Most Swiss banks considering #OVDP should NOT consider #Wegelin in their decision

2012 – Wegelin – Sowing The Seeds of U.S. Terror

This article includes:

Two months ago, Wegelin pleaded guilty, even though it had “little to gain” by doing so, it said in court documents. Wegelin said it was seeking “closure.” An attorney for Wegelin declined to comment.

Legal experts said the U.S.’s tactics may offer a blueprint for future actions against foreign banks. Assistant U.S. Attorney Daniel Levy wrote in a sentencing memo that the prosecution of Wegelin would send “a strong message to those who would believe that, without a physical presence in the U.S., they cannot be reached by U.S. law enforcement.”

“Americans who still have these undeclared accounts need to realize the world is shrinking,” Jeffrey Neiman, a former assistant U.S. attorney, said in an interview. He prosecuted UBS, UBSN.VX -0.31% the Swiss bank, for offenses similar to Wegelin’s.

But the legal theories the U.S. used in prosecuting Wegelin haven’t been tested under these specific circumstances. Had Wegelin gone to trial, legal experts said, it could have argued that it had no criminal intent because it didn’t believe it was responsible for adhering to U.S. laws. In Thursday’s court filing, Wegelin said it went to great lengths to attempt to comply with U.S. laws and that it didn’t know it would be punished for “what it was legally entitled to do under Swiss law.” It added: “Swiss banking privacy and its potential for concealing tax evasion by U.S. persons has never been a secret.”

An interesting Wikipedia summary of the story appears here.

It seems clear that the real purpose of Wegelin was to terrorize Swiss banks and to provide a precedent for so doing.


2013 – OVDP For Swiss Banks – Reaping The Harvest of Terror

The background, decision and link to Wegelin are described by lawyer Robert Wood and the Economist.  The Economist sets the stage follows:

AMERICANS never made up a large portion of Swiss private banks’ international client base, but the price to be paid for allowing some of them to evade tax is proving to be steep—and could be ruinous for some smaller wealth managers. By December 9th most of Switzerland’s 300 or so banks were required to tell their regulator whether they would participate in a voluntary-disclosure programme crafted by the Department of Justice, under which those that have handled untaxed accounts for American clients can wipe the slate clean in exchange for fines. Swiss authorities have urged banks to sign up to avoid the fate of Wegelin, a venerable private bank that closed after being indicted in New York for aiding tax dodgers.

Banks have four choices. They can declare themselves “category two” institutions (those with foreign clients who broke American tax laws), “category three” (those whose foreign clients were clean), “category four” (mostly domestic) or they can choose not to take part. “Category one” comprises 14 large banks, including Credit Suisse and Julius Bär, which cannot participate because they were already under investigation when the programme was set up. They will have to negotiate individual settlements with the American authorities. The only large bank that has already done so is UBS, which paid $780m and handed over information on more than 4,700 American accounts.

As Swiss banks scramble to enter the Department of Justice program for Swiss banks, there is much reference to Wegelin Bank of Switzerland. Rightly or wrongly Wegelin agreed with U.S. prosecutors that it conspired with U.S. taxpayers to hide money from the IRS. In other words, it entered into a plea bargain. It’s unclear what the result would have been if Wegelin had pleaded not guilty and the case had gone to trial. I predict (if the law had been applied) that the U.S. would have lost.

Leaving aside the jurisdictional issues (does U.S. law apply in Switzerland) the point is that Wegelin – on is website – specifically agreed that it was assisting U.S. taxpayers evade taxes.

Swiss banks should NOT participate in this U.S. shakedown created by the Department of Justice.

The top 10 reasons include:

1. Wegelin has absolutely NOTHING to do with the circumstances of the vast majority of Swiss banks. The Wegelin situation is analogous to the Swiss banks in category 1 that are NOT eligible to participate (time will show that the Category 1 banks will do better outside the program).

2. The program is being interpreted so idiotically by the Department of “Justice” that almost all the Swiss banks are forced into Category 2 where they agree to pay fines because they can’t prove their American customers were innocent. In other words: You pay “US” because, well just because.

3. The history of OVDP and OVDI has shown that the U.S. simply cannot be trusted. Remember the “Bait and Switch” in OVDP 2009.

4. The U.S. reserves the right to interpret the terms of the program making it impossible for the banks to even know what they are agreeing to. (Incredibly an article in Geneva Launch suggested that  Post Finance – a bank owned by the Swiss Government – was entering OVDP because the terms of the program were NOT clear. As one commenter asked: Who is advising these people?)

5. OVDP for Swiss banks is another U.S. program that punishes more innocents (banks and Americans abroad) than it hurts the guilty (who aren’t eligible anyway). Innocent Americans Abroad are being victimized by this program. It is one more example of U.S. immorality!

6. The simple fact is that there are 300 banks in Switzerland – the vast majority are guilty of one and only one thing – Having an American citizen as a client. (Some of which don’t even know they are Americans.) Let the Department of Justice come to Switzerland and prove its case.

7. The administrative costs are too expensive to the banks. Participation makes no business sense.

8. Participation is a betrayal of Swiss citizens of U.S. origin (Countries considering FATCA IGAs take note!) who have no practical connection to the U.S. Some of these Swiss citizens may not even know the U.S. considers them to part of their penalty base U.S. citizens. (We know that the IRS believes that those who did NOT know they were U.S. citizens should pay 5% of their net worth to the IRS in OVDP.)

9. Participation is a betrayal of ALL Swiss citizens because it assumes that the U.S. and not Switzerland makes laws for Switzerland. Remember that the behavior the U.S. doesn’t like is perfectly legal in Switzerland. The banks are being punished for “acting correctly under Swiss law“.

10. I predict that those who do NOT participate will end up with a better deal.

Closing comments and a dose of sanity from Swiss lawyer Douglas Hornung:

The Swiss French-language newspaper “Les Temps” has an opinion editorial by Douglas Hornung, an attorney, who advises Swiss banks NOT to take part in the “plead guilty deal” agreed between the US and Swiss governments. The opinion piece is titled “La majorité des banques suisses doit refuser le «US Program»” and is behind a pay-wall.

Below is a rough translation of the first paragraphs:

“Only banks that have actively solicited clients on American soil have an interest to participate. Bankers who take the time to learn will learn the intricacies of “U.S. Program ” that Swiss diplomats have not seen.

by Douglas Hornung

More and more banks are considering whether to participate in the U.S. “Program” and FINMA , the Federal Supervisory Authority for Financial Markets, is applying pressure to convince banks to participate in the “U.S. Program .” The Swiss authorities and the Swiss Bankers Association emphasize that banks that fail to participate in “U.S. Program”, are liable to criminal prosecution for “conspiracy” that threaten their very existence. The example of the Wegelin bank is highlighted.

In fact, this fear and this example are ruled out: in fact, the United States can not threaten to open a criminal investigation “conspiracy” against most Swiss banks. They can not do that against those who actually had a policy of attracting a major U.S. customer and have in that particular efforts to have this type of clients. In these cases, but in these cases only the United States can put the bank itself at risk by threatening criminal prosecution for “conspiracy ” if it does not cooperate.

For all other Swiss banks , there is no reason to fear of being accused of “conspiracy” because they have nothing ” conspired ” and have only managed the assets of some U.S. customers, often elderly, who represent only a small part of their regular customers. They have not had proactive activities on American soil (organization of cultural events, sports) and have been content to treat clients who come to them naturally. They could also defend themselves vigorously, and successfully, in case – although unlikely – that such a threat materializes.”


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