BANKING

Swiss banker Bradley Birkenfeld would do just about anything for the wealthy Americans who entrusted him with millions of dollars they wanted to hide from the Internal Revenue Service.

He'd help them set up phony companies to conceal their deposits. He'd give them credit cards to access their hidden cash. On one occasion, he converted a U.S. client's money into diamonds, then smuggled the gems across the Atlantic in a toothpaste tube.

Those actions, detailed by Birkenfeld in court documents, were part of a coordinated -- and illegal -- effort by his employer at the time, Swiss banking giant UBS, to help wealthy U.S. clients evade taxes. The scheme began unwinding in 2007 and reached a milestone this month when the IRS concluded an amnesty program in which more than 7,500 Americans voluntarily disclosed their overseas accounts.

Birkenfeld, 44, was at the center of a U.S. government crackdown that has all but eliminated the ability of Americans to conceal their wealth in offshore banks. A U.S. citizen, bachelor and the son of a Boston-area neurosurgeon, Birkenfeld spent 15 years working for banks in Switzerland, making a cozy living for himself and tax-free profits for his clients.

An avid skier, he owned a $1-million home in Zermatt, Switzerland, at the foot of the Matterhorn. He kept an apartment in Geneva, drove a luxury BMW and traveled throughout the world, according to interviews and court records.

When friends visited from the United States, Birkenfeld arranged large dinner parties at his favorite Geneva restaurants.

"Brad knew hundreds and hundreds of people all over the world," said David Schwedel, a Miami businessman who has known Birkenfeld for 15 years. "He's a great marketing guy, a good relationship guy. But isn't that the role of a private banker? Their job is to network. He was the ultimate networker."

Birkenfeld was one of about 60 bankers that UBS sent from offices in Geneva, Zurich and Lugano to the wealthiest enclaves of the United States, such as Newport Beach, Miami Beach and Manhattan.

To woo clients, the bank sponsored an array of events -- including art exhibits, tennis tournaments and sailing regattas -- at which Birkenfeld and other UBS bankers could rub elbows with wealthy Americans who might be looking for a place to stash their money, according to documents filed in federal court in Fort Lauderdale, Fla.

These Swiss-based bankers were not licensed to provide investment advice in the United States, so UBS instructed them to take precautions to avoid detection by U.S. regulatory authorities. It told them to falsely state on Customs forms that they were traveling to the United States for pleasure, not business, according to the court documents.

The bankers used encrypted laptops, numbered accounts and sham offshore corporations to conceal the names of their wealthy U.S. clients, federal prosecutors have alleged.

Birkenfeld has acknowledged that he told his U.S. customers how to avoid IRS detection. He told them to keep cash and jewelry in Swiss safety deposit boxes. If the U.S. clients needed to make a withdrawal by check, they were told to report the proceeds as loans from UBS. All paper banking records were to be destroyed.

Court documents from a series of recent cases identified steps that other Swiss bankers took on behalf of their clients. One unidentified UBS banker paid a $45,000 bribe to a Swiss government official to learn whether his U.S. client was under investigation. In another case, a Swiss banker sent his father to the United States to hand-deliver $5,000 cash to a client at John F. Kennedy International Airport in New York, according to court documents.

One key to Birkenfeld's success was his relationship with Igor Olenicoff, a billionaire Newport Beach real estate developer.

A Russian immigrant and member of the Forbes 400 list of America's most wealthy, Olenicoff made a fortune through his company, Olen Properties Corp., which operates apartment developments in Las Vegas and Florida and office parks in Orange County.

In 2001, Olenicoff traveled to Geneva and met with Birkenfeld to discuss transferring some of his wealth to UBS. In the months that followed, Olenicoff moved about $200 million to UBS, money he could access in the United States through credit cards that Birkenfeld provided him. The scheme helped Olenicoff avoid paying $7.3 million in taxes, prosecutors said.

Birkenfeld's relationship with the Swiss banking giant soured in 2005, four years after he joined the bank. The trouble started, Birkenfeld said, when he learned that UBS' secret dealings with U.S. customers violated an agreement the bank had reached with the IRS.

He resigned in October 2005, saying he was concerned the bank was violating U.S. law. A few months later, UBS informed Birkenfeld that it was not paying him a bonus he thought he had earned while employed by the bank.

In 2007, Birkenfeld went to Washington and told Justice Department officials something that had been suspected for years: UBS' private bank in Switzerland had helped Americans hide billions of dollars from the IRS. All told, prosecutors would later allege, UBS' private bank had $20 billion in deposits from U.S. clients.

The meeting spurred a massive criminal investigation that so far has led to the criminal prosecutions of UBS, three of its sales agents, a Swiss lawyer and seven U.S. citizens.

Among those prosecuted was Olenicoff, who pleaded guilty to filing a false tax return, was sentenced to probation and community service and agreed to pay $52 million in back taxes and penalties. An additional 150 people are already under criminal investigation, federal prosecutors recently disclosed.

The UBS case has shaken banking worldwide. To avoid prosecution, UBS agreed to pay a $780-million fine to the United States and to disclose the names of 4,450 of its U.S. clients. The announcement prompted thousands of Americans to voluntarily disclose their overseas accounts to the IRS.

The amnesty applications involved accounts held in 70 countries on every continent except Antarctica and prompted new concern about tax havens worldwide. Besides traditional hide-outs such as Switzerland, the Bahamas and Austria, Americans have broadened their search for secrecy to banks in Central America and Asia, the IRS says.

Birkenfeld, whose actions have dramatically changed the world of offshore banking, has declined interview requests. At a court hearing this year, he said he simply followed his employer's instructions in landing clients like Olenicoff.

"UBS recruited me and trained me, as well as my colleagues, and pressured and incentivized us financially to do this business without advising us of the consequences," he said.

Judgment day for Birkenfeld came in August, when he stood before a federal judge in Florida on tax evasion charges. He was sentenced to more than three years in prison. But Birkenfeld's day in court did not go without thanks from the United States.

"Without Mr. Birkenfeld walking into the door of the Department of Justice in the summer of 2007," Assistant U.S. Atty. Kevin Downing said, "I doubt as of today this massive fraud scheme would have been discovered by the U.S. government."

These days, Birkenfeld spends his time at his brother's Boston condominium, an electronic monitor strapped to his ankle. He is scheduled to begin serving his prison sentence in January.

Schwedel, the Miami businessman, said he believes the U.S. government has mistreated Birkenfeld.

"Without Bradley Birkenfeld, they would have had nothing. None of this would have happened," Schwedel said. "Meanwhile, everybody else gets set free and he gets to go to prison."

--

stuart.pfeifer@latimes.com

Copyright © 2019, Los Angeles Times
EDITION: California | U.S. & World
61°