The writing had been on the wall for almost a year as US prosecutors piled on the pressure. This week Swiss bank Wegelin admitted to helping US citizens dodge taxes and shut its doors. When the charges against Wegelin, Switzerland's oldest bank, were first announced early last year, shockwaves rippled through the Swiss financial centres of Zurich and Geneva.
So Thursday's news from the bank's headquarters in St Gallen that "Wegelin will cease to operate as a bank" came as little surprise. Three of its managers had been charged early last year with abetting tax evasion by US citizens, and the bank itself faced a crippling court case, leading Wegelin head Konrad Hummler and his partners to decide in desperation on a fire sale.
The major part of the bank was sold to Swiss co-operative bank Raiffeisen for an estimated 300 million Swiss francs (320 million dollars). Raiffeisen continues to conduct Wegelin's profitable business with "high net worth individuals" under the Notenstein Bank.
But the "toxic" business with US tax evaders was kept out of the deal and continued to be carried on under the Wegelin name. The aim was to wind up this "bad bank" while at the same time reach a deal with the US prosecuting authorities. This has now been achieved through the guilty plea long expected by banking and legal officials and finally entered in a New York court on Thursday.
The trip to Manhattan by Wegelin partners Hummler and Otto Bruderer to attend the hearing of the Federal District Court was surely the most depressing of their careers. Bruderer entered the guilty plea in the bank's name, to the effect that Wegelin had "agreed with certain US taxpayers to evade tax obligations," adding the bank knew they had filed false tax returns.
"Wegelin was aware the conduct was wrong," he said. The amounts hidden totalled 1.2 billion dollars, and for this Wegelin will pay a total of around 74 million dollars, made up of taxes evaded, illegal profits and a fine. In return, the US authorities will halt their legal proceedings against the bank. The ruling has yet to be confirmed, but this was expected on March 4 and seen as a formality.
While Wegelin may have disappeared, US prosecutors have made clear they have not finished with Swiss financial institutions, noting that this was the first time that a foreign bank with no operations in the United States had been brought before a US court in this way. It may well not be the last time. The case is part of a broad campaign against tax evasion by US citizens using foreign banks, not all of them Swiss. US authorities are reported to have dozens of banks in their sights, including the Swiss banks UBS, Credit Suisse and Julius Baer, as well as the Zurich and Basel cantonal banks.
The banks would be able to avoid court proceedings only by doing voluntarily what Wegelin was forced to do: making the details of all accounts relating to US citizens available to the US authorities. A few banks have started to do this, and a subsequent logical step being advocated by the Swiss Social Democratic Party would be to abandon the country's legendary banking secrecy and to exchange tax information automatically with other countries. Observers said the landmark case would have implications for other tax jurisdictions seeking to track down tax evaders, and for countries offering them banking services.