In a statement from Otto Bruderer, one of Wegelin's managing partners, the bank admitted helping US taxpayers evade their tax obligations between 2002 and 2010 in the knowledge its US account holders were filing false tax returns with the IRS.
The plea was accepted by the US Attorney for the Southern District of New York, an area home to some of the US tax evaders.
Wegelin opened and maintained Swiss accounts for US taxpayers who did not complete W-9 tax disclosure forms, which are required by the IRS to identify taxpayers and ensure they are correctly reporting their income, and allowed independent asset managers to open non-W9 accounts for US taxpayers.
Despite admitting the practice was wrong, Wegelin believed it was safe from US prosecution since it had no US branches or offices and had acted in accordance with Swiss law.
A US Department of Justice statement said although Wegelin had no branches outside Switzerland, it directly accessed the US banking system through a correspondent bank account that it held at UBS in Stamford, Connecticut.
Wegelin used its correspondent bank account at UBS to help US taxpayers with undeclared accounts repatriate money that they had hidden at Wegelin.
This was often done in a manner designed to evade detection by US authorities. For example, US taxpayers routinely asked Wegelin to issue and send them cheques, which were drawn on Wegelin's correspondent bank account, and that represented funds held in their secret accounts at the bank.
"In the wake of the US investigation of UBS, members of Wegelin's senior management decided to take steps to capture the illegal business that UBS had exited to capitalise on the business opportunity this presented," the Department of Justice said.
Wegelin employees told various US taxpayer clients that their undeclared accounts would not be disclosed to the US authorities because the bank had a long tradition of secrecy.
They also persuaded US taxpayer clients to transfer assets from UBS to Wegelin by emphasising that, unlike UBS, Wegelin did not have offices outside of Switzerland and was therefore less vulnerable to US law enforcement pressure.
"Today's guilty plea is 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," said US Attorney Preet Bharara. "We will continue our efforts until this practice is eliminated in its entirety."
Wegelin gives a fierce warning to any other foreign banks assisting US citizens with tax evasion, given the success of the IRS investigation team and the knowledge obtained about the methods used by Wegelin.
Though the true watershed moment in the US's fight against FFIs helping its citizens evade tax is the recent introduction of FATCA, and particularly the implementation of the passthru payment rule in 2017.
John Taylor, of King & Spalding, said when the passthru payment rule takes effect, FFIs will have to come to terms with FATCA no matter what.
"Under the passthru payment provision in FATCA, which takes effect in 2017, Wegelin does not have to have a direct relationship with the United States to be caught by FATCA. For example, Wegelin may still be subject to FATCA passthru withholding on payments received from non-US banks unless it becomes FATCA compliant ," said Taylor.
"If an FFI wants to do business with an international client base then it will have to come to terms with FATCA one way or another," he added.
Wegelin has agreed to pay approximately $20 million in restitution to the IRS and to pay a $22.05 million fine.
In addition, Wegelin agreed to the civil forfeiture of an additional $15.8 million, representing the gross fees earned by the bank on the undeclared accounts of US taxpayers.
Together with the April 2012 forfeiture of over $16.2 million from Wegelin's correspondent bank account, this amounts to a total recovery to the US of approximately $74 million.
"Once the matter is finally concluded, Wegelin will cease to operate as a bank," said Wegelin spokesman Albena Bjorck.
