ACTIONAID EXPOSES TAX AVOIDANCE BY ASSOCIATED BRITISH FOODS GROUP IN ZAMBIA

ACTIONAID EXPOSES TAX AVOIDANCE BY ASSOCIATED BRITISH FOODS GROUP IN ZAMBIA

A new investigation released today by ActionAid has revealed that the Associated British Foods group (ABF), owner of Silver Spoon sugar, Ryvita and Primark, is dodging its tax bill in Zambia, one of the world’s poorest countries.

The report, Sweet Nothings, which is the result of 12 months of research focussing on the multinational’s sugar operations in Zambia, has discovered that since 2007:

·       Zambia Sugar has generated profits of $123 million, but admits to paying “virtually no corporate tax” in Zambia.

·       It has found legal ways to siphon over US$83.7 million (US$13 million a year) – a third of pre-tax profits – out of Zambia into tax havens including Ireland, Mauritius and the Netherlands.

·       Zambian public services have lost an estimated US$27 million as a result of the company’s tax avoidance schemes and special tax breaks which is enough money to put 48,000 children in school.

·       The revenues lost to tax havens is 10 times bigger than the amount the UK gives Zambia in aid for education each year.

Chris Jordan, a tax specialist at ActionAid and co-author of the report, said: “International corporate tax avoidance is like a cancer eating away at both rich and poor countries. As we’ve seen with Starbucks and Amazon, many multinationals are not paying their fair share of tax and this hurts ordinary people in the UK and in the developing world. Tax avoidance by Associated British Foods in Zambia is helping to keep people locked in hunger. We know that business can be a force for good in Africa, but this is massively undermined when a company doesn’t pay its fair share of tax.”

In Zambia 45% of children are malnourished and two thirds of the population live on less than $2 a day. Yet ordinary people pay their taxes. Shockingly, Caroline Muchanga, a market trader who lives next to the sugar plantation, has paid more corporation tax in some years than the giant company, while her children go to bed hungry at night.

Zambia is currently dependent on foreign aid and if this is ever going to end, it must first be able to raise the money needed to provide for its own citizens. George Sumatama, headmaster of Nakambala School in Mazabuka, where Zambia Sugar is based, told ActionAid: “Our school has no windows, doors or floors. Over a thousand children have to fit into just 12 classrooms, sitting in shifts and taught by 20 teachers. I think companies operating in Zambia should be paying more (tax) than they currently pay.”

Chris Jordan added: “This situation has got to change. Associated British Foods must pay its fair share of tax in Zambia. But this case also demonstrates that international tax rules are simply not fit for purpose. David Cameron must deliver on his commitment to secure a deal to stop rampant tax avoidance when he chairs the G8 this year. He has an amazing opportunity and he must seize it.”

ActionAid is part of the Enough Food For Everyone IF campaign which aims to tackle global hunger by calling on governments to close tax loopholes which enable corporates to avoid paying their fair share of tax.

ENDS

For interviews in the UK and in Zambia and for more information contact:

Anjali Kwatra on +44 (0) 7941371357 or Anjali.kwatra@actionaid.org

Or visit www.actionaid.org.uk/taxjustice

Notes to editors:

·         Download the full report here: http://www.actionaid.org.uk/doc_lib/sweet_nothings.pdf

·         See the company response here: http://www.actionaid.org.uk/doc_lib/company_response.pdf

·         ActionAid’s research found that the Associated British Foods group was using legal tax avoidance techniques. ActionAid is not accusing ABF of illegal tax evasion.

How is ABF’s Zambian subsidiary shifting its profits into overseas tax havens?

1.       Mystery management in Ireland

Since Associated British Foods bought out Zambia Sugar in 2007, it has paid its Irish arm over $47.6 million for ‘management fees’, despite the company accounts stating they have no employees. The company says this was an error, but in any case Zambia has lost an estimated $7.4 million in corporate and withholding taxes as a result.

2.        Dublin dog leg

In November 2007 Zambia sugar took a bank loan of US$70 million. On paper this loan is routed through Ireland to avoid Zambian tax on the interest charges. This has cost Zambia an estimated US$3 million in withholding taxes.

