The Long Arm of the Justice Department

I know that everybody stuck here in the wake of the mortgage securities crisis hates bankers, but it still seems like there’s something wrong about this:

The news for Wegelin, its headquarters nestled in the town of St. Gallen next to the Appenzell Alps near the German-Austrian borders, would only get worse. Six days later the U.S. Justice Department, acting on plans it had been making for weeks, indicted the 270-year-old bank on charges of enabling wealthy Americans to evade taxes on at least $1.2 billion from 2002 through last year. U.S. criminal laws apply to foreign banks that do business in the United States, even if the banks, like Wegelin, have no U.S. branches.

So the United States is prosecuting Swiss banking executives for helping Americans evade income taxes, even though the bank’s activities did not violate Swiss law. Apparently we’ve made it illegal for anyone anywhere in the world to violate our tax laws, even if they never enter the United States to do so, and even if doing so isn’t a crime where they are.

[Wegelen's leading partner Konrad] Hummler’s error, rival Swiss bankers say, was in thinking Wegelin was safe from a U.S. indictment just because the bank didn’t run any U.S.-based branches.

This is a terrible precedent (although it’s hardly the first time). What if other countries started regularly doing that to us? Would we want Americans to be prosecuted for apostasy in Iranian courts for evangelizing and converting Muslims to Christianity in Alabama? Would we want American web site operators prosecuted for helping France-based bloggers violate European hate speech laws?

Martin Naville, chief executive of the Swiss-American Chamber of Commerce in Zurich, told Reuters that Hummler had “exposed himself pretty heavily” around 2009 by publicly calling America the “worst aggressor since the Second World War” while taking in tax-evading clients fleeing other Swiss banks in the wake of the crackdown. “Clearly, he made some people very angry,” Naville said. “And usually, the boomerang comes back.”

What Hummler said is over the top, but it’s not a crime. I would like to think that federal prosecutors have better ways to prioritize their time than prosecuting people who piss them off.

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