Switzerland Opens Criminal Investigation into Forex Scandal

Foreign exchange is a trillion dollar market. (Photo: Reuters)

Published 13 November 2014

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The Swiss prosecution says an undisclosed number of individuals are being investigated for violating banking laws, but no banks are being probed for criminal misconduct.

Several individuals are now under investigation by Swiss authorities in relation to manipulation of foreign currency exchange rates, prosecutors announced Thursday.

Authorities stated an undisclosed number of people are being investigated under suspicion of violating Switzerland's banking secrecy laws, and breach of trust, according to the Wall Street Journal. No details about the individuals have been released, though the prosecution says it's not looking into any banks.

The prosecution also said it's conducting the investigation alongside Switzerland's financial regulator, FINMA and has been in contact competition commission WEKO.

The latter is also conducting a separate probe into allegations a number of banks have colluded to influence forex markets.

The announcement comes on the heels of a group of some of the world's biggest banks being slapped with billions of dollars in penalties, in relation to an investigation into an international forex scandal.

After a 1.5 year investigation by regulators in the United States, United Kingdom and Switzerland, traders were alleged to have secretly collaborated online to maximize profits from forex exchanges since as early as 2009.

These traders allegedly met in chat rooms to swap private client details. In total, financial giants accused of failing to stop the traders including Citigroup, JPMorgan Chase, the Royal Bank of Scotland and UBS will all pay out US$3.4 billion. Since 2012, big banks have paid out over US$10 billion due to the scandal.

Two more major banks caught up in the scandal still have not settled. Barclays says it has not reached an agreement with regulators, while an investigation into Deutsche Bank is ongoing.

Banker walks free from $20bn tax evasion charges

Raoul Weil

Rory McDonough | 12/11/2014 

(CNS Business): Former head of UBS Raoul Weil has been acquitted by a US federal jury on all charges of conspiring with as many as 17,000 US taxpayers to abuse Swiss bank secrecy to hide $20 billion in secret offshore accounts. Jurors in a Fort Lauderdale, Florida, federal court reached their verdict after deliberating less than two hours. Prosecutors at the trial, which started on 14 October, had attempted unsuccessfully to convince jurors that the 54-year-old Swiss citizen was aware of and helped US clients with the concealment of $20bn of undeclared assets between 2002 and 2007, despite the testimony of former head of the wealth management division for the Americas at UB, Martin Liechti.

Weil, 54, who faced five years in prison, was indicted in 2008 on the charge and was arrested last year in Bologna, Italy, waiving extradition.

Weil, the former number three at UBS, jumped for joy and kissed his wife at the Florida court after jurors returned the not guilty verdict in 90 minutes, with the prosecution failing to show sufficient evidence that he had aided US citizens in hiding billions from authorities.

During the three week trial, Matthew Menchel, the defense attorney from Kobre & Kim, argued that Weil had no knowledge of the scheme to evade US taxes, noting that several US Government witnesses were testifying after receiving generous plea deals from the prosecution.

“There is no document to prove” any wrongdoing, Menchel, said during closing arguments. “There is no evidence in this case, none, zero, that Mr Weil knew about, much less participated or joined in, any criminal conspiracy in which low to mid-level bankers were violating the bank’s policies and laws and actively assisting customers in committing tax evasion.” He told reporters after the verdict: “This is a case that should never have been brought.”

Several of Weil’s former colleagues had already revealed the lengths to which UBS bankers went to avoid being caught, including using a computerized card game to mask secret, hidden laptop hard drives or handing over to a client thousands of dollar bills in interest, wrapped in a newspaper.

Liechti ended his first day of testimony by telling the jury about the 2002 closings of client booking centers in the Cayman Islands and the Bahamas because both had signed US agreements to exchange bank client information.

He also said the IRS had begun cracking down on credit card companies Visa Inc and MasterCard Inc to reveal the identities of card holders with offshore accounts. “It made the business unsustainable,” Liechti said. “A customer who has not disclosed income could be revealed.”

