Thursday, January 3, 2013

Wegelin & Co. Pleads Guity to Conspiracy (1/3/13)

The USAO SDNY announces here that Wegelin & Co. has pled guilty "to conspiring with U.S. taxpayers and others to hide more than $1.2 billion in secret Swiss bank accounts and the income generated in these accounts from the Internal Revenue Service (the 'IRS')."  The plea agreement is here (with two pages at end omitted to eliminate personal identifying information that is not relevant to readers of this blog)  The indictment to which the plea is entered is here. The indictment charges both an offense conspiracy (to file false federal income tax returns and evade federal income taxes) and the ubiquitous defraud / Klein conspiracy to defraud the IRS.
As part of its guilty plea, WEGELIN agreed to pay approximately $20 million in restitution to the IRS and to pay a $22.05 million fine. In addition, WEGELIN agreed to the civil forfeiture of an additional $15.8 million, representing the gross fees earned by the bank on the undeclared accounts of U.S. taxpayers. Together with the April 2012 forfeiture of over $16.2 million from WEGELIN’s correspondent bank account, this amounts to a total recovery to the United States of approximately $74 million.
The press release is a lot more detailed than most such announcements, but conviction of Wegelin, although practically defunct, is a major development.  I recommend reading the press release.  The press release contains a link to the indictment.

Addendum on 1/5/12 4:35 pm:

1. Probably the biggest point is that the U.S. brought a Swiss bank with deliberately minimum U.S. contacts to the table to take a plea agreement.

2. Despite knowing it was acting unlawfully, "Wegelin believed that, as a practical matter, it would not be prosecuted in the United States for this conduct because it had no branches or offices in the United States and because of its understanding that it acted in accordance with, and not in violation of, Swiss law and that such conduct was common in the Swiss banking industry. "  Allocution (Exh A to Plea Agreement], p.2.

3. I had thought Wegelin got out of the banking business when the original indictment was published, but apparently it now commits to get out.

4. Wegelin agrees to keep records relating to U.S. taxpayers' names and account information.  The presumption is that the U.S. will or is already pursuing a request for those records under the U.S. / Swiss Double Tax Treaty.  I speculate that the resolution of that request might be a template for resolving the U.S. complaints against the other 10 Swiss banks publicized to be in the U.S. sights.

5. The Plea Agreement provides that "This Agreement does not provide any protection against prosecution except as set forth above, and applies only to Wegelin and not to any individuals."  Certainly it does not appear to resolve the case against the individual defendants named in the indictment.
a. However, Robert S. Fink of Kostelanetz & Fink, a major player in this area, is quoted as saying (Shamik Trivedi, Swiss Bank Wegelin Pleads Guilty to Conspiracy to Evade Tax, 2013 TNT 3-4 (1/4/13)):
"It's evident to me that an agreement or deal was made whereby the bank voluntarily gave the court personal jurisdiction, pleaded guilty, and agreed to a fine," with an agreement that no other individual at the bank would be indicted, he said, adding, "America has now indicted a bank that had no presence in the United States, which gives tremendous publicity to the long arm of American jurisprudence."
b. This is, of course, one of the big issues for the other banks.  How can they protect all or most of their people.  I don't think the U.S. is interested in indicting a lot of Swiss bankers.  Many of the indictments are just show, anyway, as the bankers are not likely to come to the U.S. or travel anywhere they may be deported to the U.S.  Still, unless there is some agreement reached, the threat of indictments will cramp their style.

6. I speculate that there may be a strong push for some of the more aggressive banks in the list of 10 to seek to avoid Wegelin's fate by entering a deferred prosecution agreement, with stiff penalties.


  1. In terms of venue though there was a hook because Wegelin had at least one US citizen client residing in the Southern District of New York. However, if Wegelin did not have a client residing in SDNY then I wonder whether SDNY could still be a proper venue.

    Not to be broken record I want to see a big tax prosecution on the DC Circuit which is the default circuit for non resident tax payers.

  2. Interesting comment from Tim. The forfeiture of Wegelin's correspondent account at UBS in April 2012 was ordered by Judge Swain, SDNY, while the account itself was at UBS in Stamford, Connecticut, which is outside the SDNY.

    Separately, I note that the amount paid by Wegelin ($74 million) is one tenth 1/10 the amount paid by UBS to settle DOJ's charges back in 2009.