3.       Tax free take away

By shuffling the ownership of Zambia Sugar between the tax havens of Ireland, the Netherlands and Mauritius the company has reduced the withholding tax its pays on dividends in Zambian by an estimated $7.4 million since 2007.

4.       Get your own tax haven

In 2007 the company took the Zambian government to court to get a tax break designed to help smallholder farmers.  As a result, its tax rate has tumbled from 35% to just 10%. Tax breaks have cost Zambia $9.3 million in total.

CALL FOR PAPERS: A TAX JUSTICE NETWORK- AFRICA RESEARCH SEMINAR

CALL FOR PAPERS:

Financing development through Taxation: Opportunities and Challenges from Developing countries perspectives.

A TAX JUSTICE NETWORK- AFRICA RESEARCH SEMINAR

Tax Justice Network-Africa (TJN-A) will be holding a Tax Justice Research Seminar on the 25^th and 26^th of March 2013, in Tunis, Tunisia prior to the World Social Forum (WSF). The research seminar  will bring together researchers, academicians, students, senior scholars, policy staff from civil society and other international organisations, tax practitioners and other interested professionals. The conference presents a platform for the advancement of research supporting the tax justice agenda, focusing on interaction and innovation. The conference hence offers a wide international perspective, audience and atmosphere for interactive and mutual exchange among scholars, activists and practitioners in the tax justice discourse.

TJN-A therefore invites submission of original, unpublished and substantial papers on aspects of Tax Justice, including but not limited to:

• ·         Domestic Taxation
• ·         Taxation and Natural Resource Governance
• ·         Tax Competition and other Harmful Tax Practices
• ·         Illicit Financial Flows

TJN-A will cater for travel expenses and accommodation for the authors whose papers will be selected for presentation.

Important Dates

Submission of Abstracts: 31 January 2013

Submission of Full Paper:           1 March 2013

Send full papers to: research@taxjustice.net

For more information on the research seminar contact Johannes Chiminya, Research Officer on:research@taxjustice.net

Please find attached the full Call for Papers.

