Attestation Update – A&A for CPAs

Technical stuff for CPAs providing attestation services

One bank gets hit hard for helping U.S. citizens evade taxes. As in capital punishment hard.

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Wegelin & Co is a Swiss bank that still does the fabled secret bank account thingie. Correction, make that past tense.

They used to do that.

They will be closing their doors after admitting to a felony in U.S. courts for helping Americans hide untaxed money.

I’m scratching my head about that ‘too big to fail’ cncept.  More on that after some background.

The guilty plea

In their article, Swiss Bank Pleads Guilty in Probe, the Wall Street Journal reports:

Otto Bruderer, Wegelin’s managing partner, entered a guilty plea on the bank’s behalf at a hearing in Manhattan federal court on Thursday and said the bank, between 2002 and 2010, knew U.S. taxpayers maintained secret accounts at Wegelin in order to evade U.S. taxes.

“Wegelin was aware that this conduct was wrong,” Mr. Bruderer said during the hearing. “However, Wegelin believed that, as a practical matter, it would not be prosecuted in the United States for this conduct because it had no branches or offices in the United States and because of its understanding that it acted in accordance with, and not in violation of, Swiss law and that such conduct was common in the Swiss banking industry.”

Amount of fine

The total penalties will be in the range of US$50M to US$65M according to the WSJ article above:

As part of its plea, Wegelin, based in St. Gallen, Switzerland, agreed to forfeit $15.8 million and give up another $20 million representing the amount of taxes avoided as a result of its conduct. The bank also faces a fine of between $14.7 million and $29.4 million.

Other articles can be found on the net, starting with this Bloomberg article – Swiss Bank Wegelin & Co. Pleads Guilty in U.S. Tax Probe.

Extent of tax evasion

Several reports indicted Wegelin helped about 100 Americans hide about $1.2B of money the bank knew hadn’t been declared as taxable income. They had a special code to identify accounts that contained unreported money.

Got that? They used a code to identify what customers the bank knew were evading U.S. law.

Bank size

How big is Wegelin?  The Bloomberg article says they have US$25B in assets.

This Wikepedia article says they have CHF24B, which google calculates as US$26.1B.

For contrast, this info page from UBS says that UBS has CHF 1,412,043 million at 6-30-12.  I converted that to US$1.5T (trillion), or $1,538B (billion).

That makes UBS about 59 times larger than Wegelin in terms of total assets.

Why capital punishment for Wegelin?

The felony conviction essentially means Wegelin had to shut their doors. They will soon be dead. Capital punishment.

Why them and not UBS?

Halah Touryalai, from Forbes, discusses that question in her article, Tale Of Two Swiss Banks: Why Wegelin Failed And UBS Survived Tax Evasion Charges.

Between Ms. Touryalai’s article and others, it looks like UBS hid around $20B for about 17,000 Americans and Wegelin hid about $1.2B (alleged by U.S. government) for about 100 Americans (admitted by Wegelin).

That’s quite a difference in extent.

Why did Wegelin get capital punishment and UBS got a deferred prosecution agreement that reportedly only ran for 18 months?

I don’t know.

Ms. Touryalai’s speculation:

Does that mean then that non-global banks and financial institutions should be more concerned about criminal indictments? In the case of Wegelin, yes. According to one source Wegelin was not offered a deferred prosecution agreement unlike its global banking neighbor UBS.

Did you notice that comment?  Wegelin wasn’t even offered a DPA.  Ms. Touryalai continues:

To be sure, Wegelin’s behavior is no less offensive than any other bank helping taxpayers evade the IRS but it’s apparently more expendable than other larger players. It seems too big to fail is alive and well.

That may be the case and is still a concern to me and others. (Okay, my lil’ ol’ opinion in this big wide world doesn’t count for much.)

Yet at least one bank had to face the full consequences of their behavior.

How do you keep a few people from killing an historic institution?

That is a tangent I’ll not go into here but is something I’ve long been curious about. On one hand, consider that senior leadership intentionally took steps that they knew was illegal under U.S. law.  Since they had no operations in the U.S., they thought this was okay.

On the other hand…

One particular sad part is the bank was founded in 1741. That makes it about 272 years old. The bank has been around longer than my home country, the U.S.A.  The bank will close their doors soon.  All that history and legacy gone.

Written by Jim Ulvog

January 5, 2013, 9:49 am at 9:49 am

Posted in Other stuff, Pondering

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