Rumors that Offshore Bank Inquiry Expands to Other Swiss Banks and even to Wall Street

Lynnley Browning of The New York Times today here passes on rumors -- presumably from a reliable unnamed source -- that

1. "federal authorities are looking at Wall Street banks that provide banking services to the regional companies, known as cantonal banks."

2. "the Wall Street banks might have been used by the regional banks to pool client money so that individual clients could not be identified by the United States authorities." The article does caution that "There is no indication that the Wall Street banks, which the two people declined to identify, have knowingly engaged in wrongdoing."

3. "The new investigation centers on Basler Kantonalbank, one of the larger regional companies, but includes other cantonal banks as well, the people briefed on the investigation said, declining to identify them." Readers will recall that Renzo Gadola worked with (not for, perhaps) Basler Kantonalbank. I blogged previously on his original charge here and on his guilty plea just two days ago here.

4. "Investigators looking at the cantonal banks have been helped in recent months by wealthy Americans who have made detailed voluntary disclosures to the I.R.S. of their hidden offshore accounts in exchange for reduced fines and penalties. The disclosures effectively provide a road map of the banks, trust companies, advisers and other intermediaries who were involved in helping them hide their money. "

5. "Large Swiss banks suffered steep outflows in recent years as the United States cracked down on UBS, and much of the American and European client money was assumed to have fled to the Far East. But the two people said on Thursday that perhaps tens of billions of dollars ended up in cantonal banks."

6. "One new technique that emerged during the UBS crackdown was for American clients to open a small account at a cantonal bank and declare its contents to the I.R.S., while keeping the bulk of their money in hidden, undeclared accounts, the two people said. The Justice Department suspects that scores of private bankers who left UBS and other large Swiss banks to work at smaller banks and trust companies sold this technique, the two people said. " Renjo Gadola was one of the bankers who redeployed from UBS to a smaller bank -- specifically Basler Kantonalbank.

None of this is surprising. Swiss banks' forte for non non-Swiss depositors is to hide money , much of the time when non-Swiss law enforcement has a legitimate reason to know about the money being hidden. It was never just a UBS problem, although UBS may have been the most egregious in terms of its sending operatives into the U.S. for all sorts of skullduggery.

And, I suppose it is not at all surprising that there would be twists on the theme of hiding money so that, for appropriate monetary consideration, U.S. banks would lend a helping hand whether knowingly or unknowingly (wink-wink). But, again, this is rumor from anonymous sources. Things will develop.

I do think the take away from this widening activity is that U.S. depositors into foreign bank accounts -- particularly Swiss bank accounts -- who have not yet joined the voluntary disclosure program should seriously consider joining the program now. Readers will recall that the program continues after its nominal closing date of 10/15/09, subject only to an as yet uncertain higher penalty amount.