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Scott Michel Quoted in Reuters, Swiss Case Lifts Curtain on Correspondent Banking

January 6, 2012, Reuters
Excerpt taken from article.

The indictment of three Swiss bankers employed by Switzerland's oldest private bank sheds light on an obscure corner of hidden offshore wealth: the relationships some smaller banks have with bigger banks for moving clients' money around the world.

These inter-bank ties are increasingly important to a U.S. crackdown on Swiss banks suspected of enabling tax evasion for wealthy Americans, said persons briefed on the matter.

The Swiss bankers, indicted on Tuesday, work for Wegelin & Co, a boutique private bank based in St. Gallen, Switzerland with no U.S. offices.

The three were charged with conspiracy and fraud for enabling dozens of wealthy Americans to evade taxes on $1.2 billion in hidden assets over 2006 through 2010, in part by shifting some of the money through the Connecticut branch of UBS AG, the Swiss banking giant.

UBS was not faulted in the indictment for the shifting, which took place through a relationship common in the banking world and known as 'correspondent banking.'

Details in the indictment of the shifting signal that U.S. authorities are increasingly probing correspondent banking relationships, according to persons briefed on the matter and to tax lawyers who have read the charges.

Authorities are probing Swiss banks and Swiss-style banks suspected of selling tax evasion services to tens of thousands of wealthy Americans in recent years. Eleven of those banks - including Wegelin, Credit Suisse and regional Basler Kantonalbank - are under criminal investigation.

The rest of the Swiss banking industry is attempting to hammer out a civil settlement with the tax-collecting U.S. Internal Revenue Service (IRS) covering any wrongdoing.

UBS PROBE

The wide probe is an outgrowth of scrutiny of UBS, which ended in 2009 when the bank reached a deferred prosecution agreement with the Justice Department. UBS admitted to criminal wrongdoing and paid a $780 million fine for selling tax evasion services to Americans through its private bank.

The agreement expired in 2010, when UBS met its requirements to dismantle its offshore undeclared banking for Americans and strengthen its internal procedures oversight.

A person briefed on the matter said U.S. prosecutors and IRS criminal investigators were scrutinizing correspondent banking relationships of some Swiss banks, including Wegelin and cantonal, or regional, banks.

Investigators, this person said, were interviewing taxpayers over whether the correspondent banks, including UBS, "directed" former clients of their own banks to the smaller banks for which they still provide correspondent services.

The scrutiny, this person said, was ultimately aimed at building evidence not against the correspondent banks, but against their clients, the smaller Swiss banks.

"The indictment's focus on the role of correspondent banking gives us insight into how prosecutors are going to put these things together," said Scott Michel, a tax lawyer at the firm of Caplin & Drysdale in Washington, D.C.

Click here to read the article on the U.S. crackdown of Swiss banks who enable wealthy Americans to evade taxes.

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