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Part 2: Feeding the UBS obsession with North American wealth.
NEW YORK — Bradley Birkenfeld exuded the confidence that comes with privilege. He was Boston born and bred, a gregarious, well-educated brain surgeon's son. In his role as a high-flying, cross-border banker with UBS, he moved easily among the world’s wealthiest men and women. And they were precisely who he was targeting as potential clients for UBS.
“Anyone residing in America — that was our market segmentation,” Birkenfeld explained in a rare, long-ranging interview with GlobalPost. “Didn’t have to be a U.S. citizen — it could be a German living in New York, it could be an Italian living in LA.”
Birkenfeld and his fellow cross-border bankers in UBS’ global wealth management division sought to sign on anyone with the obligation, if not necessarily the inclination, to pay U.S. taxes. “People understood what the advantages were,” he said, coyly enough, of the secrecy they sold.
Exclusive circles were nothing new. Birkenfeld did his early schooling at Thayer Academy, an expensive college prep school in Braintree, Massachusetts, then Norwich University in Vermont, the country’s oldest private military academy. The latter school would seem an odd choice; one of Birkenfeld’s closest college buddies described him as "the kind of guy who — I don’t want to say he’d 'buck authority' — but he’d stand up to 'illegitimate authority.' "
Rather than following most of his classmates into the military after graduation, a traditional track at Norwich, Birkenfeld went back to Boston and worked briefly as a bond trader. Then, after a couple of years, he decamped to Switzerland and stayed. He earned an MBA at the American Graduate School of Business, a picturesque little campus nestled between Montreux and Vevey in the Swiss Riviera.
After early stints at Credit Suisse and Barclays Geneva office, Birkenfeld joined UBS in 2001. By then, he had experience enough to know his division was steeped in skirting the law, if not in Switzerland itself, then certainly in the U.S. “Swiss bank secrecy is analogous with criminal conspiracy. That’s how I see it,” he told me.
Numbered bank accounts are illegal in the United States and most other banking jurisdictions, but it’s okay for U.S. residents to hold numbered accounts in the few countries that allow them — Switzerland is the biggest — provided they, and the banks, declare income-generating accounts to the IRS and the account holder pays tax on the income.
The reporting rules for Swiss banks are spelled out in tax treaties between the Swiss and U.S. governments. U.S. taxpayers are required to check a box on their tax returns — a simple “yes” or “no” —as to whether they hold a foreign account. Birkenfeld and his fellow cross-border bankers were essentially selling a way around all that: a way to dodge taxes through undeclared accounts often linked to sham shell companies and trusts.
The UBS bankers were frequent flyers in their high-net-worth client quest, making quarterly prospecting trips to the U.S. where the bank sponsored millionaire magnet events like the UBS Trophy yacht race in Newport, Rhode Island; Art Basel (the contemporary and modern art fair in Miami); tennis tournaments; classic car shows; concerts; and other elite gatherings conducive to meeting prospective “new money” clients.
There was a lot of wink and nod, as Birkenfeld described it: a quiet solicitation on the sidelines, a dinner later, a discreet product presentation called up on an encrypted company laptop. “These were very sophisticated marketing VIP events,” Birkenfeld said (his favorite was a $10,000-a-seat evening with Elton John at the Waldorf Astoria in April 2005). They were also illegal insofar as the cross-border bankers were involved. The Security Exchange and Investment Advisors Acts of 1934 and 1940 bar unregistered international banker-brokers from doing business with private clients on U.S. soil, whether in person or remotely via phone, mail, Fax, email, FedEx.
Documents Birkenfeld later delivered to the Justice Department show UBS to be obsessed with North American wealth. A PowerPoint presentation marked “Strictly Private and Confidential” by UBS (and later “Exhibit 14” by the Justice Department) leads off noting that "31 percent of World’s UHNWIs [ultra-high-net-worth individuals] are in North America," followed by a graph highlighting the bankers’ target group: “Key Clients” worth greater than $30 million.
Another lip-licking slide, titled “North American Billionaires,” notes that there are 222 in the US and 14 in Canada, with a combined net worth of $706 billion.
Where best to snare them? A later slide ranks the top-25 housing locations: Montecito, CA; Aspen; Los Altos Hills, CA; Sea Island, GA; Palm Beach; and Snowmass Village, to name a few.
Birkenfeld preferred his hunting even further afield. With an expense account and ticket to ride, business was pleasure when he hit on prospective clients.