Liberty and justice for all United States persons abroad

The Isaac Brock Society

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This post appeared on the RenounceUScitizenship blog.

2012 – Wegelin – Sowing The Seeds of U.S. Terror

This article includes:

Two months ago, Wegelin pleaded guilty, even though it had “little to gain” by doing so, it said in court documents. Wegelin said it was seeking “closure.” An attorney for Wegelin declined to comment.

Legal experts said the U.S.’s tactics may offer a blueprint for future actions against foreign banks. Assistant U.S. Attorney Daniel Levy wrote in a sentencing memo that the prosecution of Wegelin would send “a strong message to those who would believe that, without a physical presence in the U.S., they cannot be reached by U.S. law enforcement.”

“Americans who still have these undeclared accounts need to realize the world is shrinking,” Jeffrey Neiman, a former assistant U.S. attorney, said in an interview. He prosecuted UBS, UBSN.VX -0.31% the Swiss bank, for offenses similar to Wegelin’s.

But the legal theories the U.S. used in prosecuting Wegelin haven’t been tested under these specific circumstances. Had Wegelin gone to trial, legal experts said, it could have argued that it had no criminal intent because it didn’t believe it was responsible for adhering to U.S. laws. In Thursday’s court filing, Wegelin said it went to great lengths to attempt to comply with U.S. laws and that it didn’t know it would be punished for “what it was legally entitled to do under Swiss law.” It added: “Swiss banking privacy and its potential for concealing tax evasion by U.S. persons has never been a secret.”

An interesting Wikipedia summary of the story appears here.

It seems clear that the real purpose of Wegelin was to terrorize Swiss banks and to provide a precedent for so doing.

_________________________________________________________________________

2013 – OVDP For Swiss Banks – Reaping The Harvest of Terror

The background, decision and link to Wegelin are described by lawyer Robert Wood and the Economist.  The Economist sets the stage follows:

AMERICANS never made up a large portion of Swiss private banks’ international client base, but the price to be paid for allowing some of them to evade tax is proving to be steep—and could be ruinous for some smaller wealth managers. By December 9th most of Switzerland’s 300 or so banks were required to tell their regulator whether they would participate in a voluntary-disclosure programme crafted by the Department of Justice, under which those that have handled untaxed accounts for American clients can wipe the slate clean in exchange for fines. Swiss authorities have urged banks to sign up to avoid the fate of Wegelin, a venerable private bank that closed after being indicted in New York for aiding tax dodgers.

Banks have four choices. They can declare themselves “category two” institutions (those with foreign clients who broke American tax laws), “category three” (those whose foreign clients were clean), “category four” (mostly domestic) or they can choose not to take part. “Category one” comprises 14 large banks, including Credit Suisse and Julius Bär, which cannot participate because they were already under investigation when the programme was set up. They will have to negotiate individual settlements with the American authorities. The only large bank that has already done so is UBS, which paid $780m and handed over information on more than 4,700 American accounts.

As Swiss banks scramble to enter the Department of Justice program for Swiss banks, there is much reference to Wegelin Bank of Switzerland. Rightly or wrongly Wegelin agreed with U.S. prosecutors that it conspired with U.S. taxpayers to hide money from the IRS. In other words, it entered into a plea bargain. It’s unclear what the result would have been if Wegelin had pleaded not guilty and the case had gone to trial. I predict (if the law had been applied) that the U.S. would have lost.

Leaving aside the jurisdictional issues (does U.S. law apply in Switzerland) the point is that Wegelin – on is website – specifically agreed that it was assisting U.S. taxpayers evade taxes.

Swiss banks should NOT participate in this U.S. shakedown created by the Department of Justice.

The top 10 reasons include:

1. Wegelin has absolutely NOTHING to do with the circumstances of the vast majority of Swiss banks. The Wegelin situation is analogous to the Swiss banks in category 1 that are NOT eligible to participate (time will show that the Category 1 banks will do better outside the program).

