Wednesday, March 25, 2009

Cracking the Vaults

Cracking the Vaults of NSA, CIA, MOSSAD, MI6, BND, DGSE.....

With help from a former UBS banker, the Feds are demystifying how the
Swiss do business. Inside the tradecraft....and the statecrafts....

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

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.

Birkenfeld's job, it seems, was to fish for rich American clients.
According to testimony he gave to Sen. Carl Levin's permanent
subcommittee on investigations, which has been looking into UBS,
Birkenfeld was a member of a big team ("around 25 people in Geneva, 50
people in Zurich and five to 10 in Lugano . a formidable force") of
wealth prospectors. These "private bankers" would travel to the United
States four to six times a year. "You might go to sporting events. You
might go to car shows, wine tastings," Birkenfeld told the
subcommittee. "You might deal with real-estate agents. You might deal
with attorneys . It's really where do rich people hang out, go and
talk to them . It wasn't difficult to walk into a party with a .
business card, and then someone ask[s] you, 'What do you do?' and you
say, 'Well, I work for a bank in Switzerland, and we manage money and
open accounts.' And people immediately would recognize, 'Oh, this is
someone who could open new business by opening accounts'." UBS did its
part to foster such potentially profitable interchanges by sponsoring
fancy events such as Art Basel, an annual major art show in Miami;
performances in big American cities by the UBS Verbier Festival
Orchestra, an ensemble of young Swiss virtuosos; and yachting regattas
at which an elite Swiss boating team called Alinghi competed.

But UBS wanted prospectors such as Birkenfeld to be careful-to act, it
seems, more like spies than bankers. A September 2006 UBS document
cautions its bankers to "always maintain 'clear desk policy' in hotel
rooms; use secure infrastructure (travel notebook, PDA); be aware that
cell phones are prone to eavesdropping; cross borders without client-
related documents." Other documents warn UBS bankers what to do if
approached by the FBI: protect bank secrecy.

Birkenfeld told investigators UBS bankers would encourage their
clients to misrepresent money transfers they received from UBS as
loans, rather than taxable income; to destroy offshore banking records
in U.S. files; and to use Swiss bank credit cards that supposedly
could not be discovered by U.S. investigators. Birkenfeld took his
client service into the realm of James Bond: he says he once
transported diamonds, bought with client money abroad, into the United
States in a tube of toothpaste.

Somewhere along the way-it's not clear when or how-Birkenfeld turned
state's evidence. Documents indicate that he left UBS in 2005; the
reason he reportedly gave was that he suspected his employer of
illegality. On the bank's internal computer network, he discovered an
incriminating document-a set of instructions that U.S. investigators
now believe was part of UBS's tradecraft manual for bank
representatives serving American clients. Birkenfeld may have already
been talking to the authorities by then. In any case, he was caught in
a difficult spot. Entering the United States last spring to attend his
25th high-school reunion, he was arrested by the Feds. Later he
pleaded guilty to conspiring with Olenicoff to hide millions from the
IRS in Switzerland and Liechtenstein. He has been cooperating with
investigators in an effort to stay out of jail; he is due to be
sentenced next month. Having been outed as a whistle-blower, he is in
trouble in Switzerland, too: if he ever sets foot in his adopted
country, he would likely face arrest and a lengthy prison term for
violating the strict Swiss bank-secrecy laws. (Birkenfeld's lawyers
declined to comment.)

The Feds have subpoenaed all of UBS's records on Americans with secret
bank accounts. Threatened with criminal charges, UBS has admitted
violating U.S. law, paying $780 million in a settlement and offering
banking data on about 250 clients. But the bank has said that Swiss
law forbids it to turn over information about the thousands of other
secret accounts. Nonetheless, UBS told its American clients to close
their accounts and take their money elsewhere. Conservative
politicians in Switzerland have railed against what they say is a
fishing expedition that violates Swiss banking laws and Swiss
sovereignty. Bank secrecy is a point of cultural pride for the Swiss,
and so the controversy seems unlikely to abate any time soon.

The Swiss government and Switzerland's tiny neighbor Liechtenstein are
facing heavy scrutiny. Since 1945... both countries have tried to
cooperate with intelligence services tracking MI6/CIA/MOSSAD terrorist
and western false flag and clandestine covert operations and their finance
networks.... As the global economy melts down and public anger rises, the
old ways of bank secrecy will become increasingly hard to defend (even
as the wealthy look for safe places to hide their money). Last week,
the governments of both Switzerland and Liechtenstein announced that
they would share more tax-related information with foreign
governments, but the Swiss still declared that "Swiss bank secrecy is

And as for Olenicoff? He had to pay $52 million in back taxes and
penalties, but, according to Forbes, he is still worth $1.4 billion-a
big enough nut for any Master of the Universe....

"Swiss Talk Tough In Banking Battle"

"Blacklist Threat Looms Over Tax Havens"

BERN, Switzerland -- This country may be politically neutral, but the
Swiss are girding for battle to protect one of their most cherished
values: banking secrecy.

This week, when the world's economic powers meet in London to address
the global financial crisis, the agenda will include a crackdown on
tax havens -- places such as Switzerland, where tax-dodging investors
can safely and anonymously hide their assets.

Swiss lawmakers and bankers, despite making recent concessions on tax
policy, are worried about being placed on a blacklist or slapped with
sanctions. Even worse, they fear that investors could panic and
withdraw some of the estimated $2 trillion in foreign assets deposited
here, threatening the economic fabric of the Alpine nation.

President Hans-Rudolf Merz, who is also the country's finance
minister, predicted a domestic political revolt if Switzerland is
blacklisted. "This would cause very, very violent reactions in our
country," he said in an interview in Bern, the capital. "People here
would consider it a humiliation."

