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On October 17, 2013, Swiss Bank Frey & Co. AG announced that
it had decided to cease business activities as a bank stemming from
"increasingly difficult market conditions, ever-growing
regulations and the unsustainable requirements that smaller private
banks are required to comply with" related to the tax dispute
with the United States. Dr. Markus Frey, Chairman of the Board,
stated that "[a]s a result of developments in recent years,
circumstances and challenges have presented themselves, especially
in Switzerland, that means it no longer makes sense for a small
bank to continue its cross-border services." The Bank is
reportedly financially healthy and will not be liquidated.
Bank Frey reported in its Annual Report for 2012 that it was
under a criminal tax evasion investigation by the Department of
Justice, but the Bank was not under indictment. However, Bank
Frey's decision to cease banking operations will not end the
DOJ's investigation and an indictment is still a possibility.
Bank Frey's decision follows the announcement of
Switzerland's oldest bank, Wegelin & Co., who closed its
doors following its indictment on tax evasion and plea deal in
which it agreed to pay the DOJ $74 million in fines and
restitution.
The DOJ and Switzerland's Federal Department of Finance
announced in August a settlement program that offers amnesty to
Swiss banks and resolution regarding involvement with individuals
and entities that used Swiss accounts to evade US taxes and
reporting requirements. The new program is similar to the IRS
Offshore Voluntary Disclosure Program, which incentivized US
taxpayers to report undisclosed foreign accounts to the IRS to
reduce substantial civil penalties and eliminate the risk of
criminal prosecution. However, Swiss banks currently under criminal
investigation, including Bank Frey, are excluded from the
disclosure program. Also weighing on Bank Frey was
Switzerland's recent approval to amend the Swiss
intergovernmentalagreement with the United States to implement
FATCA, which must be implemented by July 1, 2014.
In April 2013, Bank Frey's former head of private banking
and member of the Executive Board, Stefan Buck, was indicted in the
United States along with Edgar Paltzer, a Swiss lawyer, with
conspiracy for assisting US taxpayers to file false tax returns and
committing tax evasion. Buck remains at large. Also on the run was
Raoul Weil, former head of UBS's Global Wealth Management
division, who was indicted by the DOJ in 2008 for conspiring to
defraud the US by helping US clients conceal taxable accounts. The
indictment alleged that Weil conspired with others to help
Americans conceal nearly $20 billion in Swiss bank counts. Weil was
recently arrested by Italian police in Bologna, and faces possible
extradition to the United States for aiding and abetting tax
evasion. The DOJ's aggressive stance directed at the Swiss
banking community appears to have claimed another victim, but time
will tell if other Swiss banks follow Frey's decision to cease
operations.
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