The acquittal of Raoul Weil, the only Swiss banker to have prevailed over the U.S. government in an offshore tax evasion case, has become a source of inspiration for dozens of others who find themselves in a similar situation – indicted and living in Switzerland. As a result, many have become emboldened to come out of the shadows and start fighting.

By way of an update to the original posting of this blog, this author wants to give credit to David
Voreacos, a reporter for Bloomberg News, for the in-depth interviews that he conducted with the individuals mentioned in this blog. Specifically, Howard Farber, the jury foreperson in the Raoul Weil trial. These interviews provide a rare glimpse of what it was like to be a juror in what might very well be the most influential offshore tax evasion case of the twenty-first century. Thanks to David, we were able to go “behind the scenes” and gain invaluable insight into what transpired in this landmark trial.

Let’s set the stage. More than twenty so-called “enablers” are still “at large” overseas. As “fugitives from justice,” they have yet to answer charges leveled by the Department of Justice that they assisted U.S. clients in evading their taxes. Those that have had the misfortune of having their names added to this dreadful list have much to lose by way of reputation. Indeed, they are “professionals” in every sense of the word: bankers, lawyers, and advisers.

Most live in Switzerland, beyond the reach of U.S. authorities, since the U.S. government does not have a treaty with the Swiss government allowing for extradition of persons charged with tax crimes. Other countries, however, have enforceable treaties with the U.S. government requiring extradition of persons within their borders for tax crimes. Thus, if any of the individuals now under indictment for offshore tax evasion were to cross the Swiss border into another country, they would put themselves at grave risk of being extradited to the United States.

One person who found that out the hard way was Raoul Weil, the former head of wealth management for UBS Group AG (UBSG). When indicted back in 2008, Mr. Weil was living in Switzerland – happily, I might add – and with absolutely no worries of being extradited to the United States to stand trial on charges of offshore tax evasion. At least not until he made what many pundits criticized as a “poor decision.”

What was that decision? Mr. Weil traveled to Italy – a country with which the U.S. just so happened to have an extradition treaty with. In so doing, he fell into a trap. Like waiving a red flag in front of a bull at a rodeo, the ink on Mr. Weil’s freshly stamped passport wasn’t even dry before he was scooped up by Italian customs’ officials, handed over to Italian authorities (Mussolini-style), and left to rot in an Italian jail for what must have felt like an eternity.

Two months later, Mr. Weil waived extradition and went to the U.S. to face criminal charges that he conspired to helps thousands of U.S. clients evade their U.S. taxes by unlawfully exploiting Swiss bank secrecy laws.

Unlike the “poor unfortunate souls” who came before him, Mr. Weil’s case had a happy ending. After a three-week trial and nearly a year of house arrest, Mr. Weil accomplished the unthinkable – an outright acquittal. Prosecutors argued that Weil knew UBS bankers had used deception, shell corporations to disguise the true owners of accounts, and cash deliveries to help U.S. clients cheat the IRS.

The jury thought differently. In a record-breaking 85-minutes, the jury wasted no time in reaching a unanimous verdict: “Not Guilty” on all counts.

The not-guilty verdict against the government’s “numero uno” target for offshore tax evasion sent shockwaves through the Department of Justice. A lawyer who defended Weil said Mr. Weil’s victory had humbled the Department of Justice, and that it was likely to “temper the zeal of prosecutors.”

The victory catapulted Mr. Weil to “celebrity” status. And rightfully so. As most criminal defense attorneys recognize, “it’s never easy to defeat the U.S. government.” From the seemingly unlimited resources and personnel at their disposal to investigate and prosecute tax cases – from IRS personnel to IRS Special Agents to Assistant United States Attorneys and everyone in between (not to mention the incredible power that they have to compel the production of documents through summonses and subpoenas) – the odds are stacked against the defendant.

