FATCA Closes Swiss Bank After Admitting Tax Evasion

The first big banking scalp has been claimed as US authorities enforce FATCA, a clampdown on financial institutions which help US taxpayers avoid paying tax.

Switzerland’s oldest bank, Wegelin, has now closed and shutting has brought a chill to the country’s banking industry as more banks there are being forced to open their books for the authorities.

For an industry based on discretion and secrecy, the move is said to be death knell for secret Swiss bank accounts.

Wegelin’s closure comes after a court in New York imposed £36 million fine after the bank pleaded guilty to helping more than 100 Americans avoid paying taxes.

The court heard how Wegelin had helped around them hide £750 million from US tax inspectors for 10 years. It was the first foreign bank in the US to plead guilty to the charge of helping people evade taxes.

Landmark FATCA Case

A managing partner at the bank admitted that its policy of sheltering US citizens between 2002  and 2010 was ‘wrong’.

The bank has intended to contest the charges by arguing as a Swiss-based bank; only local relaxed banking laws governed how the business was run.

In recent years, many Swiss banks have stopped letting Americans to open offshore accounts.

However, Preet Bharara, prosecuting, said: “Wegelin wilfully and aggressively filled the void created when most Swiss banks ditched similar practices because of US law enforcement pressure.”

He said the bank’s fine was a ‘watershed moment’ in American efforts to hold banks to account when they deprive the US treasury of taxes.

However, it was the bank’s managing partner’s admission in court that helping clients evade tax was ‘common practice’ in Switzerland which has caused most concern in the Swiss banking industry.

Credit Suisse investigated

The fine imposed was expected to be much higher and has led many to speculate that the bank has done a deal with US authorities to implicate other banks in tax evasion.

The case comes four years after fellow Swiss bank, UBS, paid £485 million in fines to US authorities after denying similar charges but entered a ‘deferred prosecution agreement’ to avoid a trial.

However, Credit Suisse is still under investigation by US authorities – as are 12 other smaller banks, including Julius Baer.

Wegelin, which started in 1741, said it would ‘cease to operate’ as a bank once the fine had been paid though it effectively stopped operating as such a year ago and has since sold most of its assets.

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