The long arm of American justice continues to bludgeon Swiss financiers who stand accused of aiding tax evasion; former UBS head of wealth management arrested

Swiss banks and tax evasion

Arresting developments

Oct 23rd 2013, 10:30 by M.V. | NEW YORK

THE long arm of American justice continues to bludgeon Swiss financiers who stand accused of aiding tax evasion. It emerged this week that Raoul Weil (pictured above), a former head of the wealth-management division of UBS, Switzerland’s largest bank, had been arrested on October 19th at a hotel in Italy, apparently while on holiday with his wife. He faces an extradition request from the United States, which branded him a fugitive after he failed to appear before authorities several years ago, leading to the issuance of an international arrest warrant. Mr Weil is the biggest fish to be netted since 2008, when America launched its brutal assault on tax-dodging citizens and those who assist them.

The crackdown has followed two paths. The first is to indict and catch individual bankers and lawyers who enabled tax evasion. In another coup for the Americans, earlier this year Edgar Paltzer, a partner with Niederer Kraft & Frey, a top Swiss law firm, pleaded guilty to conspiracy to commit tax fraud in a federal court in New York. Mr Paltzer confessed to having opened Swiss bank accounts in the names of corporate vehicles he formed for Americans, knowing they aimed to evade taxes.

The second track is to go after the banks themselves, using information squeezed out of these enablers. In 2009 UBS was fined $780m and handed over data on thousands of clients to avoid criminal charges. A dozen other banks, including Credit Suisse, Julius Bär and the Swiss arms of several foreign banks, remain under investigation. Most of the other 280 or so Swiss banks have an opportunity to wipe the slate clean under a recently announced Swiss-American accord, if they pay penalties of up to 50% of the rogue client’s account balance. Wegelin, Switzerland’s oldest private bank, closed its doors after the firm itself was indicted. Another venerable wealth manager, Bank Frey, recently said it too would cease operations—a move prompted in part by unwelcome prosecutorial interest.
Mr Weil faces up to five years in prison if he is extradited, which seems likely since Italy generally accedes to American requests for all but capital offences. He may choose to tell all he knows about how UBS helped its American clients, and who at the bank knew what about this offshore business, in the hope of receiving leniency—as several more-junior former UBS men have done. If he is extradited and provides testimony, it could cause problems for other former members of the bank’s top brass. They have denied knowing the details of how the bank’s cross-border wealth-management business was run.
The arrest will come as uncomfortable news for the handful of bankers and lawyers who have been indicted but remain at large in Switzerland, which doesn’t consider tax evasion a crime and won’t extradite suspects without their consent. They now face being trapped in their own country. They have long understood the potential perils of travelling to America. Now they have reason to fear making trips to neighbouring European countries.
Though America has offered most Swiss banks a way out of the debacle through its bilateral agreement with the authorities in Berne, it is likely to continue chasing egregious offenders. Under the accord, banks will have to turn over reams of information, including on employees who worked with American clients, on external advisers and on banks to which undeclared assets were transferred. The Americans refused to grant immunity to those named in the files.
Though Swiss bankers are firmly on the back foot, it is too soon to sound the death knell for bank secrecy and celebrate the dawn of a new era of tax compliance. The Swiss government recently announced its intention to sign the OECD convention on cross-border tax assistance, but this would have to be ratified by the parliament, which has shown itself to be less willing to make concessions. More importantly, the convention doesn’t require the automatic exchange of information, but rather exchange “on request”, which has proven ineffective (because, in a classic Catch-22 situation, the requesting country often needs much of the information it is seeking in order to put together a request that meets the requirements of the jurisdiction where the untaxed money is thought to be stashed). The Swiss are still opposed to automatic exchange.
Moreover, earlier this month the cabinet dropped plans to allow co-operation with other countries’ tax-assistance requests in cases where the data was stolen by whistle-blowers, after the proposal met with strong domestic political opposition. Weeks earlier, ministers had reiterated their view that Swiss criminal law should not be used to help foreign countries recover lost taxes or enforce any other economic laws. The Alpine country still offers its bankers protection—as long as they stay at home.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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