US District Judge Jed Rakoff told a federal court in Manhattan that US prosecutors should enlist the help of diplomatic authorities, including perhaps the State Department, to advance the case surrounding what was once Switzerland’s oldest bank. It was founded in 1741 and run as a private partnership, with several partners operating under unlimited liability.

"Wegelin & Co. did not appear at the hearing because the legal prerequisites to initiating criminal proceedings under US law have not been met. Under US law, a criminal case cannot be commenced against a defendant until that defendant has been properly served with the criminal summons. Because Wegelin has not been properly served, the bank is not required to appear, and proceedings against it may not begin. Wegelin has explained its position in detail in a letter provided to the prosecutors," the bank told Family Wealth Report in an emailed statement today.

"The circumstances create a clear dilemma for Wegelin & Co: If it were to adhere to current US legal practice aimed at Swiss banks, it would have to breach Swiss law. Notwithstanding Wegelin's decision today, the bank will, as it has done until now, make every effort to resolve this matter within the boundaries of respectful cooperation with the U.S. and obedience to Swiss law," it said.

Wegelin is accused of helping clients hide more than $1.2 billion in offshore bank accounts.

The US is carrying out a criminal probe into 11 Swiss and Swiss-style banks, including Wegelin; they are suspected of selling offshore tax evasion services to tens of thousands of wealthy US citizens. Inquiries, growing out of scrutiny of UBS, are focused on Credit Suisse and Basler Kantonalbank among others.

The non-US parts of Wegelin have been sold into Notenstein Private Bank, a structure created by Swiss-based Raiffeisen, in a move described by the partners of Wegelin as “extremely painful”. The sale is the most dramatic example yet of how the US authorities’ reach is forcing foreign firms to make significant moves to avoid falling foul of US law.

"Occasionally in these situations, progress is made through diplomatic channels," Rakoff told Assistant US Attorney Daniel Levy at the hearing. "Unlike an individual, arresting a company is somewhat difficult, other than in science fiction," a report by Reuters said.

Rakoff spoke after Levy said "we have no proposal" for how to get Wegelin to formally answer the charge, reports said.