2. The program is being interpreted so idiotically by the Department of “Justice” that almost all the Swiss banks are forced into Category 2 where they agree to pay fines because they can’t prove their American customers were innocent. In other words: You pay “US” because, well just because.

3. The history of OVDP and OVDI has shown that the U.S. simply cannot be trusted. Remember the “Bait and Switch” in OVDP 2009.

4. The U.S. reserves the right to interpret the terms of the program making it impossible for the banks to even know what they are agreeing to. (Incredibly an article in Geneva Launch suggested that  Post Finance – a bank owned by the Swiss Government – was entering OVDP because the terms of the program were NOT clear. As one commenter asked: Who is advising these people?)

5. OVDP for Swiss banks is another U.S. program that punishes more innocents (banks and Americans abroad) than it hurts the guilty (who aren’t eligible anyway). Innocent Americans Abroad are being victimized by this program. It is one more example of U.S. immorality!

6. The simple fact is that there are 300 banks in Switzerland – the vast majority are guilty of one and only one thing – Having an American citizen as a client. (Some of which don’t even know they are Americans.) Let the Department of Justice come to Switzerland and prove its case.

7. The administrative costs are too expensive to the banks. Participation makes no business sense.

8. Participation is a betrayal of Swiss citizens of U.S. origin (Countries considering FATCA IGAs take note!) who have no practical connection to the U.S. Some of these Swiss citizens may not even know the U.S. considers them to part of their penalty base U.S. citizens. (We know that the IRS believes that those who did NOT know they were U.S. citizens should pay 5% of their net worth to the IRS in OVDP.)

9. Participation is a betrayal of ALL Swiss citizens because it assumes that the U.S. and not Switzerland makes laws for Switzerland. Remember that the behavior the U.S. doesn’t like is perfectly legal in Switzerland. The banks are being punished for “acting correctly under Swiss law“.

10. I predict that those who do NOT participate will end up with a better deal.

Closing comments and a dose of sanity from Swiss lawyer Douglas Hornung:

The Swiss French-language newspaper “Les Temps” has an opinion editorial by Douglas Hornung, an attorney, who advises Swiss banks NOT to take part in the “plead guilty deal” agreed between the US and Swiss governments. The opinion piece is titled “La majorité des banques suisses doit refuser le «US Program»” and is behind a pay-wall.

Below is a rough translation of the first paragraphs:

“Only banks that have actively solicited clients on American soil have an interest to participate. Bankers who take the time to learn will learn the intricacies of “U.S. Program ” that Swiss diplomats have not seen.

by Douglas Hornung

More and more banks are considering whether to participate in the U.S. “Program” and FINMA , the Federal Supervisory Authority for Financial Markets, is applying pressure to convince banks to participate in the “U.S. Program .” The Swiss authorities and the Swiss Bankers Association emphasize that banks that fail to participate in “U.S. Program”, are liable to criminal prosecution for “conspiracy” that threaten their very existence. The example of the Wegelin bank is highlighted.

In fact, this fear and this example are ruled out: in fact, the United States can not threaten to open a criminal investigation “conspiracy” against most Swiss banks. They can not do that against those who actually had a policy of attracting a major U.S. customer and have in that particular efforts to have this type of clients. In these cases, but in these cases only the United States can put the bank itself at risk by threatening criminal prosecution for “conspiracy ” if it does not cooperate.

For all other Swiss banks , there is no reason to fear of being accused of “conspiracy” because they have nothing ” conspired ” and have only managed the assets of some U.S. customers, often elderly, who represent only a small part of their regular customers. They have not had proactive activities on American soil (organization of cultural events, sports) and have been content to treat clients who come to them naturally. They could also defend themselves vigorously, and successfully, in case – although unlikely – that such a threat materializes.”

