Swiss Bank Wegelin has again failed to appear for a hearing in a District Court in New York. As in February, neither a bank employee nor a legal representative showed up for Wednesday’s hearings.
Wegelin is accused of helping its clients hide more than $1.2 billion (SFr1.15 billion) in offshore bank accounts. The case is part of a United States crackdown on alleged tax fraud. The indictment of Wegelin, which was founded in 1741, marks the first time that the US has accused a foreign bank – rather than individuals – of helping Americans commit tax fraud.
Federal prosecutor Daniel Levy said in court on Wednesday that Swiss authorities had hand-delivered a court summons and a copy of the indictment to Wegelin executive Konrad Hummler on May 2.
Already in February, the bank argued that the summons had not been delivered correctly. Levy said that this time, the bank is contesting the second summons under Swiss law.
At the hearing, Judge Jed Rakoff said once again, as he had in February, that it is “rather hard to arrest a corporation”. But he also asked why prosecutors had not sought a warrant to arrest individual Wegelin partners.
Prosecutor Levy answered that there was “some reason to believe the Swiss authorities would not execute such a warrant.” However, the prosecutors would continue to consider doing so.
“They are certainly a fugitive; they have been since February,” the prosecutor and the judge repeated.
Rakoff warned the prosecutors that if the government does not “undertake reasonable efforts” to catch fugitives, indictments against them can eventually be dismissed.
Just days before the US government indicted Wegelin in February, the bank had announced the sale of its non-US activities to Swiss cooperative bank Raiffeisen.
Rakoff said that if a US bank tried to pull something along those lines, the government might argue that this was “fraud upon fraud” and a sort of tacit admission of guilt.
Judge Rakoff also said he was concerned that the bank didn’t show up, as this showed “a disrespect for the process of the American justice system.” He added that he thought this should be a worry “not only to the US government, but also to the people that constitute the Swiss government.”
Approached by the media after the hearing, prosecutor Levy declined to say whether he would try to get an arrest warrant for Wegelin executive Konrad Hummler, who had been handed the summons in person.
In a press release published after Wednesday's hearing, Wegelin & Co. stated that the Swiss law the US had attempted to use to serve Wegelin was not effective to begin the legal process for a US court case, as Swiss law explicitly states that “whoever accepts a summons to appear before a foreign authority shall be under no obligation to comply.”
Wegelin declined to attend the hearing, in part, because of the fear that the US court might issue an order that could require it to violate Swiss law, the press release stated.
Wegelin & Co. again stressed that, together with its lawyers, it would be “willing to cooperate with the US authorities and to resolve the matter within the boundaries of Swiss law.”
Wegelin is one of 11 banks in Switzerland being targeted by US tax investigators in a row over American clients’ undeclared assets in offshore accounts. Wegelin has no branches outside of Switzerland.
UBS was the first Swiss bank to find itself under scrutiny by the US justice system. It was fined $780 million in 2009 for aiding American citizens in defrauding the tax authorities.
The following year the Swiss government signed an accord on handing over to the US authorities details of 4,500 American clients of UBS. The accord was ratified by parliament in 2010.
US tax amnesties led to more than 30,000 tax evaders being identified. The US justice authorities were able to find evidence that Swiss banks were complicit in this tax evasion.
Several Swiss bankers and lawyers have been arrested or put under investigation in the US in recent months. At the end of January 2012, Wegelin announced it was selling most of its business to the Swiss Raiffeisen Group.
Several days later, the Justice Department charged Wegelin with aiding and abetting US clients in defrauding the tax authorities. It is the first time a foreign bank has been formally charged for such practices in the US.
Eleven banks in Switzerland, including Credit Suisse, are currently under investigation by the US.