By Katharina Bart
ZURICH, Feb 3 (Reuters) – The first indictment of a Swiss private bank over hiding untaxed money for wealthy Americans has heightened tension among private bankers fearful of being next in the firing line.
The United States has indicted St.Gallen-based Wegelin, the oldest Swiss private bank, on charges it enabled Americans to evade taxes on at least $1.2 billion in offshore bank accounts.
The indictment, which was announced by the U.S. Justice Department on Thursday, set Wegelin rivals in Zurich and Geneva buzzing on Friday, highlighting the fear of another U.S. strike against a private bank.
“It seems the U.S. is shooting at everything in sight and we don’t know when it’s going to stop. I think the chances of another bank being indicted are pretty big,” a Geneva private banker said.
“After all, why should the U.S. stop? Switzerland is small, it’s an easy target, but a lot of money can be made out of it. When this whole thing started we didn’t know how far the U.S. would go, but now we’ve found out.”
Switzerland’s finance department, foreign ministry, regulator Finma, banking lobby and finance ambassador SIF were silent on the indictment of Wegelin.
Wegelin itself, founded in 1741 and run by loquacious and gregarious private banker Konrad Hummler, also didn’t comment.
The threat of imminent U.S. indictment, seen as the kiss of death for businesses, drove Wegelin to sell itself last week.
The indictment is the culmination of months of uncertainty for private bankers, many of whom won’t travel to the United States, even for personal reasons, for fear of being arrested.
Several Wegelin rivals chided Hummler for “bringing on the indictment himself” through repeated verbal swipes at U.S. officials as they began cracking down on offshore centers like Switzerland. Unusually outspoken among banking peers who typically prefer to blend in and live and work in relative obscurity, Hummler courted press attention, which he successfully translated into business for Wegelin.
However, he did not fear irking U.S. authorities repeatedly. Justice officials were annoyed by a “farewell, America” letter he wrote to Wegelin clients in 2009, in which Hummler urged clients to sell any U.S. securities they owned given heightened Internal Revenue Service scrutiny of tax dodgers, according to people briefed on the matter.
Hummler’s letter was taken by many rivals as a codified invitation for tax evaders to bring their funds to Wegelin as UBS and other banks were sweeping their accounts clean of tax offenders.
PAINFUL STEP
Hummler’s “fatal error” was thinking Wegelin was safe from a U.S. indictment because the bank didn’t run any U.S.-based branches, several rivals said on Friday.
Wegelin broke itself up last week in the face of the U.S. campaign, moving most of its employees, along with clients and assets of 21 billion Swiss francs, to Notenstein Privatbank, in turn bought by Swiss cooperative bank Raiffeisen for an undisclosed sum.
Last week, Hummler, who wasn’t available for comment on Friday, called the step an extremely painful one.
U.S. and Swiss officials continue to work towards a solution to sweep Swiss bank accounts clean of offenders and make good on past transgressions. Several banks including Credit Suisse , which has put aside money towards paying a fine to the U.S. over offshore accounts, and Julius Baer, have come under intense U.S. scrutiny. Those banks, which both report earnings next week, declined comment.
Swiss giant UBS, seen by many as the blueprint for subsequent negotiations for Swiss private banks after its 2009 data handover and fine, also didn’t comment. The U.S. seized more than $16 million from UBS’s Stamford, Connecticut branch, which served as Wegelin’s correspondent bank.
Early in 2009, UBS averted a criminal indictment by contravening Swiss banking secrecy and handing over around 250 sets of data to U.S. authorities on an emergency order by Finma, which was later taken to court over the move. Finma’s handling of the affair was eventually vindicated on appeal.
The timing of Wegelin’s indictment dovetails with the U.S. launch of an amnesty programme designed to induce taxpayers into coming clean on hidden assets, the IRS’s third such program during its recent offshore campgain.
“This is classic tax enforcement strategy – the iron fist and the velvet glove,” said Scott Michel, a tax lawyer and resident of law firm Caplin & Drysdale in Washington, D.C.
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