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Fort Lauderdale trial aims to topple top level of secret bank accounts

UBS BANKBy John Pacenti, From Daily Business Review

The Justice Department cracked open Switzerland’s centuries-old custom of banking secrecy when it forced UBS AG to disclose the names of secret U.S. account holders on top of fining it $780 million.

But the Justice Department is hardly done with financial behemoth UBS or other major Swiss banks for hiding the assets of wealthy Americans from the Internal Revenue Service.

Case in point: the Fort Lauderdale trial of Raoul Weil, former head of UBS’s global private-banking business. He supervised about 60 financial advisers who employed spy-guy deception to help Americans cheat on their taxes.

Weil claims he is a victim of rogue subordinates and knew nothing of the widespread practice of runnings assets through Caribbean shell companies and Liechtenstein foundations and into UBS accounts.

A lot is at stake for high-level Swiss banking executives and prosecutors who aim to instill fear in them. Switzerland has no extradition treaty with the U.S., but they might fear leaving the country since Weil was arrested at a resort in Bologna, Italy, and extradited to a dingy Broward County jail on a 2008 indictment.

“The investigation and prosecution of Raoul Weil demonstrates the government’s persistence and tenacity in pursuing those who aided and abetted the tax evasion of U.S. taxpayers regardless of where they live,” said Miami tax litigator Robert Panoff.

Attorney Kevin Packman, a tax specialist and partner at Holland & Knight in Miami, said the prosecution of bankers and tax scofflaws so far have been “low-level, hanging-fruit kind of guys, … but Weil is the guy. This is his division. He is going to pay the price of what his underlings did.”

Blaming subordinates

Gunster partner Martin Press of Fort Lauderdale said the Weil trial will have “huge” implications in the tax drama centered on Swiss banks.

“This is one of the few trials involving UBS which may go to the jury verdict,” Press said, noting most cases have ended with guilty pleas. “If he is acquitted, it shows that a bank can make a lot of money and blame it on the subordinates.”

Weil faces up to five years in federal prison if convicted of conspiracy to defraud the Untied States.

Weil can blame UBS whistleblower Bradley Birkenfeld for his predicament. The Bostonian spilled the beans on the bank’s cross-border operations in 2008.

After serving 2½ years in prison, Birkenfeld collected $104 million under a U.S. whistleblower statute and is living the very good life.

Birkenfeld is not on the government’s witness list, but prosecutors have paraded a line of UBS bankers to refute Weil’s claim that he knew nothing of any illegal activity since the trial started Oct. 15.

First came former UBS executive Hansruedi Schumacher, who told jurors private bankers would play hotel roulette to avoid suspicion when meeting clients in the U.S. Miami’s Mandarin Oriental Hotel was a favorite clandestine spot to meet.

On Tuesday, former UBS banker Georg Marti testified he met clients with Weil after a number of UBS advisers jumped ship and there was concern about client defection. He said he also met clients at Miami’s Art Basel events and the annual pro tennis tournament in Key Biscayne.

Bankers never met at the UBS office in Miami to keep local staffers in the dark, Marti said. He said he even cut the UBS logo off bank statements so they couldn’t be traced if discovered.

The former banker also testified UBS gave him a laptop with a secret hard drive that was accessible through the desktop’s solitaire icon only after a thumb drive was inserted. UBS bankers referred to “white money” and “black money” to differentiate between reported and unreported assets, he said.

“There was constant pressure to create more business,” Marti testified.

Moving On Up

The government’s star witness is Martin Liechti, the former head of private banking for the Americas. He has said he had conversations with Weil on hiding assets for Americans.

From Switzerland’s perspective, tax litigators say the pursuit of Weil is overkill. The United States already got the bank to pay a $780 million fine in a 2009 deferred prosecution agreement, and the bank coughed up 4,500 names of U.S. clients in 2010. The IRS claimed 20,000 U.S. clients of UBS hid assets worth about $20 billion.

“They think the United States government is extremely arrogant,” said Alan Weisberg, a partner at Weisberg & Kainen in Miami. “They have difficulty in recognizing what they were doing was conspiring with the U.S. people to violate U.S. tax laws.”

Weil’s attorney, Aaron Marcu, a New York partner with London-based Freshfields Bruckhaus Deringer, told jurors his client was simply adhering to Switzerland’s laws on banking secrecy. He said the tales told by former UBS bankers are suspect because they are trying to curry favor to mitigate their sentences after pleading guilty to tax crimes.

Attorney Jeff Gutchess, a partner at Bilzin Sumberg Baena Price & Axelrod in Miami, said the Weil prosecution is simply the Justice Department moving up the corporate ladder after years of targeting account holders and their low-level UBS advisers.

He said Weil’s defense may seem incredible, but it could succeed if prosecutors can’t produce any documents tying the executive to the scheme.

“When involving a scheme of this scale, it’s often a difficult defense to claim ignorance,” Gutchess said. “Yet here, since the scheme was so secretive and well-designed to avoid detection, there may be no smoking gun to link Weil to the wrongdoing.”

The trial could come down to whether the jury finds subordinates credible. All of them have cut deals for leniency in exchange for favorable testimony, Gutchess said.

Most who got caught up in the offshore banking scandal have not been prosecuted. The IRS offered amnesty to allow citizens with hidden assets to declare them, pay a fine and move on. The IRS reported in June that 45,000 disclosures have produced collections of $6.5 billion in taxes.

Around 100 small and midsized Swiss banks are expected to participate in a U.S. program that will allow them to avoid criminal charges if they pay fines.

Switzerland has even agreed to start exchanging information on banking clients with tax authorities in other countries starting in 2018.

And the larger Swiss banks are expected to settle a sweeping U.S. probe of offshore tax evasion by paying billions of dollars and handing over the names of thousands more Americans who had secret accounts. Negotiations on civil settlements in U.S. probes of 11 financial institutions, including Credit Suisse Group AG, are reportedly wrapping up.

Then the Justice Department obsession with rich tax dodgers is expected to take it to other parts of the globe.

“They are going to set an example with Switzerland,” Weisberg said. “But they are working on Israel and I’m hearing Hong Kong.”

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