Europe must clamp down on secret company structures used by drug cartels and tax cheats The European Union this month is expected to outline important new anti-money laundering rules. But a new report from Eurodad today argues this initiative will fail unless governments remove the ability for companies and other legal set-ups to be used as anonymous fronts through which illicit cash is siphoned. Today Eurodad’s report, Secret structures, hidden crimes urges EU legislators to ensure all countries create registries to disclose the names of individuals who own companies and trusts. If this information was available in a public register, it would allow authorities to investigate wrongdoing quickly. Countries around the world are under increasing pressure to tighten up efforts to combat money laundering. Recent scandals at major banks such as HSBC have added urgency to this process. The European Commission is expected to propose new rules at the end of January. The US government announced it would overhaul its standards in November. But most countries permit concealed ownership and control of companies, trusts, foundations and other such vehicles. Out of 68 jurisdictions surveyed only six require companies to be registered in the name of the real owners. Of these, only two - India and Andorra - require that the information is updated. Real owners and controllers can conceal their identity by paying others known as nominees to put their names as shareholders or directors. Two Latvian nominee directors notionally presided over hundreds of companies some of which were alleged to have been involved in tax evasion, defrauding investors and even arms smuggling. Opaque ownership facilitates: • Tax Evasion: An estimated US$21-32 trillion of untaxed wealth is stashed offshore much of it in opaque legal structures like companies and trusts. • VAT fraud linked to carbon credits which cost the EU €5 billion in 2009. • Corruption: crooked politicians hide their assets in such vehicles or use them to carry out scams- The World Bank and UNODOC Stolen Asset Recovery initiative lists 150 cases of large scale corruption involving corporate vehicles. The banking crisis: Bailed-out banks such as Northern Rock used secret vehicles to hide their losses before the financial crisis. • Illegal logging and forest burning: A significant number of Indonesian paper and pulp companies which are contributing to environmental damage and climate change, are using opaque shell companies in the EU to disguise their involvement and dodge taxes. • Human rights abuses: multinationals can use complex company structures to avoid liability in human rights violation cases. Rui Tavares MEP, Vice-Chair CRIM Special Committee on Organised Crime, Corruption and Money Laundering, said: "An official register recording the real owners of companies would be a key step to tackle economic crime, which damages society and impedes a just recovery” Alvin Mosioma, Director, Tax Justice Network –Africa, said “Tax evasion has a significant human cost in developing countries so anti-money laundering systems should discourage or catch the professionals who facilitate tax crimes.” Alex Marriage, Eurodad Policy and Outreach Analyst said: “vast amounts of money that should have been spent on public services is hidden in opaque legal structures.” “It is important not only that the current weak rules are improved but also that there is much more effective enforcement and compliance.” The report finds that whilst many countries consider tax evasion to predicate money laundering, some significant jurisdictions still do not. This allows unscrupulous bankers, accountants and lawyers to facilitate tax evasion. In the EU helping tax evaders, can trigger money laundering charges but only where the initial tax evasion is viewed as a serious crime, meaning one with a guideline maximum sentence of over a year or minimum sentence of over 6 months. This means in some member states, which take a lenient view of tax evasion even large scale infringements would not be covered, even if the initial crime took place in another country which did consider the offence serious. New rules should lower or remove this threshold, there are no sentencing guideline thresholds for fraud or corruption. The Eurodad report shows enforcement and compliance with the current anti-money laundering rules is inadequate. For further details or comment, contact Alex Marriage, Eurodad Policy and Outreach Analyst, on amarriage@eurodad.org or + 32 2 894 46 40; or +32 4 89476529 Notes to Editors 1) The report, “Secret structures, hidden crimes: Urgent steps to address hidden ownership, money laundering and tax evasion from developing countries” embargoed until 14/01/2013it will be available at: http://eurodad.org/category/documents/reports/ 2.) Eurodad (the European Network on Debt and Development) unites 49 non-governmental organisations from 19 European nations working on issues related to debt development finance and poverty reduction. 3) The Financial Action Task Force is the Paris-based organisation which oversees efforts to combat international money laundering and the financing of terrorism. It has issued guidelines in February 2012 requiring countries to make tax evasion a predicate offence of money laundering and ensure information about the real owners of vehicles is available. 4. Data on laws in various jurisdictions is available from Tax Justice Network, Mapping Financial Secrecy http://www.secrecyjurisdictions.com/sj_database/menu.xml 5. James Henry Tax Justice Network (2012). The Price of Offshore Revisited New Estimates for Missing Global Private Wealth, Income, Inequality, and Lost Taxes (see http://www.taxjustice.net/cms/upload/pdf/Price_of_Offshore_Revisited_120722.pdf ). End Notes 6. Europol, Further Investigation of VAT fraud linked to the Carbon Emissions Trading System. 28 December 2010 (see https://www.europol.europa.eu/content/press/furtherinvestigations-vat-fraud-linked-carbon-emissionstrading-system-641 7. STAR Corruption Cases Search Centre http://star.worldbank.org/corruptioncases/assetrecovery/?f%5B0%5D=bundle%3Apuppet_masters 8. Nicholas Shaxon (2011). Treasure Islands: Tax Havens and the Men Who Stole the World, p. 230.

Europe must clamp down on secret company structures used by drug cartels and tax cheats

The European Union this month is expected to outline important new anti-money laundering rules. But a new report from Eurodad today argues this initiative will fail unless governments remove the ability for companies and other legal set-ups to be used as anonymous fronts through which illicit cash is siphoned.

Today Eurodad’s report, Secret structures, hidden crimes urges EU legislators to ensure all countries create registries to disclose the names of individuals who own companies and trusts.  

If this information was available in a public register, it would allow authorities to investigate wrongdoing quickly.

Countries around the world are under increasing pressure to tighten up efforts to combat money laundering. Recent scandals at major banks such as HSBC have added urgency to this process. The European Commission is expected to propose new rules at the end of January. The US government announced it would overhaul its standards in November.

But most countries permit concealed ownership and control of companies, trusts, foundations and other such vehicles. Out of 68 jurisdictions surveyed only six require companies to be registered in the name of the real owners. Of these, only two - India and Andorra - require that the information is updated.

Real owners and controllers can conceal their identity by paying others known as nominees to put their names as shareholders or directors.

Two Latvian nominee directors notionally presided over hundreds of companies some of which were alleged to have been involved in tax evasion, defrauding investors and even arms smuggling.

