Cracking the Vault

Among the very rich, it's known as "the nut." That's the amount of money they need to salt away for a "rainy day"—for when the bubble bursts or the subpoenas arrive. It's enough money to keep paying for, say, the grandkids' private-school tuitions or the landscape gardener on Martha's Vineyard. ("Every Master of the Universe knows the number," wrote "The Bonfire of the Vanities" author Tom Wolfe.) Usually, the money is invested in something safe, such as T-bills. But sometimes it's sent, as they say, "offshore," stashed away in what one Swiss bank described as a "posterity fund."

Just how many rich people, and how much money? According to a recent U.S. Senate investigation, a single Swiss bank—the biggest, UBS—holds the secret bank accounts of 46,000 Americans, worth an estimated $18 billion. Lately, the Feds have tried to crack down on these rich Americans as tax evaders (generally, the depositors do not pay any taxes on the income from these accounts). The Swiss, not surprisingly, have been resisting. For more than three centuries, Swiss bank secrecy has offered safe haven to the wealthy, some of them unsavory types—Nazis, dictators such as Saddam Hussein and, allegedly, Islamic terrorists. At a time when the rich are coming under close and unsympathetic scrutiny, the details starting to come out about the way the Swiss banking game is played are eye-popping, if not infuriating. Judging from documents and testimony examined by NEWSWEEK, Swiss bankers, like spies, practice what is known in the espionage business as tradecraft—elaborate and often clever steps to evade detection. Last month UBS issued a statement saying, "UBS sincerely regrets the compliance failures in its U.S. cross-border business that have been identified by the various government investigations in Switzerland and the U.S., as well as our own internal review." Translation: the Swiss bank was running a shadowy operation to help rich Americans get their money out of the country, and sometimes back in, without the Feds finding out.

The story is best told through the misadventures of an extremely rich American businessman named Igor Olenicoff and his dealings with an American-born Swiss banker named Bradley Birkenfeld, whose name seems to come from a Hollywood story treatment, along with some of the tales he has been telling, like smuggling diamonds in a tube of toothpaste.

Olenicoff is the 522nd-richest man in the world, according to Forbes magazine. A white-haired, courtly-looking 66-year-old, Olenicoff had a close relative who was a courtier to the last Russian tsar, Nicholas II. His family fled the communists with some help from the daughter of Leo Tolstoy, who used

her fortune to aid the tsarist diaspora. Educated at the University of Southern California, Olenicoff worked in the pop-music industry as an executive for Motown Records, then made a bundle—more than a billion dollars—in commercial real estate in Orange County, Calif. and in Florida. In the late 1990s, worried about the stability of American banks, he says, he began moving some of his money offshore, first to Barclays Bank in the Bahamas, then to UBS in Switzerland.

In an interview with NEWSWEEK, Olenicoff told how he was lured to UBS by Birkenfeld, whom he describes as smooth and well-spoken. He says Birkenfeld arranged for him to get the secret tour: the elevator ride into the vault five floors below street level in the elegant UBS bank building in Geneva (impregnable to bombs!), the thumbprint, the facial-image-recognition software. Olenicoff says he was a little skeptical of the high-tech mumbo jumbo, but he was impressed by the UBS officials. Over time, he put into UBS accounts $200 million worth of assets, some of which were held in opaque corporate entities in Liechtenstein. He got the royal treatment there: a stay in the guesthouse of Prince Hans-Adam, at the time the ruler of the tiny principality in the Alps, where he was shown portraits of some of the royal family's most famous friends, including photos autographed by Cary Grant and Doris Day.

Olenicoff says that he was assured the setup was all perfectly legal under U.S. tax law. (This may be, though one wonders if someone as sophisticated as a billionaire with access to the best lawyers and accountants wouldn't have raised a few questions about the tax consequences.) In any case, his suspicions were more than raised when the IRS subjected him to an aggressive audit in 2004—and indicated it had seen copies of his UBS bank statements. Olenicoff immediately questioned how the Feds knew so much about his supposedly secret holdings. He says he suspected that he had been ratted out by the man who had brought him to UBS in the first place.

Bradley Birkenfeld, in his mid-40s, is a mysterious figure. Recent photos are hard to come by. Based on a court appearance last year, Portfolio magazine colorfully described him as "a bloated, tan version of Jim Cramer, if the 'Mad Money' host had lost his manic energy." The son of a successful neurosurgeon in Boston, Birkenfeld was a bit of a bad boy in high school, where he was busted for drugs, Portfolio reported. His parents packed him off to Norwich University, a military school in Vermont, presumably to learn some discipline. He appears to have migrated to a posh and not-too-demanding business school in Switzerland, then into the world of Swiss banks, where he thrived. Before long he had a BMW and a chalet in Zermatt.