Swiss bank Wegelin & Co. recently agreed to pay a penalty of $122.9 million for helping U.S. citizens hide billions of assets in foreign bank accounts. This penalty was part of an agreement with the Department of Justice, and follows a 2011 criminal indictment against the firm for its role in assisting U.S. taxpayers to avoid U.S. income taxes.
The penalty could serve as a warning to other banks that assist Americans to hide assets in offshore accounts in an effort to commit tax fraud. According to a statement released by the DoJ, Wegelin & Co. had aided U.S. taxpayers to hide over $1.2 billion in assets from the Internal Revenue Service (IRS), evading taxes amounting to more than $800 million.
The Swiss bank had established shell accounts for U.S. clients to conceal their ownership of the notoriously secretive accounts. The accounts were shielded from U.S. taxes by transferring large sums of money to other banks outside of the country. Upon realizing it had violated U.S. law, Wegelin & Co. began to block access and payments to all active accounts, in an effort to evade legal action from the DoJ.
However, in a post-UBS world—where UBS AG, the largest Swiss bank, was charged with aiding American citizens to avoid taxes—the government was determined to pursue similar charges against other foreign banks.
The U.S. government, working with the Swiss government, was able to identify and collect evidence against Wegelin & Co. As a result, the bank can no longer do business with U.S. customers. The agreed payment of $122.9 million also serves as a signal to other banks that the U.S. government will not tolerate the aiding of citizens to evade income taxes.
The Wegelin & Co. penalty is one of many actions by the DoJ in recent years attempting to enforce tax compliance among U.S. taxpayers. The government’s efforts to crack down on the evasion of income taxes by U.S. citizens is not only a sign of the government’s willingness to prosecute, but serves as a warning to banks that any deliberate attempt to aid citizens in this effort will result in severe penalties.