UBS Tax Evasion Case Sheds Light on Swiss Secrets

Former UBS banker Raoul Weil
Former UBS banker Raoul Weil, accompanied by his wife Susan Lerch Weil, arrives at federal court in Fort Lauderdale, Florida October 23, 2014. Andrew Innerarity/Reuters

In the hush-hush world of Swiss private banking, some secrets are meant to be kept.

With the dramatic collapse of the U.S. government's showpiece criminal case against a former top Swiss banker on charges of conspiracy to help wealthy Americans conceal $20 billion offshore, the full story of how Swiss bank giant UBS, the world's largest private bank, sold offshore tax evasion services last decade is a good deal murkier. But the failed case, in which Raoul Weil, once the third-highest executive at UBS, was acquitted late Monday, produced some tantalizing leads.

Among them: the first public assertion by the Justice Department, via the lead prosecutor in the case, Mark Daly, that the global bank's former highest executives, namely former chief executive Marcel Rohner and former chief in-house lawyer Peter Kurer, were involved in the alleged scheme.

"Two or more people in some way agreed to try to accomplish a shared unlawful plan," Daly said in his closing argument against Weil on Monday in a federal court room in Fort Lauderdale, Fla., for which Newsweek obtained a rush transcript. "Who are those people? The Government submits they are Mr. Weil, the defendant, Marcel Rohner, the former CEO, Peter Kurer, the former general counsel, Martin Liechti, who testified before you," and other former UBS bankers.

Never mind that Rohner and Kurer, both Swiss citizens, have not been charged, and that Swiss citizen Liechti, a former top UBS private banker who once reported to Weil and was the prosecution's star witness, has enjoyed an immunity deal, requiring his cooperation with the Justice Department since spring 2008—a fact that Weil's defense lawyers used to their advantage.

While the Justice Department suggested in its 2009 landmark settlement with UBS—in which the bank averted indictment by agreeing to pay $780 million, admit to wrongdoing and disclose client names—that the very highest levels of the bank were involved in selling offshore evasion schemes, Daly's bombshell assertion was the first time the authorities publicly disclosed those senior names.

"I was very delighted to hear about the outcome of the trial," Kurer, who once chaired UBS's corporate responsibility and strategy committees and is now a partner at BLR & Partners, an investment firm in Zurich, tells Newsweek. "This is a great and well deserved relief for Raoul and his wife Susan. The verdict has brought the true facts behind this saga to light."

Marsha Askins, a UBS spokeswoman, declined to comment on the trial or verdict. Rohner did not respond to emailed requests for comment.

After Weil's not-guilty verdict, any potential case against Rohner or Kurer would likely face problems. The verdict "will have a negative impact on the prosecution of other Swiss bankers or banks," Larry Kemm, a tax lawyer in Tampa, Florida, tells Newsweek.

The eye-opening acquittal in an unusually short trial that lasted barely three weeks is widely viewed by tax lawyers in the United States and Europe as a massive and embarrassing blow to the Justice Department and its eight-year crusade to pierce the veil of Swiss private banking. "I'm in Switzerland now, and as you can imagine, there is a real sense that the Swiss have achieved some vindication and that the DOJ has a black eye," Kemm says.

Weil, 55, a silver-haired, impeccably dressed Swiss national who was extradited from Bologna, Italy, in October 2013 after being indicted in 2008, was the highest-ranking bank executive, foreign or American, to stand trial in the United States on charges of conspiring to defraud the Internal Revenue Service. Nearly six years to the day after he was indicted, it took the jury just 75 minutes to find him not guilty.

On another front, the not-guilty verdict complicates increasingly troubled efforts by the Justice Department to bring some 100 Swiss banks into a complicated disclosure program in which they can avert prosecution in exchange for turning over broad data on their offshore businesses with American clients and paying penalties. Last month lawyers for 73 of the banks surprised the federal agency by asking it to drop a requirement that the banks allow any disclosed information to be turned over to other U.S. enforcement agencies and to themselves give the information to foreign authorities.

Swiss laws governing the confidentiality of banks and their clients touch a deep nerve in the Swiss psyche, where secrecy is a national virtue. Switzerland is the world's top offshore asset location, with an estimated $2.3 trillion in assets, nearly one fourth of the world's hidden wealth.

Prosecutors had pinned their hopes on testimony against Weil, who once ran the bank's global wealth management business, by former associates and subordinates at UBS. But those star witnesses, notably Martin Liechti and Hansruedi Schumacher, appeared to do more harm than good, according to the rush transcript. (Trial transcripts are usually not made public until weeks later.)

Weil's lawyers, Matthew Menchel and Aaron Marcu, repeatedly asserted that Weil didn't know what underlings were doing to subvert U.S. tax laws. The lawyers questioned whether Liechti and Schumacher were sure of what they were asserting: among the claims, that Weil knew of UBS's efforts to help wealthy Americans evade taxes by setting up secret offshore entities that would conceal their ownership. But testimony by the two men regarding deliberations within UBS about what to do about an IRS bank-disclosure program that could get the bank in trouble with the Securities and Exchange Commission and the IRS appeared full of Swiss cheese holes.

"This man, Raoul Weil, had nothing to do with that, right?" said Menchel, recapping to jurors his prior questioning of Schumacher, according to the transcript. Menchel then quoted Schumacher, who headed UBS's account-concealing "cross-border" business for the United States from the late 1990s to 2002 and oversaw 15,000 secret accounts, as having said, "That's correct." The case, Menchel concluded, "doesn't get clearer than that."

It didn't help things that Schumacher is under a separate 2009 indictment for enabling tax evasion, in a case that has yet to go to trial—or that during the trial, according to court records, he received a form of immunity from prosecutors. Liechti was arrested in spring 2008 in Miami and detained for four months before securing an immunity deal with prosecutors.

A third witness against Weil, former UBS private banker Georg Marti, spilled plenty of secrets about the cloak-and-dagger techniques private bankers use to evade detection by the authorities, including hiding sensitive client data under a "Solitaire" game tab on a secret drive on encrypted laptops and coding computers with an emergency password that could instantly vaporize customer data if seen by the wrong person.

"This is the classic case here, a pyramid, and at the top are senior executives who have the power to grow or shut down this business," Daly argued in his closing argument. With code words and trickery, "They used every term but tax evasion."

But even the judge in the case, U.S. District Judge James Cohn, told jurors on Monday that "the government's burden of proof is heavy." A second government prosecutor, Jason Poole, appeared to unwittingly support that assertion when he told jurors in closing arguments that "Mr. Weil was at a very high level, he was an executive. No doubt most of the time he didn't dirty his hands" in what one prosecution witness, former UBS banker Georg Marti, called in testimony "the dirty business."

Nicole Navas, a DOJ spokeswoman, said Wednesday that "while we are disappointed in the outcome we respect the jury's verdict. However, this decision will not impact the department's ongoing commitment to holding offshore tax evaders and those who aid them accountable."

Others aren't so sure. Weil's acquittal "is the subject of much water cooler gossip," a senior tax lawyer in Washington, D.C., who requested not to be named because of his law firm's cases involving Swiss banks and their clients, tells Newsweek. "DOJ did a crappy job, apparently unaware of the harm that failure will cause to their agenda" of expanding its probe of Switzerland to other tax-haven countries. "What Hong Kong or Indian or Israeli bank is going to be intimidated by this Gang That Can't Shoot Straight?"

Correction: This article originally incorrectly stated that Hansruedi Schumacher was arrested in Miami in 2008. Martin Liechti was the person arrested in Miami in 2008. Prosecutor Jason Poole was also originally incorrected named as James Poole.