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Swiss bank Wegelin to pay $58 million in U.S. tax evasion case

by FP Staff  Mar 5, 2013 11:15 IST

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NEW YORK (Reuters) - A U.S. court on Monday sentenced Wegelin & Co, the oldest Swiss private bank, to pay nearly $58 million after it admitted to helping wealthy Americans evade taxes.

The sum ordered by U.S. District Judge Jed Rakoff in New York was on top of $16.3 million in forfeitures already obtained by authorities after the federal government accused Wegelin of conspiring to assist U.S. taxpayers hide $1.2 billion in secret Swiss bank accounts.

The bank, which sold off most of its business during the investigation and is now planning to close, pleaded guilty to conspiracy in January.

The case marked the first time U.S. authorities had indicted a foreign bank and subsequently obtained a guilty plea and sentence for facilitating tax evasion.

The government previously obtained a $780 million settlement with UBS AG(UBSN.VX) in 2009, and tax probes continue of other Swiss banks including Credit Suisse Group AG(CSGN.VX) and Julius Baer(BAER.VX).

"Wegelin has now paid a steep price for aiding and abetting tax fraud that should be heeded by other banks, bankers, and advisers who engage in the same conduct," Manhattan U.S. Attorney Preet Bharara said in a statement.

During Monday's hearing, Rakoff followed prosecutors' recommendations and imposed a $22.05 million fine and ordered $20 million in restitution. He also entered an order finalizing $15.82 million in forfeitures, which he preliminarily approved at the time of the guilty plea.

But while Rakoff approved the plea deal, he said there was a "funny tension" between the U.S. Justice Department's decision not to seek the maximum $40 million fine and its assertion Wegelin acted with "extreme willfulness."

Rakoff said even including the $16.3 million the government recovered in April 2012 by seizing money in Wegelin's U.S. correspondent account, the bank will be giving up just 12 percent of the 560 million Swiss francs it earned after it sold most of its assets to regional Swiss bank Raiffeisen last year.

"Not much pain there, is there?" Rakoff said.

Rakoff, who has previously rejected U.S. Securities and Exchange Commission settlements with Citigroup Inc(C.N) and Bank of America Corp(BA.N), ultimately accepted the proposal, which prosecutor Daniel Levy called "very substantial."

The judge said the government could justify a smaller fine to avoid the jurisidictional challenges of pursuing Wegelin.

Wegelin said in a statement that it was pleased with the judge's decision.

RARE BANK INDICTMENT

Wegelin's prosecution and subsequent plea and sentencing marked a rarity in the financial sector. Following the 2002 indictment and subsequent demise of accounting firm Arthur Andersen, deferred-prosecution agreements became common with large companies as prosecutors became sensitive to the number of that could be lost following an indictment.

"Often times, it's a death sentence," said Scott Fredericksen, a former federal prosecutor now at Foley & Lardner not involved in the case.

But federal authorities pushed forward in February 2012 with the indictment of Wegelin after they said the bank began going after U.S. clients of UBS once the Justice Department's probe of that bank became public in 2008.

Wegelin "chose to view the investigation of UBS and the resulting exodus of UBS customers as a business opportunity, rather than as an example to be avoided," prosecutors said in a sentencing memorandum filed last week.

Three Wegelin bankers -- Michael Berlinka, Urs Frei and Roger Kelle -- were indicted a month earlier but have never appeared in U.S. court. Wegelin in court documents filed last week said their indictment created rumors of its imminnent indictment setting in motion "the beginning of the end for Wegelin."

Wegelin, which according to the indictment had $25 billion in assets at the end of 2010, said at the time of its guilty plea in January said it would close.

As part of its sale to Raiffeisen, the Swiss Financial Market Supervisory Authority required Wegelin to reserve 100 million Swiss francs to resolve the U.S. investigation, according to court documents.

The case is U.S. v. Wegelin & Co, et al, U.S. District Court for the Southern District of New York, 12-cr-00002.

(Reporting by Nate Raymond in New York; Editing by David Gregorio and Richard Pullin)

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