Opaque ownership facilitates:

·         Tax Evasion: An estimated US$21-32 trillion of untaxed wealth is stashed offshore much of it in opaque legal structures like companies and trusts.

·         VAT fraud linked to carbon credits which cost the EU €5 billion in 2009.

·         Corruption: crooked politicians hide their assets in such vehicles or use them to carry out scams- The World Bank and UNODOC Stolen Asset Recovery initiative lists 150 cases of large scale corruption involving corporate vehicles.
The banking crisis: Bailed-out banks such as Northern Rock used secret vehicles to hide their losses before the financial crisis.

·         Illegal logging and forest burning: A significant number of Indonesian paper and pulp companies which are contributing to environmental damage and climate change, are using opaque shell companies in the EU to disguise their involvement and dodge taxes.

·         Human rights abuses: multinationals can use complex company structures to avoid liability in human rights violation cases. 

Rui Tavares MEP, Vice-Chair CRIM Special Committee on Organised Crime, Corruption and Money Laundering, said:

"An official register recording the real owners of companies would be a key step to tackle economic crime, which damages society and impedes a just recovery”

Alvin Mosioma, Director, Tax Justice Network –Africa, said

“Tax evasion has a significant human cost in developing countries so anti-money laundering systems should discourage or catch the professionals who facilitate tax crimes.”

Alex Marriage, Eurodad Policy and Outreach Analyst said:

“vast amounts of money that should have been spent on public services is hidden in opaque legal structures.”

“It is important not only that the current weak rules are improved but also that there is much more effective enforcement and compliance.”

The report finds that whilst many countries consider tax evasion to predicate money laundering, some significant jurisdictions still do not. This allows unscrupulous bankers, accountants and lawyers to facilitate tax evasion.

In the EU helping tax evaders, can trigger money laundering charges but only where the initial tax evasion is viewed as a serious crime, meaning one with a guideline maximum sentence of over a year or minimum sentence of over 6 months. This means in some member states, which take a lenient view of tax evasion even large scale infringements would not be covered, even if the initial crime took place in another country which did consider the offence serious. New rules should lower or remove this threshold, there are no sentencing guideline thresholds for fraud or corruption. The Eurodad report shows enforcement and compliance with the current anti-money laundering rules is inadequate.

For further details or comment, contact Alex Marriage, Eurodad Policy and Outreach Analyst, on amarriage@eurodad.org or + 32 2 894 46 40; or +32 4 89476529

Notes to Editors

1) The report, “Secret structures, hidden crimes: Urgent steps to address hidden ownership, money laundering and tax evasion from developing countries” embargoed until 14/01/2013it will be available  at: http://eurodad.org/category/documents/reports/

2.) Eurodad (the European Network on Debt and Development) unites 49 non-governmental organisations from 19 European nations working on issues related to debt development finance and poverty reduction.

3) The Financial Action Task Force is the Paris-based organisation which oversees efforts to combat international money laundering and the financing of terrorism. It has issued guidelines in February 2012 requiring countries to make tax evasion a predicate offence of money laundering and ensure information about the real owners of vehicles is available. 

4. Data on laws in various jurisdictions is available from Tax Justice Network, Mapping Financial Secrecy http://www.secrecyjurisdictions.com/sj_database/menu.xml

5. James Henry Tax Justice Network (2012). The Price of Offshore Revisited New Estimates for Missing Global Private Wealth, Income, Inequality, and Lost Taxes (see http://www.taxjustice.net/cms/upload/pdf/Price_of_Offshore_Revisited_120722.pdf ).

End Notes 

6. Europol, Further Investigation of VAT fraud linked to the Carbon Emissions Trading System. 28 December 2010 (see https://www.europol.europa.eu/content/press/furtherinvestigations-vat-fraud-linked-carbon-emissionstrading-system-641

7. STAR Corruption Cases Search Centre http://star.worldbank.org/corruptioncases/assetrecovery/?f%5B0%5D=bundle%3Apuppet_masters

8. Nicholas Shaxon (2011). Treasure Islands: Tax Havens and the Men Who Stole the World, p. 230.

Time to Make the Financial Sector Accountable to Human Rights

Time to Make the Financial Sector Accountable to Human Rights:

 https://www.coc.org/rbw/new-website-human-rights-abuses-linked-financial-sector-launched-december-2012

New Website to Expose Financial Sector Abuses, Launched on International Human Rights Day

Washington DC, New York, Johannesburg, Montevideo and Rio de Janeiro,  December 10 2012 -  A task force of human rights organizations and networks launched today a website devoted to highlighting the globally growing concern about the impact of financial regulation on human rights.

