(Bloomberg) Raoul Weil, who once ran UBS AG’s global wealth-management business, referred to accounts hidden by U.S. clients from the Internal Revenue Service as “toxic waste,” a witness at his tax-conspiracy trial said.
Martin Liechti, a former UBS banker cooperating with prosecutors, told federal jurors in Fort Lauderdale, Florida, that Weil knew in 2002 that thousands of accounts opened at the Swiss bank by U.S. clients didn’t comply with tax laws.
“Mr. Weil said, The North American business is toxic waste,’” Liechti told jurors today.
Liechti, the former UBS head of banking in the Americas, is one of several ex-bankers to testify against Weil. He offered the most direct evidence that his boss knew the firm was helping clients hide accounts from the IRS. Weil’s lawyer has blamed the U.S. case on “rogue” bankers testifying against him to save themselves.
Weil, 54, 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. He was indicted in 2008 on charges of conspiring to help as many as 17,000 U.S. taxpayers hide $20 billion from the IRS. He was arrested last year in Bologna, Italy, and waived extradition.
Liechti, who signed an immunity agreement with the U.S. in 2008, told jurors that he and Weil had discussions starting in 2002 about how UBS, the biggest Swiss bank, could ensure the accounts were declared to the IRS. After determining the bank couldn’t do so, it explored ways to force U.S. clients either to leave the firm or report their accounts to the government. UBS also considered selling the business, he testified.
“What I recall is Mr. Weil being very clear that he would not take money in his hand, meaning spend money, to exit the business,” he said.
Liechti had helped prepare a report examining the bank’s options to get rid of the non-declared accounts. UBS officials were concerned that stock analysts would notice if a large number of accounts were suddenly dropped from the bank’s quarterly statements, he said.
Another option considered was for UBS to buy a small bank, transfer the undeclared “black accounts” to it and then sell the acquisition. Liechti said Weil thought that option was too expensive.
UBS avoided prosecution in February 2009 by admitting to conduct similar to that for which Weil stands accused. UBS said it helped clients evade taxes from 2000 to 2007, turned over data on 250 secret accounts to the IRS and agreed to reveal information on 4,450 more. More than 50 UBS clients and four bankers have pleaded guilty.
Jurors won’t hear about the bank’s deal with the U.S., the judge has ruled.
UBS entered a 2001 accord with the IRS known as a qualified intermediary, or QI, agreement. UBS said it would 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 sell their securities, UBS was supposed to withhold about 30 percent of any subsequent sale proceeds or income on the account, and anonymously pay withheld amounts to the IRS.
In court, Liechti teared up yesterday as he described the four months he was detained in the U.S. while prosecutors debriefed him. He spent one day in prison. During that time, he wasn’t allowed to leave to see his family.
“It was very stressful,” said Liechti, who has triplets with his second wife and two children from his first marriage.
Liechti spent much of his career in Latin America or in Switzerland overseeing Latin American business, he said. He moved to a position overseeing European business after his first wife died in the mid-1990s so he didn’t have to travel as much.
He said he has known Weil since the early 1990s. They were both on the UBS business committee and for a time on the risk committee.
“We were friends,” he said. “We were peers.”
In April 2002, Weil became head of Wealth Management International and Liechti’s boss, he said. Liechti had meetings with Weil every two weeks.
“The communication was quite informal,” he said. “I wanted to make sure my boss really knew what was going in my business.”
Liechti wept again today as he recounted his realization on Feb. 6, 2008, that top UBS executives would blame the tax conspiracy on him.
“I had spent 29 years for this organization,” he said. “Everything I had fought for to tell the bank we should change could suddenly be imputed to my mistake.”
He said he went to Weil, who was “very quiet.” He then went back to his office and prepared a binder of documents.
“I wanted to make sure to have all the documents to basically defend myself,” he said.
The case is U.S. v. Weil, 08-cr-60322, U.S. District Court, Southern District of Florida (Fort Lauderdale).
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