More On Legal & Compliancefrom The Advisor's Professional Library
- Trading Practices and Errors When SEC-registered investment advisors conduct annual audits of firm policies and procedures, they should pay close attention to trading practices. Though usually not required to, state-registered advisors should look at their trading practices and revise policies that do not fully protect clients.
- The Need for Thorough and Effective Policies and Procedures Whethere an advisor is SEC or state-registered, RIAs must revise their policies and procedures to address significant compliance problems occurring during the year, changes in business arrangements, and regulatory developments.
For the first time, the U.S. Justice Department has indicted an overseas bank on charges of enabling tax fraud by U.S. citizens. Wegelin, Switzerland's oldest private bank, is charged with fraud and conspiracy; it has no branches outside Switzerland, and funds were seized from its correspondent bank.
Reuters reported that federal prosecutors in Manhattan announced the action Thursday. Via a separate civil forfeiture complaint, more than $16 million was seized in Stamford, Conn. from Wegelin's correspondent bank, UBS. Use of a correspondent bank is standard industry practice to handle funds for U.S.-based clients.
Wegelin was alleged to have taken over from UBS in providing banking services to U.S. clients. In the indictment, the Justice Department said Wegelin "affirmatively decided to capture for Wegelin the illegal U.S. cross-border banking business lost by UBS and deliberately set out to open new undeclared accounts for US taxpayer-clients leaving UBS." U.S. clients were told that Wegelin was less risky during the U.S. crackdown on tax evasion since it had no branches outside Switzerland and "had a long tradition of bank secrecy."
Wegelin was also accused in the indictment of helping two unnamed Swiss banks "repatriate undeclared funds to their own U.S. taxpayer-clients by issuing checks drawn on Wegelin's Stamford correspondent account." Those transfers were broken up into segments of less than $10,000 in order to avoid being reported to the IRS. After that, the indictment said, Wegelin then "co-mingled" the repatriated funds with other, unrelated funds, so that their origin and nature could be better disguised.
The indictment also said that Wegelin recruited U.S. clients through a third-party website, www.SwissPrivateBank.com, that claimed, "Swiss bank secrecy is not lifted for tax evasion ... Neither the Swiss government nor any other government can obtain information about your bank account." Tax evasion is not considered a crime in Switzerland.
Ten other Swiss banks are under investigation, including Julius Baer, Basler Kantonalbank and Credit Suisse.
In 2009, UBS reached a deferred prosecution agreement with the Justice Department and paid $780 million over charges that it engaged in fraud and conspiracy by enabling numerous Americans to evade taxes through its private bank. It later surrendered 4,500 names to investigators.
Wegelin, which was founded in 1741, broke itself up six days ago, selling off the non-U.S. portion of its business. On Tuesday, the Swiss finance ministry turned over encrypted data on bank employees who assisted U.S. clients who were under suspicion of tax evasion; the ministry said that it would only surrender the key to the cipher once the dispute over tax evasion is settled.