Wegelin Bank Indictment: The Power Of US Taxing Authorities

Just about a year ago the Swiss private bank, Wegelin & Co.,  ho has publicly railed against the over-arching power of the US taxing authorities, was indicted for tax evasion. Today, Accounting Today reports that a settlement has been reached in the Wegelin Bank Indictment.


A sad day for such a distinguished logo

After Swiss Bank giant UBS was charged criminally, it modified many of its practices that lead to a criminal settlement, Wegelin, according to the DOJ attempted to win over UBS' lost business.​


In the wake of the U.S. investigation of UBS, members of Wegelin’s senior management decided to take steps to capture the illegal business that UBS had exited. To capitalize on the business opportunity this presented and to increase its assets under management, and the fees earned from managing those assets, Wegelin employees told various U.S. taxpayer-clients that their undeclared accounts would not be disclosed to the United States authorities because the bank had a long tradition of secrecy. They also persuaded U.S. taxpayer-clients to transfer assets from UBS to Wegelin by emphasizing that, unlike UBS, Wegelin did not have offices outside of Switzerland and was therefore less vulnerable to United States law enforcement pressure.


Members of Wegelin’s senior management approved efforts to capture the clients who were leaving UBS and also participated in some meetings with U.S. taxpayer-clients who were fleeing UBS. Many of Wegelin's customers have come forward after the indictment and used the Offshore Voluntary Disclosure Initiative even though Wegelin was under investigation. The IRS has recently changed its rules to disallow a taxpayer getting into the FBAR Amnesty program if their bank is under investigation (we believe there are exceptions to this rule, or so much confusion the IRS is still allowing US taxpayers into the offshore program).


These are the terms of the deal:

  • Wegelin agreed to pay approximately $20 million in restitution to the IRS and to pay a $22.05 million fine.
  • 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.


This guilty please must be especially humbling, considering Wegelin's previous bold statements against the US taxing regime:


"It is astounding, and this is the second interesting observation, how completely naturally those who claim the moral high-ground rush to join forces with the authorities and their financial requirements. At the risk of once again winding up certain specialists in business ethics, let us briefly recall the sort of tax authorities we are dealing with, and the sort of state they serve: a country that, over the last 60 years, has unquestionably been one of the most aggressive nations in the world. The USA has fought by far the largest number of wars, sometimes with, but mostly without a UN mandate. It has broken the international laws of war, maintained secret prisons, and fought an absurd war against drugs, with serious consequences both abroad (Columbia, Afghanistan) and at home (according to reliable sources, the tentacles of the narcotics mafia now reach well into political circles). With breathtaking moral duplicity, the USA maintains enormous offshore havens in Florida, Delaware and others of its states.


The moralizers have joined sides with a nation that still makes extensive use of the death penalty, and that has a legal system under which lawyers can get rich on the misfortunes of their clients. Liability cases often end in verdicts with exorbitant damages, which makes business activity extremely risky, for medium-sized enterprises in particular. The moralizers provide intellectual support for a country that allows its infrastructure to collapse, and then stuffs convicts into hopelessly overfilled jails, after what are not infrequently dubious proceedings. They fund a nation that tolerates – or rather, causes – regular crises in the global financial system that it manages. A country whose underclass enjoys neither the benefits of an adequate education, nor a halfway functional healthcare system; a country whose economic system is increasingly inclined to overconsumption, and in which saving and investing have increasingly become alien concepts, a situation that has undoubtedly been one of the driving forces behind the current recession, with all its catastrophic consequences for the whole world."


I can't say I disagree with all that much in the letter (I do take exception about the UN; I care little of what that hive of statists think about anything). Yet, I do agree with the overall theme. The US taxing regime is far too inconsistent and bullying to be considered a good neighbor. I think that the conceit of Universal Tax Jurisdiction (that is, the US has the right to tax US citizens anywhere in the universe because the US government is just so freakin' awesome) has lead to something far beyond Cowboy diplomacy: A never-ending invention which forces new terms of surrender and new terms of reparations every year.


PERSPECTIVE: $74 million pays for a little over 14 minutes of Federal spending.