At a hearing in Manhattan federal court, U.S. District Judge Jed Rakoff on Friday suggested that U.S. prosecutors enlist the help of diplomatic authorities, including perhaps the State Department, to advance the case.

The indictment of Wegelin, which was founded in 1741, was the first in which the United States accused a foreign bank, rather than individuals, of helping Americans commit tax fraud.

Wegelin was accused of helping clients hide more than $1.2 billion in offshore bank accounts. The case is part of a U.S. crackdown on alleged tax fraud, including efforts to pierce the tradition of Swiss bank secrecy.

"Occasionally in these situations, progress is made through diplomatic channels," Rakoff told Assistant U.S. Attorney Daniel Levy at the hearing. "Unlike an individual, arresting a company is somewhat difficult, other than in science fiction."

Rakoff spoke after Levy said "we have no proposal" for how to get Wegelin to formally answer the charge.

Wegelin issued a statement from Switzerland saying it has not been served with a criminal summons and therefore was not required to appear in court.

"The circumstances create a clear dilemma for Wegelin & Co," it said. "If it were to adhere to current U.S. legal practice aimed at Swiss banks, it would have to breach Swiss law."

It said it would nonetheless "make every effort to resolve this matter within the boundaries of respectful cooperation with the U.S. and obedience to Swiss law."

Prosecutors charged Wegelin on February 2, one month after bringing conspiracy charges against three bankers in its Zurich branch: Michael Berlinka, Urs Frei and Roger Keller.

According to prosecutors, more than 100 U.S. taxpayers conspired with the defendants and other conspirators between 2002 and 2011 to hide money from the Internal Revenue Service.

The government also seized more than $16 million from an account that Wegelin held in Stamford, Connecticut with the Swiss bank UBS AG (UBSN.VX).

Wegelin has no branches outside Switzerland, and followed the common industry practice of using correspondent banking services to handle money for U.S. clients.

In 2009, UBS paid $780 million and entered a deferred prosecution agreement with the Justice Department to resolve allegations that it helped Americans evade taxes.

Wegelin effectively broke up last month by selling its non-U.S. operations to the Swiss bank Raiffeisen.

It also moved most of its workers, clients and 21 billion Swiss francs (US$22.9 billion) of assets to Notenstein Privatbank, set up specifically for the break-up.

No further proceedings are scheduled in the Wegelin criminal case.

The case is U.S. v. Wegelin & Co et al, U.S. District Court, Southern District of New York, No. 12-cr-00002.

(US$1 = 0.918 Swiss francs)

(Reporting By Jonathan Stempel; Editing by Bernard Orr)

• A Permanent Economic Emergency