosecutors announced the
historic indictment two days later. The charges arguably will have
limited impact on Wegelin or its employees, because the bank recently
separated its US operations from the rest of its financial business, and
because Switzerland does not permit US extradition efforts for
tax-related charges.
According to the indictment, Frei allegedly asked a banking client in Westchester County, NY, a largely affluent suburb just north of New York City, if he could wire $16,000 to that person’s local bank account on behalf of a second, unrelated US client.
According to the indictment, Frei allegedly asked a banking client in Westchester County, NY, a largely affluent suburb just north of New York City, if he could wire $16,000 to that person’s local bank account on behalf of a second, unrelated US client.
The Westchester resident, identified in
the indictment only as Client GG, authorized the money to be wired from a
Wegelin account that had been properly disclosed to the IRS. The bank
sent the funds in two transactions on successive days in a bid to avoid
any suspicion.
In turn, the Westchester resident
withdrew the money in three transactions, and brought it to the luncheon
meeting with Frei. “During the lunch, the head waiter informed Frei
that someone else at the restaurant wished to speak with him,” the
indictment charged. Frei excused himself and met with the second diner,
who was another banking client, and gave that person the cash-stuffed
envelope he’d just received.
“Frei then returned to Client GG and
noted that it was becoming increasingly difficult to move funds out of
Switzerland, and, that to do so, he employed this technique of
transferring cash directly between his clients,” the indictment alleged.
Afterward, Wegelin credited $16,000 to
an account held by the Westchester resident that had not been disclosed
to the IRS, the indictment charged. “That’s probably money laundering,”
Clarke said of the alleged episode. The indictment also alleged that an
American identified only as client EE in 2010 mailed a letter with no
return address to an independent asset manager in Switzerland. The
letter consisted of a single page that specified the amount —
approximately $37,000 — he needed Wegelin to wire as payment for an
African safari.
Client EE allegedly sent a second letter with wiring instructions for a safari company’s bank account in Botswana, the indictment charged. While on safari, Client EE allegedly called the asset manager by satellite phone to request additional fund transfers from Wegelin for his African adventure.
Client EE allegedly sent a second letter with wiring instructions for a safari company’s bank account in Botswana, the indictment charged. While on safari, Client EE allegedly called the asset manager by satellite phone to request additional fund transfers from Wegelin for his African adventure.
“When UBS entered into its deferred
prosecution agreement Wegelin recruited UBS clients under the mistaken
belief that since it did not have branches in the US. it would not be
subject to US laws,” said Robert McKenzie, a tax attorney at the
Arnstein & Lehr law firm in Chicago. “As you can see in the
indictment, that strategy was terribly flawed.” -MCT
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