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Special Reports

Part 1: A UBS insider blows the whistle on Swiss banking.
Part 2: Feeding the UBS obsession with North American wealth.
Part 3: Meet Bradley Birkenfeld's biggest client, and nemesis, US billionaire Igor Olenicoff.
Part 4: UBS whistle-blower pays a high price for tipping off US investigators.
Part 5: As whistle-blower is jailed, perpetrator of massive tax fraud gets backdoor bailout.

Telling Swiss secrets: A reversal of fortune

Part 5: As whistle-blower is jailed, perpetrator of massive tax fraud gets backdoor bailout.

Relying heavily on Birkenfeld’s evidence, the DOJ threatened to bring criminal charges against UBS unless it turned over the names of thousands of U.S.-based clients holding undeclared accounts. Prosecutors had the bank over a barrel. UBS earns between 30 and 40 percent of its total annual revenue through its regular U.S. operations; if UBS lost its U.S. banking and brokerage licenses, the bank would collapse, and likely the Swiss economy along with it.

But the Swiss had a strong position for the same reasons. UBS employs more than 23,000 people in the U.S., with some 4,000 in Connecticut alone. The bank’s brokerage division serves more than two million U.S households, with more than twice as many UBS financial advisors based in the U.S. (some 7,300) than the bank has in the rest of the world combined. In the middle of the economic crisis, there was no way the Obama administration was going to kill UBS: The bank was too big to fail.

Despite its long-running criminal conspiracy to defraud the U.S. government, UBS, one of the banks hardest hit in the subprime mortgage crisis, received $5 billion in a backdoor bailout through AIG, which honored some of its policies.

Salvaging UBS’ reputation was another story. The bank shuttered Birkenfeld’s division and shed its entire staff — between 40 and 60 private bankers and senior management. The bank also appointed a new chairman and CEO, Oswald J. Grübel, who set out to reassure skittish clients.

Bradley Birkenfeld
(Gasper Tringale/GlobalPost)

“Mr. Grübel has said repeatedly and emphatically that compliance failures like this will not happen again,” UBS spokeswoman Karina Bryne told GlobalPost. “We have definitely lost clients due to reputational issues,” she admitted, “but those outflows have slowed and we are working very diligently toward positive net new money.”

Last August, just three days after Birkenfeld was sentenced and five days after the U.S. and Swiss governments agreed to a settlement, President Barack Obama played 18 holes at Martha’s Vineyard’s Farm Neck Golf Club with the UBS Group Americas chairman and CEO, Robert Wolf, one of the top donors to his campaign and a member of the president’s economic recovery advisory board. UBS officials insist the bank’s U.S. offices had no knowledge of the Swiss-based fraud, despite Birkenfeld’s sworn testimony that UBS Americas coordinated the lavish marketing events in the U.S. for Swiss private bankers and their U.S. clients.

Obama’s sweeping financial regulatory overhaul, signed into law in July, contains a strong nod to whistle-blowers, granting the SEC authority to pay rewards up to 30 percent of monetary sanctions, like the IRS bill, no matter whether the whistleblower is involved in the misconduct. The SEC has already paid a $1 million reward — good news for whistle-blowers, if not for Bradley Birkenfeld. His June appeal to Obama to commute his sentence of 40 months has so far gone unanswered.

Birkenfeld, who went from managing hundreds of millions of dollars in investments, now mops floors in prison. But as he does, he just can’t — and won’t — let go of the idea that someday he’ll get back what he believes he’s owed. His lawyers have filed a claim with the IRS Whistleblowers Office seeking his share of the recovered monies from the case — “at least several billion dollars,” they say.

If that seems unseemly, Bradley Birkenfeld couldn't care less.

“I am going for a reward, and rightly so,” Birkenfeld said. “I’m invoking my rights under federal law, you have a problem with that?”

Michael Bronner, a New York-based investigative journalist, previously worked for the weekday edition of CBS News/60 Minutes. He has been a freelance contributor to Vanity Fair since 2005. A screenwriter, producer and director, he was also a co-producer on the Universal Pictures/Working Title feature film “Green Zone” about Iraq and an associate producer on the Oscar-nominated “United 93.”

http://www.globalpost.com/dispatch/europe/100724/globalpost-investigation-telling-swiss-secrets-part-5