A former senior private banker at Swiss bank UBS (UBS), who is accused of helping wealthy clients evade U.S. taxes, is expected to plead guilty, according to a document filed on May 29 in U.S. District Court in Florida.
Bradley Birkenfeld's indictment earlier this month, along with an alleged co-conspirator, Mario Staggl, a specialist in trusts who is believed to be in Liechtenstein, has been widely viewed as part of a widening investigation by U.S. authorities into practices and other personnel at UBS (BusinessWeek.com, 5/23/08).
Birkenfeld is expected to enter his plea on June 9 before District Judge William Zloch in Fort Lauderdale. "Please advise your client Judge Zloch will ask for a full confession," states a notice of a change of plea attached to Birkenfeld's case file on May 29. A defendant is not considered guilty until a judge accepts a plea. Birkenfeld's lawyer, Peter Raben, who is on a cruise, could not be reached for comment.
Washington insiders and close observers of the U.S. Internal Revenue Service's enforcement activities, such as tax lawyers whose wealthy clients park and shuffle assets in offshore accounts, anticipate a broader crackdown on people who believe they can stash money overseas, away from U.S. tax collectors.
A Birkenfeld friend and current investment partner, David Schwedel, also could not be reached, though he has told BusinessWeek he believes prosecutors misjudged his friend. He says the indictment was only a first step and indicated that other UBS heads may roll. "This is not an isolated incident," says Schwedel, a Florida entrepreneur. "He won't be the last banker called in for questioning. There will be a lot of bankers called into this. They're going after others at UBS and any U.S. individuals involved with the bank."
Clouds on the Horizon
Among the world's biggest money managers for the rich, UBS stopped offering private banking to wealthy U.S. clients in January, and a number of private bankers have left the institution looking for other jobs. More recently, the bank reportedly offered some of them lawyers and urged them to avoid traveling to the U.S., an indication perhaps of concern that they could be detained.
In April authorities detained as a "material witness" a UBS chief of private banking, Martin Liechti—Birkenfeld's former boss. Even more troubling for customers, perhaps, is an anticipated expansive subpoena seeking information on other clients of Birkenfeld, Staggl, and UBS.
These have been tough times for UBS, which lost—and wrote down—$37 billion as a result of the subprime mortgage crisis. No other bank is believed to have been so severely affected. First-quarter losses: around €7 billion ($11 billion).
A $200 Million Tax Haven
Bank executives appear eager to move forward. "I definitely think the worst is behind us," CEO Marcel Rohner told the Swiss newspaper Le Temps on May 29, according to a report by Agence France-Presse. "There will certainly be plenty of things for banks to clear up over the next two years but as far as systemic risks are concerned, we've got over the hardest part." Rohner also told the newspaper that he blamed UBS's "imitation strategy" of trying to "catch up with our competitors in fixed income operations."
Rohner, in the Le Temps interview, noted that "we mentioned the American investigation in our quarterly report but we're not going to make another comment on the subject."
A wealthy client of Birkenfeld, Igor Olenicoff, has pleaded guilty to filing false tax returns and agreed to pay $52 million in back taxes. Both Olenicoff and Birkenfeld, the son of a brain surgeon who was born in Boston and lives in Switzerland, are believed to be cooperating in a continuing investigation. The case began with the discovery of $200 million allegedly concealed in European tax havens on behalf of Olenicoff, a Russian émigré-turned-California real estate developer.