A US federal court has indicted Swiss bank Wegelin for conspiring to conceal over $1 billion, some of which was hidden in Hong Kong, a development which will inevitably lead to greater heat from the IRS.

A US federal court has indicted the Swiss bank Wegelin conspiring to conceal over $1.2 billion, some of which was hidden in Hong Kong, a development which will inevitably lead to greater heat from the IRS, experts say.

Yesterday Switzerland's oldest bank faced criminal charges - and civil action - by the US, as part of America’s growing crackdown on offshore firms allegedly helping US clients evade taxes. "This
is the first time an overseas bank has been charged by the US for facilitating tax fraud by US taxpayers," a statement from the US Department of Justice said.  

As part of the indictment, the IRS indicated that 270-year old Wegelin used sham corporations to hide funds, some of which were incorporated in Hong Kong. The new charges come off the back of an initial charge last month against three bankers at Wegelin’s Zurich branch accused of conspiring to help US clients dodge taxes.

The move could potentially have a permanent effect on Hong Kong residents with a US tax obligation, said Jay Krause, a Hong Kong partner with law firm Withers.

“The indictment of Wegelin by the US is part of ongoing and increasing efforts by the IRS and Department of Justice to crack down on international tax evasion. While the US may be at the forefront of international tax enforcement, its efforts are part of a larger worldwide trend affecting Asia with changes to international information exchange policies and the tightening of anti-money laundering laws in Hong Kong and Singapore,” said Krause.

“For the first time, Hong Kong has been specifically referenced as one of the jurisdictions where sham corporations were used to further US tax evasion.  Further US scrutiny would seem inevitable given the large expat community in Hong Kong and the number of Asian, and particularly Chinese, US citizens and green card holders transacting business through Hong Kong,” he added.

The indictment against Wegelin arises in large part from information gathered by the IRS from its 2009 and 2011 voluntary disclosure programmes under which over 33,000 participants came forward paying in excess of $4.4 billion in back taxes, interest and penalties to date.

The IRS has just announced a new 2012 disclosure programme on terms similar to two other programmes, including substantially reduced penalties for US citizens and green card holders living outside the US who are compliant with their local tax obligations, so the Wegelin case could be an added incentive for Hong Kong residents with US tax obligations to come forward. 

Experts say the spotlight will fall in particular on China owing to the soaring number of US green card applications. A high number of people in China have US passports as their second citizenship, and the number is growing. Last year applications by Chinese individuals for a US green card soared 1,000 per cent; 934 individuals were granted the EB-5 visa. As immigration is a relatively new phenomenon in the Communist country, many may not be aware of the tax implications of being a US citizen.

"Wegelin

& Co, a Swiss private bank, was indicted today for
conspiring with US taxpayers and others to hide more than $1.2 billion
in secret accounts and the income these accounts generated from the
Internal Revenue Service (IRS)," according to a statement yesterday by the US Justice Department.

"At the same time, the US government seized more than $16 million from
Wegelin’s correspondent bank account in the US, in accordance
with a civil forfeiture complaint and seizure warrant. Wegelin is charged in a superseding indictment with Michael
Berlinka, Urs Frei and Roger Keller, three client advisors at the bank
who were previously charged with the same conspiracy. The case is pending before US District Judge Jed Rakoff. 

The civil forfeiture case has been assigned to US District Judge Laura Taylor Swain," the statement said.

The following allegations are based on the Superseding Indictment and
civil forfeiture Complaint unsealed today in Manhattan federal court:

Wegelin had no branches outside Switzerland, but it directly
accessed the US banking system through a correspondent bank account
that it held at UBS in Stamford, Conn, the Department of Justice said.

As of December 2010, Wegelin had approximately $25 billion in assets under management.

  Berlinka, Frei and Keller began working as client advisors at the Swiss bank in 2008, 2006 and 2007 respectively.