What is the future for Swiss banking?

An aggressive crackdown on tax evasion by the United States has forced one venerable institution to close and forced its secretive rivals on to the defensive.

Konrad Hummler could barely disguise his anguish as he announced the sale of Switzerland's oldest bank to rival Raiffeisen last January. Wegelin's 59-year-old managing director knew the game was up as US prosecutors rounded on the 272-year-old financial institution he ran.

"I never could have imagined that we would ever have considered selling," he said. "The extraordinarily difficult situation and threat to the bank brought about by the legal dispute with the US has forced me and my long-time associate Otto Bruderer to take this extremely painful step together with the other managing partners."

Twelve months later and the inevitable has finally been confirmed: the US-facing part of Wegelin that was not sold will close after the bank pleaded guilty to helping wealthy Americans to hide $1.2bn (£740m) in offshore accounts.

Wegelin, which was founded in 1741, said it will "cease to operate as a bank" on Friday after agreeing to pay almost $60m in fines to US authorities. The bank admitted it had helped more than 100 US citizens to hide money for over 10 years.

Prosecutors said the bank lured clients from larger rival UBS and other Swiss banks embroiled in separate investigations. They claimed the bank believed it could "charge high fees to its new US taxpayer-clients because the clients were afraid of criminal prosecution" in the US.

Preet Bharara, US attorney for Manhattan, said the guilty plea was a "watershed moment" in a long running investigation. "The bank wilfully and aggressively jumped in to fill a void that was left when other Swiss banks abandoned the practice due to pressure from US law enforcement," he added.

Wegelin is the first foreign bank to plead guilty to tax evasion charges, although it is still unclear whether US authorities will pursue charges against Wegelin's former directors and bankers.

The company's demise has led to inevitable questions about the future of the Swiss banking system, which is traditionally conservative, secretive and a haven for investors across the world.

Ben Jones, a tax expert at the law firm Eversheds, said: "The successful indictment of Wegelin sends a powerful message to the Swiss banking community that the US 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-US businesses and citizens.

"The indictment is only one of a number of similar indictments and investigations by the US into tax evasion by Swiss banks. These action and the wider attack on evasion that is the Foreign Account Tax Compliance Act puts the US at the forefront of the fight against tax evasion and potentially leaves other countries with some questions to answer about their approach to tax evasion."

UBS, which is Switzerland's largest bank, agreed to settle with US authorities back in 2009, paying a $780m fine and handing over the details of US account holders.

About 13 other Swiss banks – including Credit Suisse – remain under investigation by US lawyers. Experts say the ongoing inquiries are likely to remove the cloak of secrecy covering the country's banks.

Sally Brown, an associate at Milestone International Tax Partners, said: "As far as Switzerland is concerned, tax evasion is not a criminal offence, whereas fraudulent behaviour is. There is, however, a thin line between evasion and fraud. Its privacy laws are also deeply entrenched in its Constitution."

"As Wegelin shows, if Swiss banks open and maintain accounts for US individuals (using code names and the like) knowing full well that account holders are not disclosing this to the Internal Revenue Service as they should, they will be severely punished.

"The US's crackdown on its citizens sheltering income and gains abroad is ramping up and, as we are seeing, is likely to seriously affect the Swiss banking system's reputation."

Over the past few years, the Swiss government has attempted to reach a deal with US authorities, limiting the impact on its banks, as it has already done with countries such as the UK and Germany.

So far, the US has refused to change its stance, meaning that the next few months are likely to be tough for Swiss banks.

"Other countries have sought to reach agreements that reap some return for domestic exchequers but otherwise continue to permit the banking secrecy practices that facilitate such evasion," Mr Jones added. "The US currently seems to stand somewhat apart from the rest of the international community in its approach to tax evasion."

State secrets: A tale of gnomes and Nazis

With almost $1.2 trillion (£740bn) in offshore wealth tied up in Swiss-domiciled banks, it's no wonder foreign tax authorities have their eyes fixed on Switzerland.

The country's banking industry can trace its roots back to the 18th century when banks such as Wegelin and Lombard Odier were founded to store merchant riches.

Switzerland's 1934 Banking Law codified the culture of secrecy now present in the country's banking system.

Secrecy provisions were not included in the first draft of the law, but were later added to protect against Nazi attempts to investigate the assets of Jews and other "enemies of the state" held in Switzerland. However, the secrecy laws also meant that after the Second World War billions deposited by Jews who were killed in the Holocaust were left in dormant accounts, which have only been disclosed in recent years.

British politicians later coined the phrase the "gnomes of Zurich" to describe the secretive world of Swiss banking.

According to recent figures from Boston Consulting, Switzerland remains the world's largest offshore centre, mostly from Western European clients. However, the country is now addressing concerns over its transparency. In 2011, Switzerland agreed a treaty with the UK that resulted in British taxpayers with Swiss accounts paying between 19 and 34 per cent on their assets to settle past liabilities.

