(Bloomberg) Everybody knows the danger of sending things inadvertently in an email. Beda Singenberger’s case shows you also have to be pretty careful when you mail things the old-fashioned way.
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Over an 11-year period, federal prosecutors charge, Swiss financial adviser Singenberger helped 60 people in the U.S. hide $184 million in secret offshore accounts bearing colorful names like Real Cool Investments Ltd. and Wanderlust Foundation.
Then, according to a prosecutor, Singenberger inadvertently mailed a list of his U.S. clients, including their names and incriminating details, which somehow wound up in the hands of federal authorities.
Now, U.S. authorities appear to be picking off the clients on that list one by one. Singenberger’s goof has already ensnared Jacques Wajsfelner, an 83-year-old exile from Nazi Germany, and Michael Canale, a retired U.S. Army surgeon, court records show. Another customer, cancer researcher Michael Reiss, pleaded guilty, though his court records don’t mention the list.
“He was sending mail to someone in the United States, and apparently in error he included a list of U.S. taxpayers,” Assistant U.S. Attorney Dan Levy said on March 5 at the sentencing in New York of Wajsfelner. “The government has mined that list to great effect and prosecuted a number of people who were on that list.”
Wajsfelner, who pleaded guilty to hiding $5.7 million from the Internal Revenue Service, was sentenced to three months of house arrest.
“People who hide money in Switzerland are extraordinarily difficult for law enforcement to identify,” Levy told the judge. Singenberger’s mailing error was “the only reason” the U.S. was able to identify and prosecute his clients, Levy said.
Aside from Singenberger’s snail-mail gaffe, the case shows how offshore accounts are used not just by the megarich but also by the merely wealthy. It’s also further evidence that the government is continuing its aggressive assault on taxpayers who use offshore accounts to avoid taxes.
Since 2008, U.S. prosecutors charged at least 86 people in their crackdown on offshore tax evasion, including two dozen bankers, lawyers and advisers like Singenberger. Another 38,000 Americans avoided prosecution through an IRS amnesty program that let them repatriate their accounts by paying back taxes and penalties and disclosing their offshore accounts and bankers.
The major crack in Swiss bank secrecy opened in February 2009, when prosecutors charged UBS AG with conspiring to cheat the IRS. UBS, the largest Swiss bank, avoided prosecution by paying $780 million, admitting it fostered tax evasion and handing over data on thousands of clients.
Singenberger, who lives in Zurich, was charged in New York federal court in July 2011 with conspiracy to cheat the IRS.
He ran Zurich-based Sinco Treuhand AG, a wealth management and tax-advisory business. Like other offshore bankers charged by the Justice Department, Singenberger is accused of managing, opening and transferring accounts for his U.S. clients. He visited his clients in the U.S., delivering cash from their undeclared accounts or taking cash back to deposit in Switzerland, court records show.
One New York client who banked with UBS for a half-century once had a $74 million account, while a California client of UBS had a $47 million account, prosecutors said.
Most Swiss banks promised the IRS in 2001 that they would obtain documents on the real owners of accounts and would withhold taxes on some transactions. The Justice Department has charged advisers like Singenberger with defeating the purpose of that agreement by hiding the true identities of account owners.
Singenberger created sham foundations in Liechtenstein and phony corporations in Hong Kong and the British Virgin Islands to help clients hide their ownership of the accounts, prosecutors charged. The accounts had names like Lucky Overseas Ventures Ltd. and Ample Lion Ltd.
Prosecutors said Singenberger prepared one set of IRS forms for the banks that falsely said the foundations or corporations were the real owners and another set of forms required by Swiss law that truthfully said his clients were the actual owners.
After the UBS investigation became public in 2008, he helped clients move accounts to other Swiss banks to keep them under wraps, prosecutors said. Those banks included Wegelin & Co., the oldest Swiss private bank.
Wegelin pleaded guilty in Manhattan federal court in January to conspiring to help hide more than $1.2 billion in assets from the IRS, while opening undeclared accounts for at least 70 U.S. taxpayers who were former UBS clients. The bank, which paid $74 million to resolve the investigation, closed its doors after 272 years.
Some of Singenberger’s actions are described in the U.S. indictment of Hans Thomann, a UBS client adviser from 1993 to 2003, who later worked for Swiss asset-management firms. Thomann travelled often to New York to deliver cash to or accept cash from one client, according to his indictment.
At one meeting, Thomann recommended that a client meet Singenberger.
“A few moments later, Singenberger appeared at the room in which Thomann was staying at the Manhattan hotel,” according to the indictment. Thomann said he and his UBS colleagues “recommended to U.S. taxpayers who had undeclared accounts at UBS that they use the services of Singenberger.”
The client later flew to Zurich, where Singenberger set up a second UBS account under the name of a British Virgin Islands corporation, according to the indictment.
Thomann was charged with conspiracy in March 2012 in federal court in New York. He hasn’t answered the charge in court. He couldn’t be reached for comment.
Both Thomann and Singenberger helped Canale, the retired Army surgeon, according to Canale’s charging document, known as a criminal information.
Thomann had handled the account of a relative who died in 2000, leaving the money to Canale. Thomann introduced Canale to Singenberger to set up a structure that “would, to the greatest extent possible, obscure from the IRS” his ownership of his undeclared account, according to the information.
Singenberger set up a Liechtenstein foundation for Canale and helped him open an account at Wegelin, prosecutors said. By 2009, the account had grown to $1.5 million.
Canale, 62, is a Bronze Star recipient who worked for the Army as a field surgeon during Desert Storm in Saudi Arabia, Iraq and Kuwait, according to one of his lawyers, Martin Press. He also was a surgeon in Macedonia and Kosovo, Press said.
It is not clear from court records how Singenberger’s wayward mail enclosure—which included such client details as their residences, their Swiss banks, and the ways they hid accounts from the IRS—found its way to prosecutors.
Canale, who pleaded guilty Dec. 21 in New York, was surprised to learn of the existence of the Singenberger list, said his other attorney, Robert Fink.
Wajsfelner only learned at his March 5 sentencing that he came to the government’s attention through the misdirected list, according to his lawyer, Jeffrey Denner.
“That was definitely news to me and my client,” he said. “Beda Singenberger, to my understanding, is a figure who’s certainly put a lot of people in the frying pan. I don’t think a lot of people recognized they were so close to the fire.”
Ellen Davis, a spokeswoman for Preet Bharara, the U.S. attorney in New York, declined to comment.
Nothing prevents the government from using evidence that it obtains accidentally, said Jeffrey Neiman, a former federal prosecutor who worked on the UBS case.
“It proves that no matter how hard clients try to conceal assets overseas, darn human error can always get in the way,” he said.
Canale, who was also a paratrooper, worked for the Veterans Administration from 2010 until retiring last year, Press said.
“It’s very sad,” said Fink. “It was an account that he inherited. He never wanted to do anything with it. It’s the most sympathetic case I’ve ever seen. It’s a disaster based on a misfortune that he did not deserve. If anyone deserve leniency, he does.”
Canale pleaded guilty to failing to declare his account on tax returns, and failing to file a Report of Foreign Bank and Financial Accounts with the Treasury Department. He will be sentenced in federal court in New York next month, Press said.
Singenberger has not made an appearance in U.S. court and didn’t respond to a phone call and an email seeking comment. Switzerland does not have an extradition treaty with the U.S.