And that is without taking into consideration the fact that DOJ only selects those cases for prosecution where the evidence is so strong that the likelihood of conviction is all but certain. With defense victories being so “few and far between,” it’s no wonder why acquittals attract so much media buzz. In this sense, Raoul Weil’s acquittal is not unlike the “Cinderella” team that comes out of nowhere to win the NCAA basketball tournament. Or, the “lame” horse that wins the Kentucky Derby despite a staggering “91-to-1” odds (yes, believe it or not, this actually happened).

‘National Hero’

Hot off his court victory, Mr. Weil was hailed a “national hero” of “remarkable courage” by Geneva financial newspaper, L’Agefi. Not surprisingly, Weil’s success has inspired others to “roll the dice” and take their chances with a jury, rather than “roll over” like a submissive lap dog, plead guilty, and beg the judge for leniency at sentencing.

So, who’s heads is the government preparing to serve up next on the proverbial silver platter? None other than the former employees of Switzerland’s top three wealth managers: (1) UBS, (2) Credit Suisse Group AG (CSGN), and (3) Julius Baer Group Ltd. (BAER). In fact, barely a week passed after Weil’s acquittal before the Department of Justice announced its next “victim”: Martin Dunki, a 66-year-old retired client adviser at Rahn & Bodmer Banquiers, a Swiss-based bank. Not unlike the allegations underlying Mr. Weil’s indictment, Mr. Dunki was indicted on charges of assisting U.S. clients to hide hundreds of millions of dollars in offshore accounts.

Years of Confinement

Weil’s triumph did not come without a price. As Mr. Weil himself said in an interview published in Swiss newspaper NZZ am Sonntag on November 9, 2014, “I was acquitted, but that was after two months in prison and then 10 months under house arrest. They wanted to soft-boil me.”

Nonetheless, Weil’s acquittal was a major setback in the Department of Justice’s crusade to hold the “top brass” of foreign banks accountable for the crimes committed by their banks. According to Patrick O’Donnell, a white-collar criminal-defense attorney at the firm of Harris, Wiltshire & Grannis LLP in Washington, the Department of Justice is under pressure to prosecute offshore banks, including those involved in rigging interest rates and currency markets.

Mr. O’Donnell has observed a growing trend – disturbing to say the least – in the number of extraterritorial cases that the government has brought: “The U.S. seems to bring far more extraterritorial cases than any other country, and the trend is growing. Congress has been howling for the heads of executives.”

Invaluable insight from the Jury Foreman in the Weil Trial

Weil was one of thirty-eight offshore bankers, lawyers, and advisers charged. Of those, seven pleaded guilty, two were convicted at trial, two await trial, and two were acquitted (including Weil).

Assuming prosecutors were willing to listen, they got some invaluable insight into what went wrong in their case against Weil. In a rare interview, Jury foreman Howard Farber spoke out. The 69-year-old retired insurance agency owner said that prosecutors fell short of linking Weil to the criminal conduct of his subordinates.

To understand why, some background information may be helpful. Five ex-UBS bankers or managers testified against Weil. They included three who negotiated deals or “cooperation agreements” with the government to avoid prosecution, another who was under indictment, and another who pleaded guilty. The latter was Renzo Gadola, a Swiss banker who was sentenced to five years of probation back in 2011.

“There was really no proof that went directly to Weil,” said Farber. And in what might have been the biggest blow to the government’s ego, Farber delivered the knock-out punch: “We all felt that the government overstepped its bounds. They really should not have gone after him.”

In an interview in Geneva, Matthew Menchel, an attorney with the firm of Kobre & Kim LLP in Miami, said that the former bankers who cooperated with the government had their credibility impeached continually throughout cross-examination. Afterwards, the true motives of these “snitches” were exposed for the entire world to see.

‘Most Culpable’

Those most culpable were “the ones who turned state’s evidence, particularly Hansruedi Schumacher, an ex-UBS manager indicted in 2009 and Martian Liechti, ex-head of cross-border banking at UBS,” Farber said.

