UBS' tax problems

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CB's picture
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UBS' tax problems

I had been wondering why UBS was in hot water with US authorities and why the client lists were suddenly fair game... now I know. Perhaps you all have seen this before (Oct 2008)..... never the less:


UBS and the diamond smuggler

The private-banking scandal that is rocking Swiss finance began with illegal diamonds, a tube of toothpaste, and a rogue American banker. An exclusive look inside the low end of high finance.


Brad Birkenfeld was a frequent trans-­Atlantic flier. He lived and worked in Switzerland, dividing his time between an apartment in Geneva and a house in Zermatt, an Alpine village at the base of the Matterhorn. But his biggest client was in California, and however gruel­ing the trip through nine time zones was, it was worth it. ­Without that client’s $200 million to manage, Birkenfeld’s position in the private-banking division of UBS would have been far less secure.
Though Birkenfeld’s job title was innocuous enough—director at the Swiss bank—his job since October 2001 was not. He helped the very rich hide tens, if not hundreds, of millions of dollars from U.S. tax authorities. He was willing to go the extra mile for his clients, so he didn’t blink when one of them asked him to do something that was blatantly illegal by any country’s standard: Buy diamonds with secret Swiss funds and bring them into the U.S. undeclared and undetected.

This would have been a challenge at any time, but in the aftermath of the September 11 terrorist attacks, getting the diamonds into the U.S. seemed nearly impossible. If Birkenfeld put the diamonds in his carry-on bag and a screener found them, he would have to exhaust his powers of persuasion concocting a story about how he had forgotten to declare hundreds of thousands of dollars in precious stones.

Yet declaring them wasn’t an option. That would have created a paper trail. Since the money that purchased the jewels was unknown to U.S. tax authorities, the diamonds had to be as well. To get them into the country, Birkenfeld had only one option. He had to smuggle them in.


The last thing UBS needed this summer was Brad Birkenfeld. The public disclosure of his actions, which were later luridly described to federal investigators, was one of several crises to hit UBS this year. It had already written down $38 billion from subprime-­mortgage-related losses, and in the summer it became the target of lawsuits brought by a host of state attorneys general over its role in the auction-rate securities market, which involved investments that were supposed to be safe and liquid for mainstream investors but turned out to be neither. (Those suits have since been settled, with UBS admitting no wrongdoing.)

Yet none of that was as hurtful to UBS and its reputation as the mess uncorked by Birkenfeld. For three centuries, Swiss banking has meant private banking—secretive, exclusive, rich. It has helped make tiny Switzerland a giant in global banking and UBS the largest private banker on the planet, with nearly $3 trillion invested on behalf of its clients.

The damage Birkenfeld caused stems from his lifting the veil of that James Bond-like business to show it for what it is: an often seedy exercise in helping very rich Americans hide their money from the Internal Revenue Service. It now seems more Sopranos than Casino Royale.

Birkenfeld used his deposition to lay the blame on UBS and paint himself as a largely unwitting participant in its schemes. He provided investigators with information about prospecting trips by UBS bankers to events like a yacht race in Newport, Rhode Island, and meetings and cocktail parties at Art Basel Miami, an annual art fair that is a magnet for the globally rich. He said the purpose of these visits was to persuade U.S. citizens to move their millions to undeclared accounts offshore and that UBS not only paid for the trips but also helped people establish sham foreign entities everywhere from Liechtenstein to Panama that existed solely to hide assets from U.S. tax authorities. A UBS spokeswoman declined to comment on any of Birkenfeld’s allegations.


SamLinder's picture
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Re: UBS' tax problems

Fascinating story. Thanks for bringing it to our attention.

CB's picture
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Re: UBS' tax problems

I thought so too Sam. The case seems still to be pending with DOJ seeking 52,000 names. Martin Liechti, head of the UBS offshore operation was held in Miami last year an then released, however he has now been dismissed by UBS. Hard to say where this is headed as most likely quite a number of rather well connected people are likely involved. When times get tough the infighting and betrayals begin...

From the original article:



As much of a headache as Birkenfeld had been for UBS, whatever he had told or was promising to tell the U.S. government was a much bigger problem for Liechti, the company's private-banking czar. Liechti had been detained on April 23 when he tried to change planes in Miami for a business trip to Latin America. At the time of the Levin hearing, the father of five had already been held as a material witness for nearly three months without being charged with anything.

Brought in front of Levin's committee, Liechti was nervous, but tan-he was reputedly holed up at the Four Seasons in Miami because the U.S. had confiscated his passport-and he invoked his right against self-incrimination in halting English that seemed to belie his reputation as one of the world's top private bankers.

After the hearing, a UBS spokesperson said, "Martin Liechti's decision to take the Fifth Amendment follows legal advice from his counsel. The decision to take the Fifth is his own entirely. Pleading the Fifth while there is an ongoing federal investigation whose outcome is undecided is certainly not unprecedented."

Glowing support, this was not. It could be read as an indication of the precarious nature of Liechti's situation. While detained, he remained fully employed by UBS, but his future was very uncertain.