The financial crisis harm to conditions of human rights enjoyment worldwide is well documented. Livelihoods, poverty, human rights, freedom of expression and mobility, identity and sexuality have come under pressure and been radically altered since the financial crisis.

“Yet, financial regulation continues to be treated as if human rights did not need to be part of the discussion,” said Aldo Caliari, of Center of Concern, which coordinates the initiative. “We have set out to change that.”

The website –accessible at www.rightingfinance.org-- was developed by the “A bottom up approach to righting financial regulation” initiative. Its members are Association for Women’s Rights in Development (AWID), Center for Economic and Social Rights (CESR), CIVICUS Alliance, Center of Concern, ESCR-Net, Development Alternatives with Women for a New Era (DAWN), IBASE, Social Watch and the Norwegian Center for Human Rights.

Especially since the eruption of the Great Recession in 2008, human rights experts, monitoring bodies, social movements and diverse civil society organizations have become increasingly vocal on the connections between finance and human rights. Earlier this year, a UN committee in charge of monitoring economic and social rights issued a letterto governments expressing concern about the protection of economic and social rights in the context of austerity programs implemented in the wake of the crises. Women’s organizations have found that women bear the brunt of these programs which eliminate or reduce social services.

In the European context, the budget cuts are steps backward in fulfilling human rights commitments, and come in the throes of budgetary commitments of some EUR 4.5 trillion made to rescue financial institutions. “Unforeseen levels of spending for bank rescues highlight the unacceptable injustice of not placing human rights at the heart of the financial regulation process –from beginning to end,” said Nicholas Lusiani, of CESR.

The website will serve to capture views from a human rights perspective on all areas of financial regulation, such as financial sector taxation, derivatives regulation and the impact of hedge and private equity funds. It is being launched on a highly symbolic day that commemorates the anniversary of the Universal Declaration on Human Rights. This year’s celebrations focus on the human rights principle of participation in the decisions which affect people’s lives—particularly pertinent as people worldwide fight to engage in better oversight of global financial markets. “Today of all days we should remember actions and inactions by governments in regulating financial markets are to be judged by the same Universal Declaration on Human Rights that applies to any other government (and third parties) activity,” said Roberto Bissio, of Social Watch.

The website can be accessed at www.rightingfinance.org

Contacts:

Center of Concern: Aldo Caliari, on aldo@coc.org or +1 202 635 2757

Center for Economic and Social Rights: Luke Holland on lholland@cesr.org, or + 1 718 237 9145

Association for Women’s Rights in Development: Alejandra Scampini Franco on ascampini@awid.org, or +598 2 604 6506  

How effective are tax incentives and exemptions in Africa?

How effective are tax incentives and exemptions in Africa? 
http://www.mixcloud.com/ICTD/effectiveness-of-tax-incentives/

More billions stolen from Zambia

More billions stolen from Zambia

http://www.daily-mail.co.zm/index.php?option=com_k2&view=item&id=1760:more-billions-stolen-from-zambia&Itemid=200

BARELY a day after the Sunday Mail reported how the Zambian people have in the past lost, especially under the leadership of Rupiah Banda, more information has come to our attention showing more losses over the same period and beyond.