Liechti said Weil, who oversaw the Caribbean operations, was aware of the problem and signed off on his plan to move client assets out of the islands to Switzerland.

In a gamble that paid off, the defence chose to call no witnesses. Its lawyers cast doubt on the reliability of the government’s co-operating witnesses, accusing them of lying to save their own skins. They claimed that Weil was not aware of the rogue actions of his employees, despite accusations of his full awareness of financial exchanges that were against US law since 2002.

“The verdict shows you the difficulty of going after senior management who can at times blame the bank’s customers and lower-level employees for the bank’s mistakes,” Nathan Hochman, a former assistant attorney general who oversaw the Justice Department’s tax division, said of Weill’s acquittal.

Hochman said the prosecution’s use of cooperators implicated in the US probe may also have hurt its chances. “It’s difficult to prove a historical case beyond a reasonable doubt when the government heavily relies on witnesses who have received very favorable treatment,” he said.

Since 2009, more than 70 US clients and three dozen offshore bankers, lawyers and advisers have been charged with tax crimes. More than 100 Swiss banks and 43,000 US taxpayers applied to the US to avoid prosecution over offshore accounts. Credit Suise Group AG’s main bank subsidiary pleaded guilty and paid a $2.6 billion penalty.

As the former head of Global Wealth Management at UBS AG, Mr Weil is the highest ranking banker charged in a US crackdown on offshore tax evasion in which over 100 bankers, lawyers and advisors have been charged since 2008. According to the Wall Street Journal, “the verdict is being interpreted as a setback for the Justice Department’s crackdown on the aiding of offshore tax evasion in Switzerland. But it remains to be seen whether it will embolden the dozens of other Swiss bankers, lawyers and advisors who have also been indicted in the US in recent years to fight the charges against them.”

The acquittal comes as a second blow in less than a week for the Department of Justice’s pursuit of alleged enablers of tax dodging. Former senior vice-president of Mizrahi Tefahot, an Israeli bank, was cleared on 13 October by a court in Los Angeles of charges of helping Americans to cheat the Internal Revenue Service by preparing false tax returns. That case, too, rested on testimony from co-operating witnesses.

The defeat will unlikely dampen the US Justice Department’s crusade against the tax-shy. A Department of Justice spokeswoman said that the collapse of the case against Weil “will not impact the department’s ongoing commitment to holding offshore tax evaders and those who aid them accountable.”

Trial dredges up Swiss banks' shady past (Business Report)

Reuters.Former UBS banker Raoul Weil, who is on bail, arrives for his trial at federal court in Fort Lauderdale, Florida, October 20, 2014. Raoul Weil, 54, who headed wealth management at Zurich-based UBS until his indictment, is charged in a Fort Lauderdale federal court with helping thousands of US taxpayers hide up to $20 billion in assets in offshore accounts. Weil, facing up to five years in prison if convicted, is by far the highest-ranking Swiss banker to be charged in the United States. His trial culminates a more than 7-year battle with Switzerland on the abuse of its bank secrecy laws to help Americans avoid paying billions of dollars in taxes.

November 2 2014 at 01:48pm 
By Reuters

Fort Lauderdale, Florida/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 $20 billion (R221 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 US 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 US authorities in exchange for favourable 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 US 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 October 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 US 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 adviser Claude Ullman.

The adviser handed him roughly $50,000 in US 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 US individuals - who were jailed for not paying US 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 US charge of failing to report a foreign account to the Internal Revenue Service (IRS) in 2009, told the court one UBS client adviser, 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 US tax evasion cases.

UBS admitted to helping US taxpayers hide money and paid a $780 million fine in 2009, while Credit Suisse pleaded guilty in May to a US criminal charge and will pay more than $2.5 billion in penalties.

Since US 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 US 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 adviser 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 $104 million reward from the US 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 US criminal investigation and face serious penalties, while many more have joined a government-brokered programme 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 ($6.2 billion), according to a judicial source.

The bank also booked a near-$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 US Justice Department has charged more than 30 bankers and advisers 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 offence punishable by up to three years in prison and a fine of up to 250,000 Swiss francs ($262,000).

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