3+ Year Sentence for Ex-UBS Banker's Role in Swiss Bank's Scandal
Bradley Birkenfeld -- the American former UBS banker who played a central role in breaking the Swiss bank's secrecy and confidentiality in trying to protect its U.S. clients from evading payment of their U.S. taxes -- was sentenced to 40 months in federal prison today.
Birkenfeld helped turn Swiss Bank account secrecy's cachet -- at least for U.S. clients -- into 'cachet-less accounts,' the likes of which heads of state, terrorist leaders, and reputed drug traffickers have benefited from over the years. The United States settled a lawsuit with UBS this week over the bank's refusal to turnover a list of its U.S. client accounts, and the Swiss government agreed to help them divulge the identities of at least 4,450 clients without breaking Swiss law.
Exactly what did Birkenfeld give the feds in exchange for today's sentence?
For starters, an internal UBS AG memo (below) detailing how the company's Swiss bankers could tell their U.S. clients how they didn't have to file W-9's reporting their Swiss bank account income to the IRS (Note: the memo is best viewed in 'Full Screen' mode by clicking the square in the upper right-hand corner of the document below):
In contravention of U.S. law, a 2002 internal UBS memo advised UBS Wealth Management and Business Bankers with U.S. Clients that:
Under US securities regulations, trades effected in securities -- by a UBS portfolio manager with discretion from a bank office of a non-US bank outside the territory of the US -- should not trigger registration requirements under the US laws government brokers and investment advisors...
A 2002 letter that UBS sent to U.S. clients (p. 28 of the UBS Internal Memo) advised them that if they chose not to execute a W-9 form reporting their investment income to U.S. tax authorities, the bank would protect their identities from being revealed:
As you are aware of, UBS (as all other major Swiss banks) has asked for and obtained the status of a Qualified Intermediary under U.S. tax laws. The QI regime fully respects client confidentiality as customer information are [sic] only disclosed to U.S. tax authorities based on the provision of a W-9 form. Should a customer choose not to execute such a form, the client is barred from investments in US securities, but under no circumstances will his/her identity be revealed. Consequently, UBS's entire compliance with its QI obligations does not create the risk that his/her identity be shared with U.S. authorities.
Here is what Birkenfeld admitted in federal court that he did for UBS to help clients avoid paying their federal taxes to the IRS:
Birkenfeld signed a plea agreement with federal prosecutors over a year ago. You can read the former UBS banker's plea agreement here:
According to a Portfolio magazine article, here are some of the things that Birkenfeld did for UBS clients while he worked at the Swiss bank
He put cash and valuables, the documents stated, in Swiss safe-deposit boxes. He purchased jewels and artwork with funds from secret Swiss accounts. He misrepresented funds from clients' bank accounts as loans. He destroyed all records of clients' offshore banking.
He helped one of his U.S. clients, billionaire Igor Olenicoff, (referred to as 'IO'' in Birkenfeld's indictment below) avoid making payments to the I.R.S. -- at least until someone appeared to tell U.S. authorities about his holdings -- by placing hundreds of millions in UBS Swiss accounts. Olenicoff was later charged with illegally avoiding federal tax obligations through his Swiss bank account deposits. He pleaded guilty, received probation, and paid $52 million in fines to the I.R.S.
You can read Birkenfeld's original criminal indictment here:
In testimony before the U.S. Senate Permanent Subcommittee on Investigations earlier this year, a UBS executive acknowledged that UBS violated U.S. law, and took pains to apologize for what it said was "one small part" of the Swiss bank's operations:
...we deeply regret our breaches of U.S. law. I can honestly say that what took place in one small part of our business is not representative of the firm's culture or the values of the 78,000 UBS employees around the world.
But for his role in breaking through the veil of Swiss bank secrecy laws, Birkenfeld can only dream of being in the Alps while he's in prison during the next three years.
- UBS - U.S. Settlement: Swiss Bank to Identify at Least 4,450 Names, FindLaw (Aug. 19, 2009)
- Cachet-Less Accounts: Swiss Bank UBS Client Identities Likely to Be Revealed, FindLaw (Aug. 12, 2009)
- Tax Haven Banks and U.S. Tax Compliance, U.S. Senate, Permanent Subcommittee on Investigations (Jul. 17, 2008)
- Obtaining the Names of U.S. Clients with Swiss Accounts, U.S. Senate, Permanent Subcommittee on Investigations (Mar. 4, 2009)
- FindLaw's Tax Center
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