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News : US Economy Last Updated: Nov 5, 2014 - 8:38 AM

Swiss bankers await fallout of US tax evasion acquittal
By Matthew Allen, swissinfo.ch
Nov 5, 2014 - 8:35 AM

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Former top executives at UBS might be sleeping a little easier after Raoul Weil was cleared by a Florida jury on Monday of running a tax evasion racket at the Swiss bank. But what are the ramifications of this verdict on other banks and individuals?

Despite Weil refusing to call any defence witnesses, the jury took just 75 minutes to acquit the former UBS head of wealth management of helping US citizens defraud the Internal Revenue Service (IRS). The verdict is a major blow for the Department of Justice’s (DoJ) seemingly unstoppable campaign of convicting tax cheating suspects.

After UBS was fined $780 million (CHF747 million) in 2009 for helping US clients evade taxes, Wegelin bank was brought down by a DoJ prosecution and Credit Suisse was forced to cough up $2.8 billion earlier this year.

As Weil prepared to stand trial three weeks ago, speculation was rife that a conviction could spell trouble for even higher ranked UBS bosses. This included Peter Kurer, former chief counsel and chairman, and Marcel Rohner, who headed the wealth management business before Weil.

This was always unlikely, according to Peter V Kunz, professor of international law at the University of Bern. Kunz is unconvinced that the DoJ ever had other top executives in their sights as they were too far removed from day to day activity to prove that they knew what all their staff were up to.

“I think the DoJ would have been happy to get the number three ranked executive at the bank [Weil],” Kunz told swissinfo.ch. “The higher up the management chain you go, the harder it is to find documentary evidence that links them to the client.”

The Florida court defeat was especially embarrassing for the DoJ as they had given lower ranked UBS employees sweetheart deals that spared them prosecution in return for giving evidence against Weil. Chief among these was ex-UBS head of wealth management Americas, Martin Liechti, who the DoJ once had in their grasp and might have been more straightforward to prosecute.

Extraditions urged

UBS itself can also breathe a sigh of relief, according to Kunz, as the court proceedings did not reveal any new evidence showing the bank in an even worse light than previously known. This removed the last vestige of doubt that UBS’s tax evasion legal issues in the US are over.

But if the bank and its upper echelons are now in the clear, what about the 30 or so bankers, lawyers and financial advisors currently hiding in Switzerland having been indicted by the DoJ? The case of Weil highlights just how perilous their situation is. Weil was a fugitive from US justice for four years before being arrested in Italy and extradited to the US.

In March, influential US Senators John McCain and Carl Levin urged the DoJ to extradite suspects who have already been indicted.

“The US prosecutors will not be happy with this slap in the face from the Florida jury and the breakdown in image,” said Kunz. “They will redouble their efforts to put Swiss bankers behind bars.”

But Milan Patel, a Zurich-based lawyer who advises Swiss banks involved in the US tax evasion process, believes the time is right for the DoJ to re-evaluate its strategy, particularly the strength of the evidence it thinks it has against individual bankers.

“They might realise that they are not on such a great vacation as they thought they were,” Patel told swissinfo.ch. “Now they might have to start negotiating more openly with suspects rather than assuming that every Swiss banker is a criminal.”

Learning lessons

Geneva-based lawyer Douglas Hornung goes even further, opining that the DoJ will have to completely backtrack given the humiliating Florida verdict.

“We all know that this was a test case for the US authorities,” Hornung told swissinfo.ch. “This acquittal is a major drawback for the stated US policy of prosecuting wrong-doers, not just bank executives but also ordinary employees and third parties.”

“If they can’t even prosecute the big fish successfully then this is logically good news for the smaller fish. We can expect this policy to be changed, if not totally abandoned.”

The failure of the DoJ to successfully prosecute Weil has failed to generate as much excitement in the US as in Switzerland.

While the case has clearly been a setback for prosecutors, it will hardly deter them from trying again, according to former DoJ tax division assistant attorney general-turned defence lawyer Nathan J Hochman.

“The DoJ wins 90% of its cases, but it is always tough going after senior management who can blame their employees or clients,” he told swissinfo.ch.

“The DoJ is very good at learning its lessons and they will not make the same mistake again. They will make sure they proceed from a stronger standpoint the next time they engage in trials.”

“They do not want to lose another case. So we will probably see the DoJ going after fewer, but stronger cases in future.”

Stay in or opt out?

Also involved in the Swiss-US tax evasion intrigue are 14 banks being actively investigated and around 100 others who enrolled on a non-prosecution programme in exchange for revealing their US business activities.

Kunz does not believe that the Weil verdict will have any bearing on the way the DoJ conducts its dealings with these banks in future. But Patel thinks that some banks who were frightened into joining the scheme late last year could decide to opt out having seen the DoJ lose some of its teeth.

Some banks have indeed dropped out already and 73 of those remaining in the scheme recently sent a letter to the DoJ to protest certain conditions being imposed on them.

“Many banks made rash decisions in December and jumped into the programme before they looked,” Patel said. “Had the Weil verdict taken place this time last year then they might have paused for thought. If the terms of the programme do not become more reasonable then we might see more banks drop out.”

In the meantime, Weil will return to Switzerland something of a hero having slain the DoJ beast. Swiss parliamentarian Ruedi Noser tweeted: “Raoul Weil, a banker with backbone. Thank you Mr Weil, your courage is important.”

Raoul Weil

Swiss national Raoul Weil, 54, enjoyed a stellar career at UBS, having first worked for the Swiss Banking Corporation before it was merged into UBS. Between 2002 and 2007 he was head of UBS’s international wealth management unit. In July 2007 he was promoted to chairman and chief executive of the bank’s global wealth management and business banking business. In November 2008, Weil was indicted by a Florida court for his alleged role in helping UBS US clients evade taxes. The charge sheet stated that the bank helped to conceal the identity of some 17,000 clients that held around $20 billion in assets at the bank.

Weil left UBS and was declared a fugitive from US justice by a Florida court in January 2009. In 2010, Weil joined the canton Schwyz-based Reuss Private Group, first as a consultant and then as chief executive of the financial consultancy group in 2013. After being arrested in Italy in October 2013, Weil was extradited to face a Florida court where he was acquitted by a jury on November 3.

Days earlier in an unconnected case, a Los Angeles jury dealt the DoJ another blow by acquitting Shokrollah Baravarian, a former executive Israel’s Mizrahi Tefahot Bank, of tax evasion offences.

© Copyright 2011 by Finfacts.com

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