According to Menchel, the government may have naively assumed that anyone indicted would automatically “throw in the towel” and take a plea deal to avoid the risk of what would undoubtedly be a stiffer prison sentence if the person pleaded “not guilty,” went to trial, and lost: “The Justice Department may have gotten comfortable that any banker they charged would just roll over. They shouldn’t take it for granted that any Swiss banker will give in and seek a plea bargain.”

At future trials, the government may have an uphill battle proving a connection between client advisers who knowingly broke the law and their senior managers, unless there’s a “smoking gun” that demonstrates that knowledge, according to Milan Patel, a lawyer with Anaford AG in Zurich.

Presently, none of the bankers who are under indictment are senior executives at Raoul Weil’s level. Instead, most are mid-level executives, such as client advisers and team leaders.

Deals, Deals, And More Deals!

According to Patel, “Client advisers who committed egregious offenses are probably trying to cooperate and strike a deal with the Justice Department. Bankers fear coming to the U.S. because the DOJ can detain them on arrival pending trial. Therefore, walking around freely in Switzerland may be a more appealing option, even if the charges remain unsolved.”

One such banker “walking around freely in Switzerland” who wants to clear his name is Stefan Buck, the former head of private banking at Bank Frey & Co. He was indicted in 2013 in New York. His attorney filed a motion seeking bail with a special request that Buck’s appearance in federal court in New York be waived. According to the filing, Buck wants to “leave the ‘safe haven’ of Switzerland to appear in a U.S. court to clear his name.” Prosecutors oppose his motion, which is pending.

One recent banker to have felt the wrath of the U.S. criminal justice system and who learned the hard way at how cold and callous the U.S. government can be, even toward the “aged,” was Josef Dorig. Not too long ago, the government feasted its eyes on the seventy-two year-old founder of a Swiss trust company and former manager at Credit Suisse. Mr. Dorig pleaded guilty last spring after cooperating with U.S. prosecutors.

As part of his plea allocution, Mr. Dorig admitted to creating fake entities in order to help his clients cheat the IRS. He is scheduled to be sentenced on January 16, 2015 in federal court in Virginia.

Probation Sought

In a pre-sentencing brief filed with the court, Mr. Dorig asked the judge to sentence him to probation in light of the fact that he accepted responsibility for his wrongdoing and voluntarily surrendered himself to U.S. authorities, despite the fact that he could have remained in Switzerland for the rest of his life, beyond the reach of U.S. authorities.

“Mr. Dorig had absolutely no incentive to voluntarily enter the United States to answer the charges against him or cooperate with the government,” his lawyers wrote. “He easily could have stayed in Switzerland and lived the rest of his life peacefully and happily in his homeland. But he did not.”

Notwithstanding Weil’s overwhelming victory and the major setback it caused the government in its campaign to root out offshore tax evasion, few can argue that the government has powerful investigative tools at its disposal. Indeed, the U.S. probe has benefited from two separate programs that, in combination, pack a “one-two punch”: (1) the more than 45,000 taxpayers who have sought shelter in the IRS’s Offshore Voluntary Disclosure Program bunker in order to avoid criminal prosecution and (2) the nearly 100 Swiss banks that have cut deals with the U.S. government to reduce penalties through non-prosecution agreements. Very simply, the information disclosed to U.S. authorities through these programs has proven to be a fertile source of “leads” due to the thousands of names that it has revealed.

“Weil’s acquittal was far from good news for bank employees lower down the food chain,” according to Douglas Hornung, a Geneva-based lawyer who represents Swiss financial workers. “After losing face in court in November, U.S. prosecutors will redouble their efforts to pursue smaller fish.” In other words, to say that the government has become emboldened would be an understatement.

As a spokesperson for the Department of Justice said, “The Weil acquittal doesn’t lessen the Justice Department’s commitment to holding offshore tax evaders and those who help them accountable.” There you have it – straight from the horse’s mouth.