(Bloomberg) Raoul Weil, once the head of UBS AG’s global wealth management business, faces a criminal trial that may turn on the credibility of a former subordinate who says he and Weil helped Americans evade taxes.
Jury selection is set to begin today in federal court in Fort Lauderdale, Florida, where Weil was indicted in 2008 on a charge that he conspired to help 17,000 U.S. taxpayers hide $20 billion in accounts from the Internal Revenue Service. Since his arrest last year in Italy, Weil, 54, has maintained his innocence and blamed others for the bank’s misconduct.
He is the highest-ranking official among three dozen foreign bankers, lawyers and advisers charged in a seven-year U.S. crackdown on offshore tax evasion. The chief witness against him is Martin Leichti, former head of cross-border banking at UBS. Leichti’s testimony about any conversations the two men had might be crucial to establishing Weil’s state of mind, said Dan Levy, a former federal prosecutor in New York.
“If part of Weil’s defense is that he was unaware what others who worked in that part of the bank were doing, what he and Leichti actually discussed is going to be highly relevant,” said Levy, now at McKool Smith in New York. “Of course, it also means that, to the extent those conversations support the prosecution, Leichti’s credibility will be hotly contested.”
Leichti’s non-prosecution agreement, dated July 2, 2008, said the Justice Department wouldn’t charge him “for any crimes he committed related to a tax fraud scheme.” In exchange, he agreed to testify whenever prosecutors required him to appear before any grand jury or at trial.
David Zornow, an attorney for Leichti, declined to comment on his client’s appearance at the trial.
Motive to Lie’
The agreement offers “a strong motive to lie,” said Edward Shohat, a Miami defense attorney not involved in the case.
“Unless there’s some documentary evidence to link the defendant to the banking relationship, this might not be an easy case for the government,” Shohat said.
Kendall Coffey, a former U.S. attorney in Miami, said “it’s often not a sure thing when a seemingly guiltier individual is making a deal to save himself by implicating someone who is seemingly less involved.” Jurors, he said, “are hip to that. They look for corroboration.”
UBS, the largest Swiss bank, avoided prosecution in February 2009 by admitting essentially the same conduct of which Weil stands accused. UBS admitted it fostered tax evasion from 2000 to 2007, turned over data on 250 secret accounts to the IRS and agreed to reveal data on another 4,450 accounts. More than 50 UBS clients and four bankers pleaded guilty.
60 Bankers
In the Weil case, prosecutors alleged that 60 UBS private bankers that he supervised came to the U.S. to give unlicensed banking and investment advisory services to American clients. They cloaked their activities through dummy corporations and numbered accounts for clients, as well as encrypted laptops and other counter-surveillance techniques, according to prosecutors.
Weil, a Swiss citizen, was declared a fugitive after his indictment. Five years later, he was arrested after checking into a hotel in Bologna. He waived extradition and first appeared in a U.S. court on Dec. 16. He is free on $10.5 million bail and has been under house arrest in New Jersey.
At a bail hearing, Weil attorney’s Aaron Marcu argued that while prosecutors say Weil helped illegally manage $20 billion, he sat atop a $4 trillion business and oversaw thousands of employees worldwide. Weil was unaware of what a small group of bankers did with U.S. clients, Marcu said.
Small Number’
“He contends that a small number of UBS employees who ran and worked in a small division of UBS may have assisted U.S. customers to evade their U.S. tax obligations, but he contends that those employees hid their own misconduct,” according to an Aug. 18 filing by his lawyers on how to describe the case to jurors.
If convicted, Weil faces as long as five years in prison.
As in any white-collar case, prosecutors will seek to make matters as black and white as possible, while Weil’s team will probably dwell on the gray areas that may raise doubt in the minds of jurors, according to lawyers not involved in the trial.
One fertile area for Weil’s lawyers might be a pact that UBS entered into with the IRS that took effect in 2001. In what is known as a qualified intermediary agreement, UBS agreed to tell the IRS about income and identifying information for American clients with U.S. stocks and bonds, if those clients gave permission.
Without such consent, clients were supposed to sell their U.S. stocks and bonds. If they didn’t consent and didn’t sell their stocks and bonds, UBS was supposed to withhold about 30 percent of any sale proceeds or income on the account. The bank was supposed to anonymously pay withheld amounts to the IRS.
Secrecy Laws
The agency recognized that Swiss secrecy laws barred the disclosure of the names of clients without their consent, according to prosecutors and defense lawyers.
Weil’s lawyers seek to emphasize that the QI agreement allowed UBS to open accounts for U.S. clients with foreign stocks and bonds without having to report them to the IRS.
Weil and other executives referred to the U.S. cross-border business as “toxic waste” and knew “it was not being conducted in a manner that complied with United States law and the QI Agreement,” according to the indictment. They used financial incentives to bankers to boost business, the U.S. says.
“The government’s case is likely to be that Weil knew that at least some U.S. taxpayers had accounts at UBS for the purpose of evading taxes and that, when some of the rules changed in 2001, Weil and others took steps to continue to facilitate tax evasion,” said Levy.
Stressing Complexity
The defense, he said, “often wants to get down in the weeds and to stress the complexities and ambiguities, so as to rebut the notion that the defendant had criminal intent.”
While Weil’s lawyers may want to “focus on whatever legal advice was provided” to him about complying with the QI deal, Levy said, “the government will try to refocus the case and make it, plain and simple, about lying and cheating. That’s a much more straightforward case for jurors to understand.”
Jurors in Fort Lauderdale may present a challenge to both sides, according to Shohat and Coffey.
“You need a little bit of a higher level of juror, in terms of experience and intelligence, somebody who can understand the niceties of tax law, someone with a master’s degree or an entrepreneur,” Shohat said. “That’s a difficult chore. Those people don’t tend to end up on juries. These kinds of cases can present very complex issues for a jury to understand.”
Banker Stereotypes
Weil’s lawyers must overcome stereotypes about Swiss bankers while creating a reasonable doubt to suggest he’s “an innocent fall guy,” Coffey said.
“Although it is extremely unfair, there continues to be a stereotype that Swiss bankers participate in concealing wealth that is the result of ill-gotten gains,” Coffey said. “There could be more of that in South Florida because of the legacy of the drug cartels here.”
Weil became the chairman and chief executive officer of global wealth management and business banking in 2007, taking over from Marcel Rohner, who was appointed UBS CEO. From 2002 to 2007, he was head of the wealth management international unit. Weil first joined Swiss Bank Corp., which later merged with Union Bank of Switzerland to form UBS, in 1984. He has a degree in business and economics from the University of Basel.
Weil last year became the CEO of Reuss Private Group AG, which manages more than 7 billion Swiss francs ($7.4 billion). He was previously an adviser to the company. Weil was replaced as CEO at the end of November 2013 and ceased all functions connected to the company, an external representative for Reuss at Farner Consulting AG in Zurich said yesterday.
The case is U.S. v. Weil, 08-cr-60322, U.S. District Court, Southern District of Florida (Fort Lauderdale).
—With assistance from Giles Broom in Geneva