62 thoughts on “Most Swiss banks considering #OVDP should NOT consider #Wegelin in their decision”

  1. Not a popular opinion as it goes against the homeland narrative that Switzerland deserves this. I think previous comments on this Swiss thread and the Economist story is making me more aware of the issues involved. Thanks for taking it on in a post… It is an important read, imho

  2. An American in Switzerland advised on a message board today that his account at PostFinance has been blocked without notice and he must now prove that he is in compliance with US tax law. See message 81 and beyond:

    http://www.englishforum.ch/finance-banking-taxation/153691-postfinance-closing-american-accounts-5.html

    The possibility that banks would begin blocking accounts belonging to ordinary Americans living in Switzerland has been discussed for about one year here and it appears now to be occurring. Those that have a non-US spouse should continue to be able to receive their wages and pay their bills by ring-fencing the American spouse. It will be more difficult for Americans that married to other Americans or that are single or widowed. Employers of Americans in Switzerland may not put up with this situation for long with obvious consequences to US citizen employees. Time will tell how this plays out.

  3. Unfortunately, if Wegelin had gone to court it would have been in America – and they would have lost. Does anyone really believe that the US government/IRS would have let them win? No, too much would have been riding on the decision to risk the US losing. FATCA would have been blown out of the water for a start.

    As usual the Americans, being bastions for “innocent until proven guilty” are natually assuming that all banks are “guilty until proven innocent”. And as we all know proving your innocence is a lot harder than proving guilt.

  5. I might be completely off the mark here, but I can see how Swiss banks might fare ok if they enter Category 2. Please correct me if I am:

    According to Phil Hodgen, the banks are now starting to freeze the accounts of US persons in Switzerland. At the same time, they’ve begun informing their US customers that they must prove tax compliancy or enter OVDP. It’s my understanding that the bank will get a discount on the penalties levied against them by DOJ if the bank actively encouraged the customer to enter OVDP (I can only assume Streamlined also). Once in OVDP, the taxpayer will either opt-out and be exonerated – along with the bank for their particular case, or, the taxpayer will be found guilty of tax evasion. In the latter case, the bank could apply the appropriate portion of the frozen assets to whatever the balance remains of the penalty after it’s been discounted, or they and DOJ can share in the spoils.

    What do Swiss banks care about minnows turning to grist if it get them off the hook, so to speak? Let’s face it, the bad guys have left the scene already.

  6. Can the banks really force people into OVDI?
    Looks like things are out of control in Switzerland. Soon, Americans are going to be extinct there…
    @Innocente, “Employers of Americans in Switzerland may not put up with this situation for long with obvious consequences to US citizen employees”. I hope you are right. The pushback could come from employers.
    Big multinationals like Procter and Gamble who employ roughly 3000 people there, some of them for sure Americans, could probably help. I wonder how we could engage companies like this to stop the madness.
    I am sure they could have some influence in Washington as well.
    But honestly, how can we blame the banks given how they are treated by the US? Such actions are horrific, but understandable.

  8. NativeCanadian,

    This is dated, but of may be of interest. http://www.moneynews.com/Kleinfeld/FATCA-offshore-US-tax/2013/06/24/id/511453

    Currently, it is unlikely that China, Hong Kong and Macau, among other Asian-Pacific countries, will accept FATCA.

    Bermuda Prime Minister Bob Richards has stated that he would not sign onto the G8’s proposed multi-lateral agreement to share tax information. As reported in the insurancejournal.com, the PM stated:

    “The issue here is the tax laws of the G5, G8 (groups of big economies). It’s not the tax laws of Bermuda. … It’s easy to blame dots on the map.”

    Richards said that countries such as the United States and the United Kingdom should get their own house in order before criticizing Bermuda.

    And, from IRS, currently: http://www.treasury.gov/resource-center/tax-policy/treaties/Pages/FATCA.aspx

  11. @Just Me:
    Jack Townsend paints all banks in Switzerland with the same broad brush, which surprised me. His clients would likely be Americans in the US who have deposited money in private banks in Switzerland and elsewhere but his clients would probably include few, if any, of the 99% Americans working and living in Switzerland who are trying to maintain ordinary bank accounts and loans. They probably wouldn’t have the money or the need to be in contact with him.

