At a hearing in New York, Wegelin, which has been in business since 1741, admitted allowing more than 100 American citizens to hide $1.2bn from the Internal Revenue Service for almost 10 years. Punishment was swift and severe: a $57.8m fine to the US authorities followed by immediate closure: ‘Wegelin will cease to operate as a bank,’ it said.
Wegelin is the first foreign bank to plead guilty to tax evasion charges; some argue that the price paid for its wrongdoing is perhaps unfairly high. But US regulators are doubtless keen to set a precedent: if you knowingly help individuals ‘steal’ from US coffers, the long arm of the law will find, fine and finish you.
Wegelin was the last Swiss bank standing after scores of other institutions left the Land of Plenty following a change in the law prohibiting US citizens from opening offshore accounts. US Attorney Preet Bharara states: ‘The bank wilfully and aggressively jumped in to fill a void that was left when other Swiss banks abandoned the practice due to pressure from US law enforcement.’
Bharara has called the ruling a ‘watershed moment’ in the Treasury’s efforts to crack down on ‘both the individuals and the banks - wherever they may be in the world - who are engaging in unlawful conduct that deprives the US Treasury of billions of dollars of tax revenue’.
Wegelin was first indicted for wrongdoing in February last year and became ‘a fugitive from justice’ when representatives failed to turn up for an initial court hearing – highly unusual for such a venerable bank.
The whole saga reads like the dramatic lovechild of John Grisham and Michael Lewis: at first, the bank swore to clear its name and insisted that it was not subject to US law but the more relaxed banking regulations of its native Switzerland. It has since been forced to eat its words. Indeed, three Wegelin bankers, Michael Berlinka, Urs Frei and Roger Keller could even face imprisonment if the US authorities see fit. It is not yet known whether the bank has turned over the names of its wealthy US clients who have been squirreling their riches away from the Internal Revenue.
Perhaps not. UBS, the Swiss bank that came under similar scrutiny four years ago, sang like a canary the moment the Feds got involved and got off with a $780m fine and no charges were brought.
But one thing is certain. This latest chapter in the tale of America vs. foreign-owned banks adds yet more grist to the rumour mill in Europe that the US is on a mission to discredit foreign-owned banks in order to drum up more trade for its domestic financial giants. If the conspiracy theory is true, then the scheme is certainly working. Last month, cash on deposit at foreign-owned banks fell $291bn – that’s 25% - to $879bn from the end of May to the start of December 2012. It’s the first time deposits in the sector have fallen for six consecutive months since 2002.
So, to the remaining outliers in US banking: ING, Barclays, Deutsche Bank and others, MT says, good luck in 2013. We hope you don’t need it.