  3. Venue in conspiracies can usually find some material event that occurred whereever the Government wants to indict.

    I think the big venue issue for the Government is to bring the cases where it has a sophisticated set of trial lawyers who deal in complex cases. The United States Attorneys Office for SDNY is as sophisticated as they come. That is why sophisticated prosecutions are often pursued in SDNY. That is not knocking other USAO's; just that SDNY sees them day in and day out and has a team that knows how to deal with offshore account matters, from taxpayer prosecutions to enabler prosecutions to bank prosecutions.

    And, I might say that the Judges in SDNY are some of the very brightest and best. I can't say the same for many other districts.

    Jack Townsend

  4. I mainly brought up the issue of venue because I don't find all that suprising that the case was plead out and beyond than I don't find that much all that interesting about this case. I don't disagree with anything you said about the USAO for SDNY. However many of same things could said about the District of Columbia on paper the USAO for the District of Columbia is one of the most prestigous USAO's right up with the SDNY. Additionally the judges on the DC Circuit are supposed to be the best and brightest especially on the US Court of Appeals for the DC Circuit(albeit with a strong ideological lean to the right and against the Government). It is often said the US Court of Appeals for the DC Circuit is a farm team for the US Supreme Court although Jack has often said such as in the Stone Concrete case tax law is too important to be left to the US Supreme Court. Perhaps tax law is too important to be left to the US Court of Appeals for the DC Circuit too.

    In theory in terms of venue the DC Circuit is supposed to be a catch all for all non resident and international tax issues. Even at the level of collections if the IRS wants to start a collection on a non US resident taxpayer without any property in the US they file a lien at Washington DC City Hall. However, as the USAO for the DC Circuit handles both most of the civil litigation against the Federal Government and prosecution of serious "local" crimes under the District of Columbia criminal statutes I wonder how many resources are actually left over at the USAO for DC in terms of more traditional USAO issues.

    While this just academic speculation I wonder if Mr. Williams of FBAR fame did not live in suburban Virginia but instead across the river in Washington DC and had his appeal heard not by the 4th Circuit but by the US Court of Appeals for the DC Circuit he would have found much different view of the required records rule especially from the likes of more "ideological" judges such as Janice Rogers Brown or Brett Kavanaugh than the other appeals courts despite the apparent unamimity the other "regular" appeals courts have had in this issue.

    The issue non tax related I will point out is with the recent death of Washington DC power broker Joseph Albritton everyone has been reminded again of the Riggs Bank scandal(Involving the then Washington DC bank involved in laundering money for various unsavory figures owned and headed by Albritton) I have to wonder if Riggs was based in another USAO district instead of DC you would have seen a harsher criminal punishment of the figures of involved as a "normal" USAO would not have had its fingers in as many pies at the USAO for DC did/does and would not have had to face as anti government of judiciary as on the DC Circuit.

  5. As much as I have read, I am still struggling to understand the "leverage" point that made Wegelin capitulate and plead guilty? IE, who was in line for an indictment, if they did not, and would have had an international warrant issued against them? Was that the issue, or is it more complex?

    Probably more complex, as I do note this from the plea agreement: "This Agreement does not provide any protection against prosecution except as set forth above, and applies only to Wegelin and NOT to any individuals."

    Also, a lot of Homeland Whales will be sweating this if they have not joined the OVDI, OVDP.

    "Wegelin agrees to preserve all documents, including electronically stored documents, concerning any U.S. taxpayer and any account opened, directly or indirectly, on behalf of a U.S.
    taxpayer or on behalf of a corporation, foundation, trust, or other entity or structure with a U.S.
    beneficial owner, including, but not limited to: (a) all account-opening documents; (b) all
    documents concerning the beneficial owner of any account; (c) all documents reflecting any
    transactions in any account; (d) all documents reflecting any correspondence or communications
    concerning the account or transactions in the accounts; and (e) all internal correspondence
    concerning the accounts, pending further instruction by Wegelin's primary regulator or other
    authority. Within three days of the execution of this Agreement, Wegelin shall detail to the
    Government the manner in which such documents have been preserved."

  6. An editorial in this week’s “Weltwoche” discusses the Bank Wegelin guilty plea and makes the following comment (translated):

    “Power is the law. Hummler and Bruderer (two lead partners of Bank Wegelin) are the first known victims of a new kind of phenomenon, which indicates a return to the Middle Ages. For the first time a company was destroyed under foreign pressure although the said company had broken no law in the country in which it was located and did business. The territorial sovereignty of the Swiss legal system was out-muscled. The principle of double incrimination was not valid.

    American power has forced American law into place between Zurich and St. Gallen. It was like it was under feudalism in the Middle Ages: the territory did not determine which law was in force, rather the inescapable personal relationship of the vassal to the liege lord was authoritative, which in this case is the relationship of the American taxpayer to his government.”


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