The truth is, Birkenfeld had been a midlevel relationship manager who by age 40 had not distinguished himself. His knowledge of the broader goings-on at UBS was limited to his own clients and whatever he overheard from other client advisers. But Liechti was the mother lode for U.S. prosecutors. Since he was the person running the group that the offshore business fell under, he theoretically knew everything that was going on. He was the one person who could shed light on the 19,000 accounts that supposedly hold $20 billion in undeclared assets. Even if he provided information on only 1 percent of those account holders, were they to owe anything in the neighborhood of the $52 million Olenicoff paid to settle his case, the government's investigation would be a runaway success.

The speculation through the summer was that Liechti would have to disclose a lot of information or face formal charges. But then, surprisingly, he boarded a plane and returned to Zurich on August 12. Neither his attorney nor the U.S. government would say what Liechti had said or done to secure his release. A UBS spokeswoman says he is still employed by the bank.


From the NYTimes:


UBS Ousts Top Banker Who Served U.S. Clients


Published: March 29, 2009

UBS, the Swiss bank under a growing federal investigation for tax fraud, has forced out the executive formerly in charge of secret offshore accounts for wealthy Americans, the bank said Sunday.

The banker, Martin Liechti, was placed on paid leave, Dominique Gerster, a spokesman for UBS who is based in Zurich, said Sunday.

A spokesman for Mr. Liechti said Mr. Liechti hoped continuing discussions with the bank would result in a "mutually acceptable agreement."

Mr. Liechti was briefly detained in Miami in May by federal authorities as the Justice Department widened its inquiry into whether UBS, the world’s largest private bank, had helped scores of Americans evade taxes by hiding money overseas. After the detention, which was highly unusual for a senior banker and lasted several months, Mr. Liechti, a Swiss citizen, returned to Switzerland.

Mr. Liechti was UBS’s top private banker for the Americas.

His ouster raises questions about what kind of client information UBS may be preparing to provide to federal authorities, who are widening their scrutiny of American clients suspected of tax evasion and seeking to force the bank to turn over the names of 52,000 clients.

UBS, which is headquartered in Zurich, averted indictment in February by agreeing to pay $780 million and admitting to conspiracy and fraud.

Mr. Liechti is at least the third senior UBS executive to lose his job or be directly implicated in the scandal. Raoul Weil, who ran UBS’s global wealth management and business banking division, was declared a fugitive in January, two months after he was indicted by federal authorities on conspiracy charges.

In recent months Marcel Rohner, UBS’s former chief executive, and Peter Kurer, the bank’s former chairman, stepped down. The bank has also forced out several private bankers in recent weeks.


UBS to Forfeit Secret Client List, Pay Fine in Tax Fraud Deal

Written by The Public Record

Wednesday, 18 February 2009 15:06

UBS AG, Switzerland’s largest bank, entered into a deferred prosecution agreement Wednesday on charges of conspiring to defraud the United States by impeding the Internal Revenue Service (IRS), the Justice Department announced.

As part of the deferred prosecution agreement and in an unprecedented move, UBS, based on an order by the Swiss Financial Markets Supervisory Authority (FINMA), has agreed to immediately provide the United States government with the identities of, and account information for, certain United States customers of UBS’s cross-border business.

Under the deferred prosecution agreement, UBS has also agreed to expeditiously exit the business of providing banking services to United States clients with undeclared accounts. As part of the deferred prosecution agreement, UBS has further agreed to pay $780 million in fines, penalties, interest and restitution. Earlier today, the agreement was accepted in Ft. Lauderdale, Fla. by U.S. District Judge James I. Cohn.


According to court documents, the assets of the individual’s accounts were then transferred to the newly created accounts, as to which the U.S. taxpayer would not be identified as a beneficiary.

The criminal information asserts that this device was used by UBS to justify evading its reporting obligations and helped United States taxpayers to continue to conceal their identities and assets from the IRS.

The criminal information also alleges that Swiss bankers routinely traveled to the United States to market Swiss bank secrecy to United States clients interested in attempting to evade United States income taxes. Court documents assert that, in 2004 alone, Swiss bankers allegedly traveled to the United States approximately 3,800 times to discuss their clients’ Swiss bank accounts.

The information further alleges that UBS managers and employees used encrypted laptops and other counter-surveillance techniques to help prevent the detection of their marketing efforts and the identities and offshore assets of their U.S. clients. According to the information, clients of the cross-border business in turn filed false tax returns which omitted the income earned on their Swiss bank accounts and failed to disclose the existence of those accounts to the IRS.

In November 2008, UBS executive Raoul Weil was indicted by a federal grand jury in Fort Lauderdale and charged with conspiring to defraud the United States for his alleged role in overseeing the United States cross-border business. The district court recently declared him to be a fugitive.

Between 2002 and 2007, Weil oversaw the Swiss bank’s cross-border private banking business that provided services to 20,000 U.S. clients who "concealed their identities and the existence of their Swiss bank accounts from the IRS," according to the indictment unsealed last year.

About 17,000 "of these clients willfully failed to pay tax to the IRS on income earned on their Swiss bank accounts," the indictment says. UBS "assisted these United States clients [to] conceal the income earned on Swiss bank accounts..."

JoeMastriano's picture
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Re: UBS' tax problems

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