Swiss banks are whispering a silent prayer that the deal between private banker Wegelin & Co. and Washington over tax dodging could smoothe the way to cheaper and faster settlements of their own cases with U.S. authorities.
Wegelin will shut its doors permanently after admitting on Thursday it conspired for nearly a decade to help Americans evade taxes and agreeing to pay $57.8-million (U.S.) in restitution and fines, a much smaller penalty than expected.
Otto Bruderer, a managing partner at Wegelin, said in court the bank knew its conduct was wrong.
“As the only bank to be indicted and strike a deal, the question is now whether Wegelin’s settlement can be used as a basis for others,” said Daniel Senn, a Zurich-based partner at accounting firm KPMG.
“The expectation among Wegelin’s competitors will be that this is a step forward, and not a blow.
“Uncertainty is the worst possible of situations for private banks, and I believe Wegelin’s competitors will be immensely relieved the Sword of Damocles has been removed and their own negotiations can begin moving forward constructively.”
The United States has been pursuing tax dodgers through a combination of pressure on offshore havens such as Switzerland and amnesty programs at home.
Swiss banking, government and legal sources expressed relief that the Wegelin settlement came quicker than expected and that the fine was lower than many had feared.
Some said it removed a major obstacle to negotiations between U.S. authorities and other banks caught up in the tax probe, which include Credit Suisse Group and Bank Julius Baer & Co. Ltd.
These sources said the United States has indicated it will not indict another bank as long as negotiations continue, adding that U.S. tax authorities may have seen Wegelin as a trophy target.
While Wegelin’s guilty plea was an epitaph for Switzerland’s oldest bank, the scale of the punishment set a possible benchmark for at least 10 other banks being probed in a U.S. crackdown on tax evasion, bankers and lawyers said.
“Financially, Wegelin fared relatively well. Following the UBS case, Wegelin knew it was committing an offence, so you could have expected them to be punished much more severely,” said one banker who declined to be named as his bank is also being probed.
“You could read the relatively mild rate as indicative that the U.S. wants to make an agreement palatable to Swiss banks.”
Switzerland’s State Secretariat for International Financial Matters said negotiations between the United States and Switzerland for an industry-wide settlement were continuing but declined to comment on the Wegelin plea.
Credit Suisse and Julius Baer both declined to comment on the matter.
The dispute between U.S. officials and Swiss banks has been simmering since 2009, when a UBS AG tax evasion settlement embroiled a dozen of its rivals.
Ben Jones, a corporate tax lawyer at global law firm Eversheds in London, said the fall of Wegelin “sends a powerful message to the Swiss banking community that the U.S. is committed to tackling tax evasion and has the economic and political power to effectively extend the boundaries of its national legal system to non-U.S. businesses and citizens.”
Switzerland, buffeted by attacks on its vaunted banking secrecy, is eager to remove the taint from its financial industry, and talks with U.S. officials could gain fresh impetus from the Wegelin deal.
But one legal expert said Wegelin partner Mr. Bruderer may have thrown a spanner into the works.
In his address to the court, Mr. Bruderer said his bank believed it could not be prosecuted in the United States because it had no branches there, and because it believed its conduct was common in Swiss banking.
Peter Kunz, a law professor at the University of Bern, said those remarks could complicate the position of other banks.
“I wouldn’t be surprised if U.S. politicians take these comments as a pretext to hold public hearings, such as the ones over UBS and tax evasion,” he told Reuters via e-mail.
“I believe the U.S. could use Wegelin’s comments as something of a key witness against Switzerland and Swiss banks, making an industry-wide settlement less likely to happen, or more onerous for Switzerland when it does.”
But others said that the indictment of Wegelin had acted as a roadblock to negotiations which needed to be removed before U.S. and Swiss authorities and the banks could focus fully on reaching a deal.
“I see this step as very positive because it shows the Gordian knot can be disentangled: this means negotiations with the U.S. and the other banks involved can move forward,” said Mr. Senn.
Wegelin was seen as a case apart because it appeared willfully to antagonize U.S. authorities by soliciting money flowing out of UBS after its settlement of U.S. tax evasion charges.
“Wegelin openly flaunted what they were doing in front of the U.S. authorities, as if to say ‘you can’t get us.’ Well, actually, they did,” said another private banker who asked not to be named.
“Bye bye Wegelin, and part of Swiss history is gone with it.”