Saturday, February 4, 2012


Swiss bank indictment details tax evasion ploys

NEW YORK – It was a cool August Tuesday in 2007 when Swiss banker Urs Frei walked into a Manhattan restaurant for meetings with two U.S. clients. One of the clients carried an unmarked envelope containing $16,000 in cash.

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 U.S. 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, 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, D.C., who has represented clients with foreign accounts.

The charges, the first time a foreign bank has been indicted on charges of facilitating U.S. 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 U.S. 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 U.S. 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 U.S. operations from the rest of its financial business, and because Switzerland does not permit U.S. extradition efforts for tax-related charges.

According to the indictment, Frei allegedly asked a banking client in Westchester County, N.Y., 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 U.S. 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.

"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 U. S. it would not be subject to U. S. 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."

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