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Swiss bank Wegelin to close after US tax evasion fine

  • 04-01-2013 11:02pm
    #1
    Closed Accounts Posts: 7,480 ✭✭✭


    Switzerland's oldest bank is to close permanently after pleading guilty in a New York court to helping Americans evade their taxes.

    Wegelin, which was established in 1741, has also agreed to pay $57.8m (£36m; 44m euros) in fines to US authorities.

    It said that once this was completed, it "will cease to operate as a bank".

    The bank had admitted to allowing more than 100 American citizens to hide $1.2bn from the Internal Revenue Service for almost 10 years.

    Wegelin, based in the small Swiss town of St Gallen, started in business 35 years before the US declaration of independence.

    It becomes the first foreign bank to plead guilty to tax evasion charges in the US.

    Could someone please explain to me how this works? I can see how the US authorities would be fully entitled to go after the actual tax evading citizen's but the actual (SWISS) bank? And from what I gather it's not the US branch or anything like that in court but the actual Swiss legal entity.

    Is this just a case of the US throwing it's weight around? Surely the Irish government couldn't sue the banks the Quinn and the likes used to hide assets based on Irish legislation? (maybe poor example?).

    Full article here

    To your modnesses' : Not sure if this is the right place for this but somehow AH didn't seem the place for a decent answer, I'm quite curious.


Comments

  • Registered Users, Registered Users 2 Posts: 73 ✭✭Blackrockcomet


    It comes down to legislation that the US started implementing in 2010 and will be fully implemented in 2013, it's called FATCA (Foreign Account Tax Compliance Act). This legislation requires foreign banks to notify the IRS about US account holders and to impose a tax of 30% on the money. This act hasn't been 100% implemented yet but from that article that you posted, some of the directors complied with US officials to protect their own assets as they knew that there would be pain coming down the line.

    It's obvious that Ireland couldn't hope to enforce anything like this

    This sort of legislation is not unknown with US authorities. The infamous Dodd Frank Act has caused the funds industry here a lot of headaches. You can see where the US are coming from in that american dollars are taken overseas, out of their economy without the proper tax being paid. However, legislation like this is way over the top and will vastly increase compliance costs.


  • Registered Users, Registered Users 2 Posts: 14,681 ✭✭✭✭P_1


    Would something like that not contravene international law though?

    Essentially it's one country telling the other that they have to follow their laws, 'or else'


  • Registered Users, Registered Users 2 Posts: 73 ✭✭Blackrockcomet


    You're too fast for me. I was about to post this.
    http://www.accountingtoday.com/news/fatca-switzerland-japan-treasury-63091-1.html

    Switzerland and US have signed a treaty to share information which is why the US is able to do this.


  • Registered Users, Registered Users 2 Posts: 14,681 ✭✭✭✭P_1


    Ah i see, so in effect their bilateral treaty superceeds international law?


  • Registered Users, Registered Users 2 Posts: 26,998 ✭✭✭✭Peregrinus


    No, the bilateral treaty is international law.

    It should be pointed out that the US couldn't actually enforce this fine in Switzerland - i.e. if the bank failed to pay it, they couldn't send US bailiffs to Switzerland to seize the bank's assets in settlement of the fine.

    What they could do is seize any assets the bank has in the US, impose restrictions on US citizens and residents doing business with the bank, etc, etc. Any country could do similar things, but really only the US is sufficiently important for those measures to be effective enforcement tools.


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  • Closed Accounts Posts: 12,395 ✭✭✭✭mikemac1


    They can shut down the bank accounts that are in the USA that Wegelin use for US dollar trades.

    And instruct US banks not to do business with Wegelin

    So Wegelin then has to go to all their clients and refuse to deal with any USD transaction.

    Some banks can survive, for others it's a death sentence as the clients will just go elsewhere.

    Certainly no shortage of banks looking for business


  • Registered Users, Registered Users 2 Posts: 14,681 ✭✭✭✭P_1


    Peregrinus wrote: »
    No, the bilateral treaty is international law.

    It should be pointed out that the US couldn't actually enforce this fine in Switzerland - i.e. if the bank failed to pay it, they couldn't send US bailiffs to Switzerland to seize the bank's assets in settlement of the fine.

    What they could do is seize any assets the bank has in the US, impose restrictions on US citizens and residents doing business with the bank, etc, etc. Any country could do similar things, but really only the US is sufficiently important for those measures to be effective enforcement tools.

    Doh! forgot a fairly important bit of info that I should have remembered from college.

    Its interesting looking at it from a purely IR standpoint as opposed to a legal one. You'd have to wonder who else would have the clout these days to be able to 'convince' Switzerland to sign such a far reaching bilateral treaty.


  • Closed Accounts Posts: 7,480 ✭✭✭wexie


    Thanks for clearing that up guys, from what I read it's possible then because the US have 'politely asked' the Swiss government to agree to the policy rather than this just being possible under 'regular' international law?


  • Closed Accounts Posts: 7,480 ✭✭✭wexie


    pithater1 wrote: »
    You'd have to wonder who else would have the clout these days to be able to 'convince' Switzerland to sign such a far reaching bilateral treaty.

    At a guess I'd say probably only the Russians and Chinese (possibly the Saudi's) but none of those would be particularly interested in such an agreement methinks :D


  • Registered Users, Registered Users 2 Posts: 14,681 ✭✭✭✭P_1


    wexie wrote: »
    At a guess I'd say probably only the Russians and Chinese (possibly the Saudi's) but none of those would be particularly interested in such an agreement methinks :D

    Possibly the EU27 as well if they were to make a combined 'request'.


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  • Registered Users, Registered Users 2 Posts: 26,998 ✭✭✭✭Peregrinus


    The main focus of the bilateral treaty is information-sharing. This obviously helps with tax enforcement, but the main driver (and the main reason why Switzerland would sign) is money-laundering. Switzerland has to tread a fine line between offering secure private banking, which is something they've been doing for a long time, and not being perceived as a shonky country which mainly makes a living facilitating drug lords, corrupt dictators, mafia bosses and others in concealing their activities and accessing the profits. There's been a big international push to combat money laundering in recent years, and it's not something the Swiss can ignore, or stand entirely aloof from. If their reputation becomes too skeezy they start to attract sanctions, foreign exchange restrictions, etc. Hence Switzerland is a lot more co-operative with other countries' financial regulators than it used to be.


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