Unlike in most countries, tax evasion is not a criminal offense in
Switzerland. The confidentiality of financial transactions is strictly
protected, with bankers obligated to safeguard information about their
customers, akin to attorney-client privilege in the United States.

Banking secrecy is such an integral part of the national character
that the normally peaceful Swiss turn to combative rhetoric if they
sense a threat. Merz compared the Swiss right to secrecy to the Second
Amendment to the U.S. Constitution, which guarantees the right to bear

"We have a tradition of privacy. I don't want the state to sniff into
my bank accounts as long as I'm paying my taxes correctly," he said.
"I personally feel that we are mature persons and we behave in a
reasonable way, and as long as we do so, we should not be followed by
state authorities, like George Orwell described in '1984.' "

Swiss officials have taken what they consider revolutionary steps to
avoid being named on the tax-haven blacklist.

On March 13, the government announced it would yield to pressure from
the United States, Britain, Germany and France by adopting a model tax
convention drawn up by the Organization for Economic Cooperation and
Development, a group of 30 leading democracies.

The tax code would require Switzerland to share banking records with
other countries when individuals are suspected of tax evasion at home,
something the Swiss have refused to do for years.

Tax evasion -- failing to declare income or assets -- is a civil
offense in Switzerland. It is viewed in the same light as jaywalking:
a commonly overlooked offense that can result in a fine if you happen
to get caught.

Switzerland does supply bank records to other countries in cases of
tax fraud, a criminal offense that involves actively lying to
authorities, instead of just neglecting to report income. Few other
countries recognize the distinction, however, and had prodded the
Swiss for years to cooperate more.

The Swiss government's announcement that it had changed its mind on
tax evasion prompted a fierce political backlash, with some
legislators accusing Merz and his cabinet of betrayal and even
treason. But most political parties and commentators have grudgingly
gone along, arguing that Switzerland had little choice, particularly
after places such as Singapore, Luxembourg and Liechtenstein -- long
considered tax havens -- agreed to similar changes.

"The world has had enough of con artists," Bernhard Weissberg, editor
in chief of Blick, a popular Swiss tabloid, wrote in a recent column.
"And the big countries have had enough of the little wiseguy
countries, whether they are called Andorra, Luxembourg or

Many lawmakers and bankers said that pressure had been building for
years on Switzerland but that the global financial crisis gave other
countries an excuse to turn the screws.

"We're in an economic war," said Pierre Mirabaud, chairman of the
Swiss Bankers Association. "The whole question is about dividing
market share among important financial centers. When the whole cake
becomes smaller, the fight among financial centers becomes more

Mirabaud said most investors who have shifted assets to Switzerland in
recent years were attracted by the country's political stability and
financial expertise, rather than its tax advantages.

"Secrecy ranks higher psychologically than in reality," he said.
"Every financial center needs a very predictable environment. When
conditions change, people get a little bit nervous. That's the same in
every country. But tax secrecy is very much overrated."

Switzerland adopted its banking-secrecy law in 1934, a time when
Europe was beset by political turmoil and many investors needed a safe
and anonymous place to hide their assets. Swiss bankers did not
moralize; they accepted deposits from the Nazis as well as from Jews
fleeing persecution.

Domestic support for banking secrecy has been tested over the years in
Switzerland. Leading banks were embarrassed by disclosures in the late
1990s that they managed dirty money for African tyrants and concealed
assets belonging to Holocaust victims.

Last month, Switzerland's largest bank, UBS, agreed to pay $780
million to settle a criminal case brought by the U.S. Justice
Department, which accused UBS of conspiring to help 17,000 Americans
hide billions of dollars in assets.

UBS also agreed to hand over records of 250 account-holders suspected
of fraud. But the bank is resisting a subsequent request from the IRS
for details on 52,000 other anonymous accounts.

Surveys show that about three-quarters of the Swiss public support
banking secrecy. A similar percentage, however, say they do not
approve when the law is exploited to avoid paying taxes.

Stefan Hostettler, political secretary for financial issues for the
Social Democratic Party, said the findings show that Swiss voters have
never really come to terms with the issue.

"They say, yes, we want that foreign money and big banks, but we don't
want anything to do with the tax criminals and dictators putting their
money in Swiss banks," he said. "There's a feeling among the Swiss
people that this money is the basis of our wealth, so we're not going
to ask too many questions about it," he added.

It remains unclear whether things will really change in Switzerland.
The government has said it needs to renegotiate taxation treaties with
70 other countries, starting with the United States and Japan, before
it shares data on tax evaders. After that, at least some of the
treaties will be subject to a national referendum, a common but time-
consuming feature of the Swiss political system.

Swiss officials are demanding that other countries make concessions as
well. For example, they want changes to laws in Delaware that give
preferential tax treatment to large corporations and can shield
investors' identities, as well as laws that have created tax havens in
Britain's Channel Islands and overseas territories.

Hans Kaufmann, a federal legislator and member of the Swiss People's
Party, said Switzerland will take a hard line. If the country does not
get its way, he said, it could withdraw financing from the
International Monetary Fund or European institutions.

"If we are not an acceptable state, I do not see why we should spend
taxpayer money to support countries that destroy Swiss jobs," he

Regardless, the vast majority of tax evaders can probably rest easy,
said Urs Behnisch, a law professor at the University of Basel.

Under the new tax agreements, the IRS and other foreign tax
authorities will probably be required to furnish the identities of
suspected tax evaders, the names of their banks and hard evidence of
wrongdoing before Switzerland coughs up any records. That almost never
happens, Behnisch said, except in cases in which investors are
betrayed by angry spouses or business partners.

"As long as you do not ask that your bank statements are mailed to
your home, the IRS has almost no chance to get the information," he

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