The latest report from the Washington-based Global Financial Integrity places Zambia’s losses at billions of dollars through the infamous transfer pricing the UK-based Guardian recently wrote about.
Sarah Freitas, an economist at the Washington-based organisation shows through a study that Zambia lost about US$8.8 billion between 2001 and 2010 due to multi-national companies, mostly mines, cheating their way out of remitting proper taxes, according to the Global Financial Integrity report.  
The report, which does not look at Zambia alone, describes illicit financial flows from developing countries as the proceeds of crime, corruption and tax evasion which keep eluding countries such as Zambia. 
Illicit financial flows are a type of capital flight and have been a persistent plague on the developing world for some time now. 
Our research finds that US$8.8 billion left Zambia in illicit financial flows between 2001 and 2010. Of that, US$4.9 billion can be attributed to trade misinvoicing, which is a type of trade fraud used by commercial importers and exporters around the world such as mining companies.
This is a very serious problem for Zambia even up to now, says the report. 
Zambia’s gross domestic product (GDP) was US$19.2 billion in 2011. Its per capita GDP was US$1,413 while government collected a total of US$4.3 billion in revenue only. 
“It [Zambia] can’t afford to be hemorrhaging illicit capital in such staggering amounts,” the report states.
In previous reports, the Washington-based organisation has proven that illicit financial flows drive the underground economy. 
This means that as criminals and tax evaders such as mining companies avoid law enforcement and move their money overseas, it becomes easier for them to operate in Zambia quite cheaply. 
The underground economy becomes bigger, which makes it even more difficult for the Zambian government to collect taxes. This in turn drives illicit financial flows further, completing the vicious feedback loop as Zambians starve despite being mineral-rich.
These illicit outflows come on top of tremendous outflows from legal corporate tax avoidance. US$2 billion is lost yearly to tax avoidance by multi-national corporations operating in Zambia, according to the Washington-based organisation citing Deputy Minister of Finance Miles Sampa. 
Most of this tax avoidance is due to abusive transfer pricing - which is a type of quasi-legal trade misinvoicing - in the mining sector. 
According to Mr Sampa, of all the major multi-nationals that export record amounts of copper and other metals out of Zambia, just “one or two” officially recorded a profit, and therefore pay no corporate tax. 
Mr Sampa discusses a new law to close corporate tax avoidance loopholes and perhaps raise an estimated US$1.5 billion per year as Zambia tries to cut its losses. 
Mr Sampa in an interview with the Washington-based organisation asks, “How many hospitals can that build? How many roads can that help us develop?”
The type of tax avoidance that Mr Sampa is referring to cannot be easily picked up because the activity is not explicitly illicit and because it occurs between two branches of a multi-national corporation, and therefore is not reflected in the International Monetary Fund direction of trade statistics used to calculate illicit financial flows.
Tax revenue loss from capital flight means less to spend on not only education and transportation infrastructure, but also on health, providing clean water and generally building up society. 
It means more money has to be borrowed from abroad and it strains aid budgets. If Zambia were to collect an extra US$2 billion per year in revenue from curtailing both illicit financial flows and legal tax avoidance, it could increase government’s budget by 46 percent.
But on top of the tax revenue lost, Zambians need Zambian wealth to stay in Zambia, says the report. 
When a mining company moves money out of the country instead of paying corporate tax on earnings, it drains much-needed capital from the economy. Money that stays in the country will provide a compounding boost to the Zambian economy every single year, as it will be invested in the private sector.
Zambia has the natural resource wealth to dig - literally and figuratively - its way out of poverty, but only if the West acts at the same time. Zambia cannot do this alone, adds the report. 
The extra money could be siphoned off to the offshore bank accounts of corrupt public officials, or companies could find new ways to legally pretend that their profits were made elsewhere. 
In Zambia, a constantly referred to case is that of the Glencore-owned Mopani Copper Mines that was accused of understating its profits while overstating its costs, an accusation its former chief executive officer Emmanuel Mutati denied during a BBC interview.
Others that have been placed on the spot for ‘avoiding’ tax are SABMiller-owned Zambian Breweries that have also denied the charge from Action Aid, a non-governmental organisation.
In September, President Sata announced measures to curb capital flight by receipting all mineral exports through the Bank of Zambia but up to now the step has remained on ice as the country continues to lose money it cannot afford to. - Global Financial IntegritY.

Swiss bank Wegelin to close after US tax evasion fine

Switzerland's oldest bank is to close permanently after pleading guilty in a New York court to helping Americans evade their taxes.

Wegelin, which was established in 1741, has also agreed to pay $57.8m (£36m; 44m euros) in fines to US authorities.

It said that once this was completed, it "will cease to operate as a bank".

The bank had admitted to allowing more than 100 American citizens to hide $1.2bn from the Internal Revenue Service for almost 10 years.

Wegelin, based in the small Swiss town of St Gallen, started in business 35 years before the US declaration of independence.

It becomes the first foreign bank to plead guilty to tax evasion charges in the US.

