Prosecutions of offshore banks may help turn tide of secrecy
BROOKLYN, N.Y. — On a cold winter day here, a car rolled to a stop at an appointed time on an appointed street. An attentive adult sent out a scurrying 5-year-old child to hand over a brown paper bag.
The bag held about $150,000 in cash. Its recipient was known only as Client 2, who got a transfer from Client 1. Both were apparently unknown to each other. Their clandestine transaction was arranged by Josef Beck, according to a federal indict- ment. The U.S. accused the Swiss adviser of working closely with Swiss banks to help Americans access their undeclared money.
It sounds like a Hollywood script, but it’s just one of many eye-popping tales buried in thousands of pages of court documents reviewed by McClatchy and used in the prosecution of Wegelin & Co., Switzerland’s oldest bank, which dates to 1741.
Wegelin officials pleaded guilty in January to helping Americans shelter taxable income in Switzerland, and sentencing was March 4. It marked a major victory for Preet Bharara, the U. S. attorney for the Southern District of New York. Wegelin was ordered to pay about $58 million on top of $16.3 million in forfeitures already obtained by U.S. authorities.
From clandestine meetings to phony foundations described in federal indictments, the secret world of offshore banking and the lengths to which Americans have gone to avoid taxes point to the complexities Congress will face as it begins comprehensive tax restructuring. Fully 45 percent of Americans who have taken advantage of the IRS’ tax amnesty program held accounts in Switzerland.
The issue of offshore accounts has trailed politicians in recent years. A $3 million declared Swiss account and holdings in the Cayman Islands dogged GOP presidential nominee Mitt Romney last year.
Sen. Claire McCaskill (D-Mo.) wrestled with criticism on the campaign trail that her husband maintained an offshore tax haven in Bermuda. Treasury Secretary Jack Lew faced tough confirmationhearing questions over an offshore investment.
What makes the Wegelin prosecution intriguing is the voluminous court documentation describing how the Swiss bank aggressively courted U.S. account holders at rival Swiss giant UBS, which settled with U.S. prosecutors:
There’s Client Q , a California man who sent his son to Switzerland to move $7.1 million into Wegelin and not report it to U.S. tax authorities. There was Client A, a naturalized U.S. citizen in Boca Raton, Fla., who on instructions from Wegelin communicated about the offshore account only during trips to the Ca- ribbean island of Aruba, where she and her husband could access the $2.3 million they had stashed in Switzerland. Aruba markets itself to tourists as “One Happy Island.”
In 2005, Wegelin held about $245 million in undisclosed accounts owned by Americans, according to prosecutors. In charging documents, they said the sum had grown to more than $1.2 billion in 2010 thanks to American depositors who fled UBS during its prosecution and eventual settlement.
Coming after the February 2009 deferred prosecution settlement with UBS, the Wegelin prosecution may mark a turning point.
“Really, the concept of hiding accounts in Switzerland is over,” said Bryan Skarlatos, a tax attorney who works with clients to disclose their offshore financial holdings.
Speaking anonymously, a former prosecutor who was involved in the UBS and Wegelin cases said that was mostly true about large banks, but not necessarily the 24 government-owned cantonal, or state, banks in Switzerland, which are smaller and can avoid detection more easily.
Wegelin’s sentencing left some loose ends. The bank held 684 accounts that belonged to U.S. citizens, 245 of whom took advantage of an IRS voluntary disclosure program and paid back taxes with interest totaling more than $13 million, according to court filings. That leaves 439 accounts belonging to Americans who, as of March, hadn’t claimed ownership and who prosecutors aver owe more than $23 million in back taxes.