$50K wrapped in newspaper, computer with 2 hard drives, diamonds hidden in toothpaste tube: Trial of former UBS executive dredges up Swiss banks’ shady past

FORT LAUDERDALE, Fla./ZURICH — From bundles of cash inside scraps of newspaper to setting up shell companies, the trial in Florida of a former UBS  executive is a reminder of the extreme methods some Swiss bankers used to hide clients’ cash.

Raoul Weil, 54, is the highest ranking Swiss banker to be arrested in the United States and prosecutors are seeking to paint him as a facilitator of efforts that helped conceal up to US$20 billion in taxpayers’ assets in secret offshore accounts.

Weil’s main defence has been that these efforts were done by people below him and that the U.S. cross border business was a tiny fraction of his overall responsibilities. If convicted, Weil faces up to five years in prison for conspiracy to commit tax fraud. Weil and his attorneys declined comment on the trial.

At the trial, which pits Weil against several former UBS colleagues who have chosen to cooperate with U.S. authorities in exchange for favorable sentencing, Swiss bankers have testified about using an arsenal of James Bond-like tactics to avoid detection while in the United States, and to help U.S. clients keep their accounts hidden from tax authorities.

Bankers were given laptops with two hard drives, Hansruedi Schumacher, who formerly ran UBS’ cross-border business, told the trial, which began on Oct. 14 and is expected to run for about four weeks.

One hard drive was filled with anything from family photos and personal emails while another contained a password-protected database with the U.S. citizens’ code-named bank records. Another witness said the drive with the bank details could be wiped simply by typing in a short password.

“It was known all those account holders were not paying their taxes, and for the Swiss bank it was a very profitable business,” Schumacher said during testimony at the trial.

Eskander Ensafi, who banked with UBS, told the court about a clandestine meeting in 2005 at a Los Angeles hotel with bank advisor Claude Ullman. The advisor handed him roughly US$50,000 in U.S. bills wrapped in newspaper, Ensafi testified, tax-free interest from a Swiss bank account in the name of Ensafi’s father, who had just suffered a debilitating stroke.

Ullman was sued by a number of U.S. individuals — who were jailed for not paying U.S. taxes by hiding their money in Swiss bank accounts — for alleged racketeering, along with UBS and a number of high ranking bankers, including Weil, in a 2009 lawsuit in the Eastern District of California. The case was dismissed with prejudice in September 2014. An attorney for Ullman did not respond to a request for an update on the case.

German businessman Juergen Homann, 72, who pleaded guilty to a U.S. charge of failing to report a foreign account to the Internal Revenue Service (IRS) in 2009, told the court one UBS client advisor, Hans Thomann, helped him set up a Hong Kong-based shell company. The company, the Prodon Foundation, was then used to funnel income Homann made from his raw minerals business venture in China.

Attempts to reach Thomann for comment were unsuccessful.

In 2012, he was charged in the Southern District of New York with conspiracy to defraud the United States and conducting an unlicensed money transmitting business.

SHADOW OF SECRECY

Switzerland’s biggest banks have paid a heavy price to settle their U.S. tax evasion cases. UBS admitted to helping U.S. taxpayers hide money and paid a US$780 million fine in 2009, while Credit Suisse pleaded guilty in May to a U.S. criminal charge and will pay more than US$2.5 billion in penalties.

Since U.S. authorities began to chip away at the wall of Swiss banking secrecy in 2008, details have trickled out of the extraordinary lengths bankers would go to in order to smuggle assets in and out of the United States.

A U.S. Senate report published earlier this year described how a customer at Swiss bank Credit Suisse was given statements tucked into the pages of an issue of Sports Illustrated magazine at a hotel meeting. Former UBS financial advisor Bradley Birkenfeld admitted in 2008 to smuggling diamonds in a tube of toothpaste for a client.

Birkenfeld was a whistleblower in the tax fraud case against UBS and won a record-setting US$104 million reward from the U.S. Internal Revenue Service.

On top of the fines forked out by Switzerland’s two biggest banks, about a dozen smaller Swiss players are still under U.S. criminal investigation and face serious penalties, while many more have joined a government-brokered program allowing them to make amends if they aided tax evasion by wealthy Americans.

The United States is not the only jurisdiction that has cracked down on tax evasion by its wealthiest citizens.

UBS is under investigation in France over whether it helped wealthy individuals there dodge taxes. Investigating magistrates have proposed that UBS pay a fine of 4.88 billion euros (US$6.2 billion), according to a judicial source.

The bank also booked a near-US$300 million charge in the second quarter of this year, mainly to settle claims it helped wealthy Germans evade taxes.

The bankers who helped move clients’ money around undetected are themselves faced with a legal bind that goes beyond financial penalties.

Since 2009, the U.S. Justice Department has charged more than 30 bankers and advisors in the offshore investigation, including several Swiss bankers set to testify at Weil’s trial, while others have been arrested by European authorities.

In some cases, the accused can cooperate with foreign authorities in exchange for lighter penalties. However, such a move could put them at risk of violating Swiss banking secrecy laws, an offense punishable by up to three years in prison and a fine of up to 250,000 Swiss francs (US$262,000).

Failure to cooperate, though, can expose the bankers to the danger of being detained by foreign authorities whenever they leave Switzerland.