Other Swiss banks have in recent years moved to prevent US citizens from opening offshore accounts.

Continue reading the main story

“Start Quote

Usually when you cave in to the USA, you do it because you just want to get rid of it”

Dr Peter V KunzProfessor of economic law, the University of Bern

US Attorney Preet Bharara said: "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 that it was a "watershed moment in our efforts to hold to account both the individuals and the banks - wherever they may be in the world - who are engaging in unlawful conduct that deprives the US Treasury of billions of dollars of tax revenue".

Otto Bruderer, a managing partner at the bank, admitted that Wegelin had sheltered US clients from tax between 2002 and 2010, and said it was aware that its conduct had been "wrong".

Mr Burderer's further admission that assisting tax evasion was common practice in Switzerland has caused huge concern among the Swiss banking community, according to the BBC's Switzerland correspondent, Imogen Foulkes.

"Some Swiss financial analysts are already speculating that Wegelin's $58m fine, which many had expected to be higher, was kept low by the US authorities in return for Wegelin clearly implicating the rest of the Swiss banking community in tax evasion," she said.

Inevitable demise

Wegelin effectively ceased to function as a Swiss bank almost a year ago.

US criminal accusations against three of its executives prompted the bank to sell off its core Swiss and other non-US businesses in January 2011.

The rushed sale protected Wegelin's non-US clients from the fall-out of any legal battle, and reflected fears that few clients would want to continue doing business with a bank being pursued by the US anyway.

The businesses were bought by Raiffeisen Bank, Switzerland's co-operative bank, which has since severed the few business ties that it had with the US.

The sale left Wegelin responsible only for its American clients, including those at the centre of the US authorities' probe.

Continue reading the main story

“Start Quote

Many believe the Swiss government is trying to square an impossible circle”

Imogen FoulkesBBC News, Geneva

• Swiss banks' unease over Wegelin

Wegelin as an institution was then itself indicted by US authorities in February last year, and later declared a fugitive from justice when the bank's executives failed to appear in a US court.

The bank had vowed to fight the charges, claiming that because it only had branches in Switzerland, it was bound only by its home country's relaxed banking laws.

Its decision to cave in, and wind down its one remaining business, has made the bank's demise inevitable.

"Usually when you cave in to the USA, you do it because you just want to get rid of it," said Dr Peter V Kunz, an economic law professor at the University of Bern.

Having sold off all its non-US businesses, Mr Kunz believes the bank's partners would have been keen to end a potentially interminable legal dispute with the US in order to recover as much of the sale proceeds as possible from what had in effect become a shell company.

The desire to end the legal battle would have been given added pique by the fact that Wegelin's partners have personal financial liability for the bank.

'Aggressively pursuing'

Jeffrey Neiman, a former US federal prosecutor who was involved in a previous investigation into Swiss banks, said: "It is unclear whether the bank was required to turn over American client names who held secret Swiss bank accounts.

"What is clear is that the Justice Department is aggressively pursuing foreign banks who have helped Americans commit overseas tax evasion."

It remains to be seen whether US authorities will continue with, or drop, parallel charges against three Wegelin bankers, Michael Berlinka, Urs Frei and Roger Keller.

The decision to throw in the towel also marks a turnaround for Konrad Hummler, Wegelin's managing director since 1991, and one of the partners whose own personal finances were potentially at stake.

Mr Hummler, who is also chairman of the Swiss daily newspaper Neuer Zuercher Zeitung, has previously been unusually outspoken among Swiss bankers in calling for the country's authorities to block any disclosure of banking client details to the US authorities.

The Wegelin case comes four years after a far larger Swiss bank, UBS, agreed to pay a $780m fine to US authorities related to tax evasion charges. UBS also agreed to reveal the details of US account holders.

However, UBS neither pleaded nor was found guilty. Instead it and US prosecutors came to what is called a deferred prosecution agreement, with the fine being paid in exchange for the charges being dropped.

Switzerland's other major bank, Credit Suisse - with over a trillion dollars in total assets and another trillion in clients' money - remains under investigation by the US authorities, as does another high profile bank, Julius Baer, which is about a fifth of the size of Credit Suisse, as well as 11 other mainly local, cantonal banks.http://www.bbc.co.uk/news/business-20907359