Fort Lauderdale, Florida, US and Zurich, Switzerland (GenevaLunch) - Raoul Weil, UBS head of Global Wealth Management & Business Banking who temporarily resigned from his job in November 2008 has been declared a fugitive from justice by a judge in Fort Lauderdale, Florida, after he failed to appear in court there.

Weil’s lawyers in New York have called fraud charges and the latest move “unjustifiable,” TSR reports. The designation is not likely to have an immediate impact on Weil’s direct participation in the US investigation because Switzerland, like most European countries, does not extradite its own citizens. The Swiss Justice Department Wednesday would not say if a request for Weil’s extradition had been made by American authorities. Ed. note: countries with Anglosaxon legal systems, including the US, will extradite their own citizens under the terms of some treaties, but the process can be long and complex.

Weil resigned from his job in November for the duration of the investigation. The bank has not commented publicly on his new fugitive status.

The IRS and UBS

Weil is under investigation, along with other unnamed bankers and account holders, by the US Department of Justice. It is investigating charges by the IRS (Internal Revenue Service) that UBS, under Weil’s direction, falsified documents in order to help American owners of 19,000 offshore accounts to evade taxes. The Wall Street Journal has made public a copy of the indictment from November 2008, The United States v. Weil, 08-60322.

Weil is at the centre of a tug of war between the IRS, which seeks the names of American clients of the bank who have offshore accounts, and UBS, which says as long as it has acted within the law the IRS is not privy to those names because of Swiss banking secrecy laws. A mutual assistance treaty between the two countries calls for each to help the other in cases of suspected fraud that would be considered crimes punishable by prison in both countries.

Banking secrecy is not sacred

”Banking criminals are not protected by banking secrecy,” points out Folco Galli, spokesperson for the Swiss Justice Department. “It can be lifted in cases of criminal investigation.” The bank has said it is cooperating with US officials on the case. Swiss tax authorities are examining a US request for judicial assistance made in July 2008, and if they determine that criminal fraud has indeed occurred in some or all cases, banking secrecy could well be lifted for those cases. This has happened several times in the past, notably with organized crime.

Swiss banking authorities are also investigating UBS.

The bank itself said in November 2008 that in its own internal investigations, linked to the IRS claims, it had indeed uncovered cases of American account holders fraudulently hiding assets and that it would cooperate with the Justice Department’s investigation.

Banking secrecy and tax evasion figure heavily in several recent international media reports on Weil’s case and UBS closing 19,000 offshore accounts held by Americans, but they sometimes add to the confusion over the legal issues and James Bond-like fantasies about Swiss banking secrecy. An article published 9 January by the New York Times, reprinted widely, said “UBS is struggling to maintain its centuries-old tradition of Swiss banking secrecy amid mounting legal pressure from the Justice Department to turn over client records.” Banking secrecy in Switzerland dates to 1935, although de facto secrecy was a factor in the growth of the 100-year-old banking industry. UBS itself is 10 years old.

There is no clear evidence that the Justice Department is tightening the screws on the bank; the bank’s decision to close 19,000 US accounts held in Switzerland, on which the story is based, dates back to 2007. Even the Florida judge’s decision can be interpreted as a normal administrative move or an effort to build pressure, but the information available doesn’t confirm either one.

Forbes noted in November that the IRS “The U.S. Internal Revenue Service takes the position that Americans are supposed to account for all of their assets, wherever in the world they may be.” While correct, this is not the issue: mutual assistance treaty calls for help in cases where fraud, a criminal offense in both countries, has been committed. If an American has money in Switzerland and fails to mention it to tax authorities this may be a felony where the US is concerned but it is generally considered by the Swiss to be tax evasion, an “administrative” rather than “criminal” offense, punishable by a fine rather than a prison term. The treaty doesn’t call for a Swiss bank to open its books in this case, or for banking secrecy to be lifted.

Offshore accounts - accounts in a country other than that of the account holder’s residence - are a lucrative and legal business in both countries: US banks have 7% of the world business while Switzerland, the world leader, has 27%. Since the accounts are beyond the reach of the account holder’s home tax authorities, mutual judicial assistance agreements come into play when there are suspicions of fraud. Switzerland follows the principle of double criminality, so that under Swiss law and the terms of the US-Swiss treaty on tax matters, Switzerland provides legal and administrative assistance only if the foreign case involves what would be considered tax fraud in Switzerland. The definition from the Swiss Finance Ministry: “Tax fraud is a misdemeanour relating to direct taxes and is punishable by imprisonment. A person commits tax fraud who, for the purpose of tax evasion and misleading the tax authorities, uses false or falsified documents or documents with untrue content such as account books, balance sheets, profit and loss statements, or wage statements and other certifications by third parties.”

Fraud does not cover tax evasion, which is defined as “an administrative offence punishable by an administrative fine. A taxpayer wilfully or negligently acting in such a way that an assessment is improperly omitted or a final assessment is incomplete commits the offence of tax evasion.”

For mutual legal assistance in tax matters to begin the offense that led to the foreign request must be considered criminal in both countries and punishable by imprisonment. Foreign authorities “must present sufficient probable cause for suspicion of tax fraud,” according to the Finance Ministry.

Related stories, sites

• “Ex-UBS executive Raoul Weil declared a fugitive by US judge,” 14 January 2009, Bloomberg
• “From UBS banker to fugitive,” 14 January, 2009, Forbes

• “US tax authority seeks access to UBS Swiss accounts,” GenevaLunch, 1 July 2008

• Taking Evidence, Swiss Justice Department on extradition (note: these pages are currently being revised to reflect changes as Switzerland enters the Schengen Area)
• Mutual administrative and legal assistance in tax matters, Swiss Finance Department
• Taxation.ch, highly regarded private site on Swiss taxes by lawyer Toni Amann in Bern, Switzerland

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