Start your day with The Independent, sign up for daily news emails
Sport
The Queen and the letter sent to Charlie
football
Arts and Entertainment
Eurovision Song Contest 2015
EurovisionGoogle marks the 2015 show
News
Two lesbians hold hands at a gay pride parade.
peopleIrish journalist shares moving story on day of referendum
Arts and Entertainment
<p>
<b>Kathryn Williams</b>
</p>
<p>
When I was supporting Ray La Montagne I was six months pregnant. He had been touring for a year and he was exhausted and full of the cold. I was feeling motherly, so I would leave presents for him and his band: Tunnock's Tea Cakes, cold remedies and proper tea. Ray seemed painfully shy. He hardly spoke, hardly looked at you in the face. I felt like a dick speaking to him, but said "hi" every day. </p>
<p>
He was being courted by the same record company who had signed me and subsequently let me go, and I wanted him to know that there were people around who didn't want anything from him. At the Shepherds Bush Empire in London, on the last night of the tour, Ray stopped in his set to thank me for doing the support. He said I was a really good songwriter and people should buy my stuff. I was taken aback and felt emotionally overwhelmed. Later that year, just before I had my boy Louis, I was l asleep in bed with Radio 4 on when Louis moved around in my belly and woke me up. Ray was doing a session on the World Service. </p>
<p>
I really believe that Louis recognised the music from the tour, and when I gave birth to him at home I played Ray's record as something that he would recognise to come into the world with. </p>
booksKathryn Williams explores the works and influences of Sylvia Plath
News
Liz Kendall played a key role in the introduction of the smoking ban
newsLiz Kendall: profile
Life and Style
techPatent specifies 'anthropomorphic device' to control media devices
Voices
The PM proposed 'commonsense restrictions' on migrant benefits
voicesAndrew Grice: Prime Minister can talk 'one nation Conservatism' but putting it into action will be tougher
News
ebookA unique anthology of reporting and analysis of a crucial period of history
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Guru Careers: Software Developer / C# Developer

£40-50K: Guru Careers: We are seeking an experienced Software / C# Developer w...

Neil Pavier: Management Accountant

£45,000 - £55,000: Neil Pavier: Are you looking for your next opportunity for ...

Sheridan Maine: Commercial Accountant

£45,000 - £55,000: Sheridan Maine: Are you a newly qualified ACA/ACCA/ACMA qua...

Laura Norton: Project Accountant

£50,000 - £60,000: Laura Norton: Are you looking for an opportunity within a w...

Day In a Page

Sun, sex and an anthropological study: One British academic's summer of hell in Magaluf

Sun, sex and an anthropological study

One academic’s summer of hell in Magaluf
From Shakespeare to Rising Damp... to Vicious

Frances de la Tour's 50-year triumph

'Rising Damp' brought De la Tour such recognition that she could be forgiven if she'd never been able to move on. But at 70, she continues to flourish - and to beguile
'That Whitsun, I was late getting away...'

Ian McMillan on the Whitsun Weddings

This weekend is Whitsun, and while the festival may no longer resonate, Larkin's best-loved poem, lives on - along with the train journey at the heart of it
Kathryn Williams explores the works and influences of Sylvia Plath in a new light

Songs from the bell jar

Kathryn Williams explores the works and influences of Sylvia Plath
How one man's day in high heels showed him that Cannes must change its 'no flats' policy

One man's day in high heels

...showed him that Cannes must change its 'flats' policy
Is a quiet crusade to reform executive pay bearing fruit?

Is a quiet crusade to reform executive pay bearing fruit?

Dominic Rossi of Fidelity says his pressure on business to control rewards is working. But why aren’t other fund managers helping?
The King David Hotel gives precious work to Palestinians - unless peace talks are on

King David Hotel: Palestinians not included

The King David is special to Jerusalem. Nick Kochan checked in and discovered it has some special arrangements, too
More people moving from Australia to New Zealand than in the other direction for first time in 24 years

End of the Aussie brain drain

More people moving from Australia to New Zealand than in the other direction for first time in 24 years
Meditation is touted as a cure for mental instability but can it actually be bad for you?

Can meditation be bad for you?

Researching a mass murder, Dr Miguel Farias discovered that, far from bringing inner peace, meditation can leave devotees in pieces
Eurovision 2015: Australians will be cheering on their first-ever entrant this Saturday

Australia's first-ever Eurovision entrant

Australia, a nation of kitsch-worshippers, has always loved the Eurovision Song Contest. Maggie Alderson says it'll fit in fine
Letterman's final Late Show: Laughter, but no tears, as David takes his bow after 33 years

Laughter, but no tears, as Letterman takes his bow after 33 years

Veteran talkshow host steps down to plaudits from four presidents
Ivor Novello Awards 2015: Hozier wins with anti-Catholic song 'Take Me To Church' as John Whittingdale leads praise for Black Sabbath

Hozier's 'blasphemous' song takes Novello award

Singer joins Ed Sheeran and Clean Bandit in celebration of the best in British and Irish music
Tequila gold rush: The spirit has gone from a cheap shot to a multi-billion pound product

Join the tequila gold rush

The spirit has gone from a cheap shot to a multi-billion pound product
12 best statement wallpapers

12 best statement wallpapers

Make an impact and transform a room with a conversation-starting pattern
Paul Scholes column: Does David De Gea really want to leave Manchester United to fight it out for the No 1 spot at Real Madrid?

Paul Scholes column

Does David De Gea really want to leave Manchester United to fight it out for the No 1 spot at Real Madrid?