1/04/2013 @ 4:00PM
Halah Touryalai, Forbes Staff
But why then have banks accused of similar criminal behavior on a far larger scale been able to avoid the same fate as Wegelin?
Consider UBS. Back in 2009 the Justice Department said UBS provided Swiss bank accounts to 20,000 U.S. taxpayers with assets of about $20 billion, and that 17,000 of them hid their identities and the existence of those accounts from the IRS. In the case against Wegelin U.S. authorities say the bank hid about $1.2 billion in secret Swiss bank accounts for U.S. clients.
That’s quite a difference in concealed assets yet Wegelin was criminally indicted and closed shop while UBS entered a deferred prosecution agreement that allowed the charges against it to be dismissed. Such agreements say prosecutors will drop charges at a later time if the defendant agrees to and abides by certain terms like enhancing internal controls, allowing further government oversight and paying a fine, for example.
UBS paid $780 million as part of its agreement, promised to abide by U.S. federal laws and also agreed to hand over the names of tax-evading U.S. clients. Charges were dropped 18 months later.
Prosecution agreements have become more common in the prosecution of big banks. In the recent Libor rigging scandal Barclays paid some $450 million to settle charges but also obtained a non-prosecution agreement. UBS recently paid $1.5 billion over Libor rigging and was granted a non-prosecution agreement as well.
The agreements have drawn criticism with some saying they help banks avoid real prosecution even after admission of bad behavior. But proponents of the agreements say they can help prevent turmoil at a corporation and the loss of thousands of jobs for innocent employees. That could be why UBS, for instance, has managed to avoid prosecution for years over various wrong doings.
Does that mean then that non-global banks and financial institutions should be more concerned about criminal indictments? In the case of Wegelin, yes. According to one source Wegelin was not offered a deferred prosecution agreement unlike its global banking neighbor UBS.
“Big banks have always been deemed off-limits for criminal prosecution,” says Anthony Michael Sabino, a professor at St. John’s University‘s Peter J. Tobin College of Business. “[The Wegelin case] teaches a lesson to small and mid-sized players but in sad contrast it sends the wrong message to big banks. That they can hide money, be caught, pay a fine and go back to business as usual.”
To be sure, Wegelin’s behavior is no less offensive than any other bank helping taxpayers evade the IRS but it’s apparently more expendable than other larger players. It seems too big to fail is alive and well.