The courtroom victory of the only Swiss banker to beat the U.S. in a trial over offshore tax evasion may embolden other indicted financial workers to leave a legal limbo some have endured more than five years.
Twenty-five offshore bankers, lawyers and advisers have yet to answer U.S. Justice Department charges that they helped Americans evade taxes. Most live in Switzerland, where they remain off-limits to U.S. prosecutors because the country doesn’t extradite people for tax crimes. If they cross the border into another country, they risk arrest, and the U.S. charges have no expiration date.
Raoul Weil, 55, the former head of wealth management for UBS Group AG, was in similar straits until he was arrested in Italy last year after his indictment in 2008. After two months in an Italian jail, he waived extradition and went to the U.S. to face a charge that he conspired to help thousands of U.S. clients use Swiss banking secrecy to evade taxes.
Last month, after a three-week trial and almost a year of house arrest, Weil was acquitted by a Florida jury that needed only 85 minutes to deliberate. The verdict was a swift rebuke of a case against the highest-ranking offshore banker charged since the U.S. began cracking down on tax evasion in 2008.
A lawyer who defended Weil said his client’s victory may temper the zeal of prosecutors.
“It’s never easy to defeat the U.S. government,” Matthew Menchel, an attorney with Kobre & Kim LLP in Miami, said in an interview in Geneva. “The DOJ is going to be more careful scrutinizing its evidence before deciding to bring charges against someone.”
‘National Hero’
Weil’s compatriots were cheered by his court victory, with Geneva financial newspaper L’Agefi calling him a “national hero” of “remarkable courage.” His success may tempt others to take their chances with a jury or to plead guilty and help prosecutors in bids for leniency.
They include former employees of Switzerland’s top three wealth managers — UBS, Credit Suisse Group AG and Julius Baer Group Ltd. Just 10 days after Weil’s acquittal, Martin Dunki, a 66-year-old retired client adviser at Zurich-based Rahn & Bodmer Banquiers, a private bank established in 1750, was indicted on a charge of conspiring to help Americans hide hundreds of millions of dollars in offshore accounts.
Menchel said the Weil case was built on lies told by former UBS bankers who implicated him to avoid prison. Prosecutors argued that Weil knew UBS bankers had used deception, sham corporate structures and cash deliveries to help U.S. clients cheat the Internal Revenue Service.
Year’s Confinement
“I was acquitted, but that was after two months in prison and then 10 months under house arrest,” Weil was quoted as saying in an interview published in Swiss newspaper NZZ am Sonntag on Nov. 9. “They wanted to soft-boil me.”
Weil’s acquittal was a setback for the Justice Department’s goal of holding more top managers accountable for crimes committed by their banks. The agency is under pressure to prosecute offshore bankers, as well as those involved in rigging interest rates and currency markets, according to Patrick O’Donnell, a white-collar criminal-defense lawyer at Harris, Wiltshire & Grannis LLP in Washington.
“The U.S. seems to bring far more extraterritorial cases than any other country, and the trend is growing,” O’Donnell said. “Congress has been howling for the heads of executives.”
38 Charged
Weil was one of 38 offshore bankers, lawyers and advisers charged in the U.S. since 2008 with crimes related to helping Americans evade taxes. Of those, seven pleaded guilty, two were convicted at trial, two await trial and two were acquitted, including Weil.
Jury foreman Howard Farber, a 69-year-old retired insurance agency owner, said prosecutors failed to link Weil to the criminal conduct of his subordinates. Five ex-UBS bankers or managers testified against Weil. They included three who secured deals to avoid prosecution, one under indictment and one who pleaded guilty. That banker, Renzo Gadola, was sentenced in 2011 to five years’ probation and moved back to Switzerland.
“There was really no proof that went directly to Weil,” Farber said by telephone in his first public remarks since the trial. “We all felt that the government overstepped its bounds. They really should not have gone after him.”
Menchel assailed the credibility of the former bankers who cooperated with the government, particularly Hansruedi Schumacher, an ex-UBS and Neue Zuercher Bank AG manager indicted in 2009, and Martin Liechti, ex-head of cross-border banking at UBS. The questioning resonated with jurors.
‘Most Culpable’
Those most culpable were “the ones who turned state’s evidence, Schumacher and Liechti,” Farber said. “On cross- examination, Liechti was so evasive that he would never really answer questions that were asked of him. He talked of meetings he had with Weil, but there was no documentation whatsoever.”
Menchel said last month, “The Justice Department may have gotten comfortable that any banker they charged would just roll over. They shouldn’t take it for granted that any Swiss banker will give in and seek a plea bargain.”
At future trials, prosecutors may have a hard time proving a connection between client advisers who knowingly broke the law and their senior managers, unless there’s a “smoking gun” that shows the supervisors had knowledge, according to Milan Patel, a lawyer with Anaford AG in Zurich.
Most of those under indictment, including former bankers at Credit Suisse and Julius Baer, were client advisers or heads of teams of employees, rather than senior executives at Weil’s level.
Making Deals
“Client advisers who committed egregious offenses are probably trying to cooperate and strike a deal with the Justice Department,” Patel said. “Bankers fear coming to the U.S. because the DOJ can detain them on arrival pending trial. Therefore, walking around freely in Switzerland may be a more appealing option, even if the charges remain unresolved.”
Stefan Buck, who was Bank Frey & Co.’s head of private banking, was indicted last year in New York. His lawyer filed a motion seeking bail without Buck’s first having to appear in a New York courtroom. Buck ultimately “wishes to leave the ‘safe haven’ of Switzerland to appear in a U.S. court to clear his name,” the filing said. Prosecutors oppose his bail motion, which is pending.
Josef Dorig, who founded a Swiss trust company after working 36 years at Credit Suisse, pleaded guilty in April, admitting he created phony structures to help clients cheat the IRS. Dorig, 72, cooperated with U.S. prosecutors and is slated for sentencing Jan. 16 in federal court in Alexandria, Virginia.
Probation Sought
In a pre-sentencing memorandum filed with the court, his lawyers said he deserves probation because he accepted responsibility and was not extraditable from Switzerland.
“Mr. Dorig had absolutely no incentive to voluntarily enter the United States to answer the charges against him or cooperate with the government,” his lawyers wrote. “He easily could have stayed in Switzerland and lived the rest of his life peacefully and happily in his homeland. But he did not.”
The U.S. probe has benefited from voluntary disclosures by at least 45,000 taxpayers and more than 100 Swiss banks seeking to reduce penalties through non-prosecution agreements. Information passed to U.S. authorities contains thousands of employee names, according to Douglas Hornung, a Geneva-based lawyer who represents Swiss financial workers.
“Weil’s acquittal was far from good news for bank employees lower down the food chain,” Hornung said. “After losing face in court in November, U.S. prosecutors will redouble their efforts to pursue smaller fish.”
The Weil acquittal doesn’t lessen the Justice Department’s commitment to holding offshore tax evaders and those who help them accountable, a spokeswoman, Nicole Navas, said.
UBS was charged in 2009 with conspiracy and avoided prosecution by paying $780 million and admitting it helped Americans evade taxes. In a landmark blow to Swiss bank secrecy, UBS handed over information on about 4,700 accounts.
