What is the future for Swiss banking?

Konrad Hummler could barely disguise his anguish as he announced the sale of Switzerland's oldest bank to rival Raiffeisen last January. Wegelin's 59-year-old managing director knew the game was up as US prosecutors rounded on the 272-year-old financial institution he ran.

"I never could have imagined that we would ever have considered selling," he said. "The extraordinarily difficult situation and threat to the bank brought about by the legal dispute with the US has forced me and my long-time associate Otto Bruderer to take this extremely painful step together with the other managing partners."

Twelve months later and the inevitable has finally been confirmed: the US-facing part of Wegelin that was not sold will close after the bank pleaded guilty to helping wealthy Americans to hide $1.2bn (£740m) in offshore accounts.

Wegelin, which was founded in 1741, said it will "cease to operate as a bank" on Friday after agreeing to pay almost $60m in fines to US authorities. The bank admitted it had helped more than 100 US citizens to hide money for over 10 years.

Prosecutors said the bank lured clients from larger rival UBS and other Swiss banks embroiled in separate investigations. They claimed the bank believed it could "charge high fees to its new US taxpayer-clients because the clients were afraid of criminal prosecution" in the US.

Preet Bharara, US attorney for Manhattan, said the guilty plea was a "watershed moment" in a long running investigation. "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.

Wegelin is the first foreign bank to plead guilty to tax evasion charges, although it is still unclear whether US authorities will pursue charges against Wegelin's former directors and bankers.

The company's demise has led to inevitable questions about the future of the Swiss banking system, which is traditionally conservative, secretive and a haven for investors across the world.

Ben Jones, a tax expert at the law firm Eversheds, said: "The successful indictment of Wegelin sends a powerful message to the Swiss banking community that the US is committed to tackling tax evasion and has the economic and political power to effectively extend the boundaries of its national legal system to non-US businesses and citizens.

"The indictment is only one of a number of similar indictments and investigations by the US into tax evasion by Swiss banks. These action and the wider attack on evasion that is the Foreign Account Tax Compliance Act puts the US at the forefront of the fight against tax evasion and potentially leaves other countries with some questions to answer about their approach to tax evasion."

UBS, which is Switzerland's largest bank, agreed to settle with US authorities back in 2009, paying a $780m fine and handing over the details of US account holders.

About 13 other Swiss banks – including Credit Suisse – remain under investigation by US lawyers. Experts say the ongoing inquiries are likely to remove the cloak of secrecy covering the country's banks.

Sally Brown, an associate at Milestone International Tax Partners, said: "As far as Switzerland is concerned, tax evasion is not a criminal offence, whereas fraudulent behaviour is. There is, however, a thin line between evasion and fraud. Its privacy laws are also deeply entrenched in its Constitution."

"As Wegelin shows, if Swiss banks open and maintain accounts for US individuals (using code names and the like) knowing full well that account holders are not disclosing this to the Internal Revenue Service as they should, they will be severely punished.

"The US's crackdown on its citizens sheltering income and gains abroad is ramping up and, as we are seeing, is likely to seriously affect the Swiss banking system's reputation."

Over the past few years, the Swiss government has attempted to reach a deal with US authorities, limiting the impact on its banks, as it has already done with countries such as the UK and Germany.

So far, the US has refused to change its stance, meaning that the next few months are likely to be tough for Swiss banks.

"Other countries have sought to reach agreements that reap some return for domestic exchequers but otherwise continue to permit the banking secrecy practices that facilitate such evasion," Mr Jones added. "The US currently seems to stand somewhat apart from the rest of the international community in its approach to tax evasion."

State secrets: A tale of gnomes and Nazis

With almost $1.2 trillion (£740bn) in offshore wealth tied up in Swiss-domiciled banks, it's no wonder foreign tax authorities have their eyes fixed on Switzerland.

The country's banking industry can trace its roots back to the 18th century when banks such as Wegelin and Lombard Odier were founded to store merchant riches.

Switzerland's 1934 Banking Law codified the culture of secrecy now present in the country's banking system.

Secrecy provisions were not included in the first draft of the law, but were later added to protect against Nazi attempts to investigate the assets of Jews and other "enemies of the state" held in Switzerland. However, the secrecy laws also meant that after the Second World War billions deposited by Jews who were killed in the Holocaust were left in dormant accounts, which have only been disclosed in recent years.

British politicians later coined the phrase the "gnomes of Zurich" to describe the secretive world of Swiss banking.

According to recent figures from Boston Consulting, Switzerland remains the world's largest offshore centre, mostly from Western European clients. However, the country is now addressing concerns over its transparency. In 2011, Switzerland agreed a treaty with the UK that resulted in British taxpayers with Swiss accounts paying between 19 and 34 per cent on their assets to settle past liabilities.