    His blog entry brought to mind the Indian parable “Blind Men and an Elephant”:

    “And so these men of Hindustan
    Disputed loud and long,
    Each in his own opinion
    Exceeding stiff and strong,
    Though each was partly in the right
    And all were in the wrong.”

  12. @SwissPinoy, be fair. He does suggest getting rid of CBT. What he and the rest of America don’t realise is that their low prices/low unemployment isn’t the norm worldwide. What they have now is nearer the norm to other English speaking countries at least: Canada at 7.2, UK at 7.7, Australia 5.5 and New Zealand 6.2 compared to the US at 7.1. Of the countries he mentions Chile is also 6.2, Indonesia (2011) 6.56 with Mexico the best at 4.72. Both HK and Macao are around 3, but are really islands in the bigger China.

    But he doesn’t ask what sort of jobs Americans might find in these countries. I assume Hong Kong and Macao are mostly financial which is fine if you have the necessary qualifications, but what about people like my folks in the US? Secretary, sales people, etc. What work would they find in those countries where they wouldn’t know the language? Absolutely zilch. Chile, Indonesia and Mexico also probably have a lot of old-fashioned labour intensive farming methods, unlike the much mechanised US.

    Given that Portugal’s unemployment figure is 15.6, twice that of the US, and Spain’s a whopping 27.2, nearly 4 times, you can understand why people in those countries have left.

    And of course you have the America is the best country in the world attitude so few people are ever going to contemplate moving else, even though times are tough. They still think they have it better there than anywhere else.

  13. @MedeaFleecestealer, I was being sarcastic. I followed his advice 12 years ago and benefit from it, as I noted in the comment that I made. 🙂

  14. @SwissPinoy, yeah I know you were. But he’s making the assumption that other countries will actually want US citizens (not likely with FATCA/CBT at the moment) and that US citizens will want to go. Basically sounds as if he’s suggesting exporting US’s unemployed to boost other countries’ unemployable numbers whilst reducing the US’s own.

    And as for the idea of a Pan-Atlantic visa free zone, that would only make things worse for America. It’s still many peoples’ dream to pursue the Amercian lifestyle (heaven help them), but not a single Amercian ever dreams of a European one. It would be one-way traffic west with no corresponding movement eastwards.

  15. to convince homelands to seek opportunities outside the US would be a difficult.
    first the US is the best place on earth, then prominent politicians paint all expats as tax evading scum or worse, CBT is brutally byzantine, FBAR’s are a form of economic espionage, FATCA treats expats as fugitive slaves. Most countries have evil un-American practices of high taxes, socialized medicine and responsible gun controls.

  16. @Swisspinoy

    I believe this is the paper by Maurice Kugler and Hillel Rapoport that your article refers to:

    Abstract

    In a global context foreign direct investment (FDI) and migration substitute one another in the matching process between workers and firms. However, as labor flows can lead to the formation of business networks, migration can actually facilitate FDI in the long-run. We first present a stylized model for a small open economy illustrating these offsetting effects. We then use U.S. data on bilateral labor inflows and capital outflows to measure the extent of contemporaneous substitutability and dynamic complementarity between migration and FDI. We find that brain drain and FDI inflows are negatively correlated contemporaneously but that skilled migration is associated with future increases in FDI inflows. We also find suggestive evidence of substitutability between current migration and FDI for migrants with secondary education, and of complementarity between past migration and FDI for unskilled migrants.

    For download at:

    http://ideas.repec.org/p/ces/ceswps/_1455.html

    …and the one by Gabriel Felbermayr and Benjamin Jung

    http://opus.ub.uni-hohenheim.de/volltexte/2009/333/pdf/302.pdf

  17. What a headline…!!

    Even Swiss Supermarkets are Coming Clean on U.S. Assets

    Many (if not most) Swiss rely on dominant supermarket chains Coop and Migros for their Raclette and muesli. Apparently some Americans have relied on the firms to hold their money.

