The Reckoning For Swiss Banks Is Far From Over
IN 2008 Bradley Birkenfeld, an American working for UBS, blew the whistle on the giant Swiss bank's offshore operations, which had helped thousands of rich Americans to dodge their taxes.
Among the lurid details that he revealed was the use of encrypted laptops, the smuggling of diamonds in toothpaste tubes for clients, and evidence of bankers travelling to America on tourist visas to avoid arousing suspicion.
UBS was sent reeling by the revelations. In recompense, in 2009 it paid a $780m fine to the American government and turned over data to the authorities on more than 4,000 clients.
The Americans subsequently trained their sights on other Swiss banks-and on dozens of their employees and legal advisers. So far more than 30 individuals have been charged with criminal conduct.
The biggest fish to be caught in the net is now about to have his day in court. On October 14th jury selection started in a federal court in Florida for the trial of Raoul Weil, who as head of UBS's global private-banking business was responsible for the division that had fallen foul of the authorities. In 2009 America issued an international arrest warrant for Mr Weil. He was nabbed last year at an Italian hotel, while on holiday with his wife, and was extradited to the United States, where he has been under house arrest.
Prosecutors allege that Mr Weil, as head of UBS's wealth-management division, oversaw and knew about efforts by a team of 60 or so Switzerland-based private bankers to court American clients and to help them hide as much as $20 billion of undeclared money. This was done using sham companies and foundations, according to court filings.
If found guilty, Mr Weil faces up to five years in prison for conspiracy to commit tax fraud. He denies wrongdoing. His lawyers are expected to argue that a small group of rogue private bankers hid their misconduct from Mr Weil, and that this was possible because he ran a vast business with thousands of employees and thus would not have had intimate knowledge of what each unit was up to.
The trial pits former UBS bigwigs against each other. The government's star witness is expected to be Martin Liechti, the former head of private banking for the Americas. He was promised that he would not be charged if he helped the investigation. Unless the prosecution has managed to turn up documents linking Mr Weil directly to any illicit activity, Mr Leichti's recollection of conversations with his former boss will be crucial. The defence is sure to attack his credibility and question his motives, suggesting that he is lying or embellishing to save his own skin.
Several other current or former UBS people are expected to testify. Some will do so by video link because they fear arrest if they step foot in the United States. Bankers with knowledge of past sins are caught between a rock and a hard place. On the one hand, they have been placed under immense pressure to co-operate by the American authorities, while at the same time threatened with criminal charges by Swiss prosecutors if their handing-over of information is deemed to constitute a breach of Switzerland's strict bank-secrecy and data-privacy laws.
American prosecutors are also believed to be looking at banks in Singapore, Israel and the Caribbean.
Switzerland remains the largest offshore financial centre, by some margin, with more than $2 trillion of non-resident cash. But the American-led assault has forced it to embrace changes that just a few years ago seemed unthinkable.
The Alpine haven has, for instance, agreed to start exchanging information on its banks' clients with other countries' tax authorities on a systematic basis from 2018, although the measure still requires parliamentary approval.
Nevertheless, the reckoning for Swiss banks is far from over. Around a hundred mostly small and mid-sized banks are participating in a programme with America that will allow them to avoid indictment if they pay fines. But a dozen larger banks were blocked from taking part and are being investigated.
UBS is not among them, having stumped up a big fine in 2009, but it has other problems: France is also reported to be seeking several billion euros in penalties from the bank for offering a financial sanctuary to its tax-shy citizens.
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