    The banking arms of Coop and Migros each said Wednesday they will participate in the dreaded U.S. Department of Justice program for Swiss banks that may have helped Americans evade taxes. The disclosures illustrate just how far and wide the issue of problematic U.S. assets spreads across the roughly 300 banks in this country. It also follows the announcements earlier this week from Swiss banks Vontobel, Valiant Bank and Berner Kantonalbank that they’ll also participate in the DOJ program.

    Next will will be “Swiss child care centers come clean”, as they are holding U.S. Persons children’s assets!

  20. How does the Wegelin penalty, and the penalty regime and conditions offered to the Swiss banks compare to the deal reached with Wachovia and HSBC?

    http://www.examiner.com/article/international-and-u-s-banks-make-millions-from-laundering-drug-money
    http://www.theguardian.com/world/2011/apr/03/us-bank-mexico-drug-gangs

    When and how is the US planning to make US banks more ‘transparent’ under FATCA, and obey the Bank Secrecy Act and other US laws?
    http://www.southernstudies.org/2012/07/mexican-drug-cartels-and-the-us-banking-industry.html
    …”Mexican drug cartels have sent upwards of $1 trillion to the U.S.

    This staggering sum of money has been funneled through U.S. financial institutions, almost always in violation of U.S. laws, and at times even with the cooperation of American federal agencies.

    In fact, if the Mexican drug cartels were a sovereign nation, they would qualify to be part of the G-20, ahead of Indonesia (GNP: $845 billion) and behind South Korea (GNP: $1.1 trillion). Yet, this is the cumulative sum of money that Mexican drug cartels have funneled through the U.S. economy.”…..
    ..”if these funds were seen as foreign direct investments, Mexican drug cartels would surpass Switzerland, the United Kingdom and Japan as having a stake in the U.S. economy….”

    But, I forgot, the US banks are too big to fail and too big to prosecute?
    http://www.forbes.com/sites/tedkaufman/2013/07/29/why-doj-deemed-bank-execs-too-big-to-jail/
    http://blogs.wsj.com/washwire/2013/03/06/holder-banks-may-be-too-large-to-prosecute/
    http://www.zerohedge.com/news/2013-03-06/eric-holder-some-banks-are-so-large-it-difficult-us-prosecute-them

    and recently:

    …..”JPMorgan Chase is reportedly about to cut a sweet deal to dodge criminal charges over its role in the Bernie Madoff Ponzi scheme. It’s just the latest evidence that, despite their tough talk, U.S. prosecutors still think some banks are too big to jail.

    JPMorgan is close to paying about $2 billion to settle claims that, as Madoff’s main bank for many years, it ignored blatant signs that Madoff was up to no good, the New York Times reports. As part of the deal, JPMorgan will also enter what’s known as a deferred prosecution agreement, where everybody will agree that the biggest U.S. bank broke criminal laws and also that prosecutors don’t plan to do anything about it, as long as JPMorgan keeps its nose clean.

    Prosecutors, including U.S. Attorney Preet Bharara, considered and rejected the idea of making the bank actually plead guilty to criminal charges, according to the NYT. “……
    http://www.huffingtonpost.com/2013/12/12/jpmorgan-madoff-penalty_n_4432005.html

  25. He’s censored a few of my comments in the past.

    He doesn’t see your point because he’s too dense to see that racism can be reversed, and end up persecuting white people or Americans. Your point is powerful, esp. here: http://www.icij.org/blog/2013/12/americans-abroad-denounce-offshore-tax-laws-unintended-consequences

    “FATCA is the most criminal law America has ever written to target a national origin with discrimination, in violation of US federal laws.”

    I like that: the most criminal law. Beautiful.

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