Subject: Billionaire Tax 'Felon' & 'The GoodFellas' @ UBS Tue Jun 09, 2009 3:53 am
Part I
California billionaire Igor Olenicoff had already invested $200 million with UBS AG in 2001 when his Swiss bankers ushered him to an underground vault in Geneva.
Olenicoff, a real estate developer with a taste for yachts and Russian art, saw floor upon floor of safe-deposit boxes. His private banker, Bradley Birkenfeld, and a colleague showed Olenicoff his own space for valuables.
“They said, ‘Whatever you want -- corporate stock, cash, gold, silver -- put it in here,’” says Olenicoff, 66, at the Newport Beach, California, headquarters of Olen Properties Corp., the company he founded in 1973. “It was that aura of legitimacy and secrecy. They say, ‘We’re the world’s largest wealth manager,’ so how do you question?”
Birkenfeld, 44, had spent years wooing Olenicoff, visiting his homes in Laguna Beach, California, and Lighthouse Point, Florida; cruising on his 147-foot (45-meter) yacht to Mayan ruins in Honduras; and flying on his Cessna Citation II jet.
Four years later, both men are admitted felons. Since December 2007, the billionaire and his banker have pleaded guilty to tax crimes.
The court cases open a door on the normally secretive world of dummy companies, offshore havens and phony financial filings that wealthy Americans often use to avoid paying U.S. taxes. President Barack Obama has proposed to end such tax breaks for U.S.-based multinational corporations and individuals within a decade.
‘Obligation of Citizenship’
“Most Americans meet their responsibilities because they understand it’s an obligation of citizenship,” Obama said on May 4. “Yet there are others who are shirking theirs. We shouldn’t let some citizens dodge their responsibilities, while ordinary Americans pick up the slack. Unfortunately, that’s exactly what we’re doing.”
The Olenicoff and Birkenfeld cases come amid a widening U.S. crackdown on offshore firms that cater to wealthy Americans. U.S. Senator Carl Levin, a Michigan Democrat, estimates the cost in unpaid taxes to the U.S. Treasury is $100 billion a year.
With evidence from the Olenicoff case and cooperation from Birkenfeld, U.S. prosecutors have been able to penetrate the veil of financial invisibility that Switzerland guards as a national treasure.
To avoid immediate prosecution, UBS, Switzerland’s second- largest bank by stock market value, behind Credit Suisse Group AG, agreed on Feb. 18 to pay the U.S. $780 million.
It renewed a pledge to stop unlicensed recruiting of customers in the U.S. and agreed to cooperate with investigators during 18 months of probation. The bank admitted in court that it had helped American clients dodge taxes from 2000 to 2007.
52,000 UBS Accounts
The bank turned over information on more than 250 customers -- an unprecedented breach of Switzerland’s bulwark of secrecy. The U.S. Internal Revenue Service is suing UBS in federal court in Miami to get the names of 52,000 American account holders who may have broken U.S. tax laws.
UBS is fighting back. The bank said in April 30 court filings that the U.S. efforts would force bank employees to violate Swiss criminal laws barring disclosure of secret account information. The Swiss government says the U.S. is trampling on its sovereignty.
If the bank fails to convince a federal judge that it shouldn’t turn over the names to the IRS, the court can fine UBS for civil contempt. The Justice Department, under the deferred- prosecution agreement, could seek criminal indictment of the bank, says tax attorney Robert Fink of Kostelanetz & Fink LLP in New York.
‘They’re Totally Whipsawed’
An indictment of a bank can be lethal if customers doubt its stability.
“That could be the most dangerous thing of all for UBS,” says Fink, whose firm represents 200 UBS clients. “UBS is on the road to destruction in the U.S. They’re totally whipsawed. If they’re indicted, they will be convicted. Eventually, they will lose their banking license.”
Fink says the global financial meltdown of the past 18 months may save UBS. “The U.S. government may say we can’t put a major bank out of business,” he says.
The UBS battle to avoid prosecution and protect its bank secrecy is yet another challenge for Chief Executive Officer Oswald Gruebel, the former head of Credit Suisse, who took over UBS in February. Crushed by subprime-debt losses, UBS posted a $16.8 billion loss for 2008, the biggest ever by a Swiss company.
The bank has announced more than 18,500 job cuts in the past 18 months and has amassed more than $50 billion in writedowns and losses since 2007, mostly on faltering U.S. mortgage debt. On May 5, the bank announced a first-quarter loss of $1.75 billion.
‘Biggest Ever’
Since April 2, prosecutors have charged two UBS clients in Florida with filing false tax returns. Hundreds of UBS clients in the U.S. may face prosecution, says Edward Robbins Jr., a Beverly Hills, California, tax lawyer who represented Olenicoff.
“It may be the biggest criminal tax investigation ever because of the dollars involved coupled with the vast number of criminal defendants, both at the UBS level and the American account holder level,” he says.
U.S. prosecutors say UBS earned $200 million a year managing $20 billion in assets for American customers. Birkenfeld, a neurosurgeon’s son who worked in Switzerland for three international banks, cooperated with prosecutors and U.S. Senate investigators in laying out a road map of how UBS courted clients like Olenicoff.
‘This Was a Massive Machine’
“This was a massive machine,” Birkenfeld told Senate investigators on Oct. 11, 2007. He said UBS bankers crisscrossed the U.S. -- without required licensing from the Securities and Exchange Commission -- to find wealthy American customers.
“You might go to car shows, wine tastings,” Birkenfeld said. “You might deal with real estate agents. You might deal with attorneys. It’s really: Where do the rich people hang out? Go and talk to them.”
As many as 60 UBS private bankers trolled for clients at UBS-sponsored art shows, yachting regattas, and golf and tennis tournaments, Birkenfeld said.
He toted customer checks to deposit in European banks and bought diamonds for one client, smuggling them to the U.S. in a toothpaste tube, he said in pleading guilty to conspiracy in federal court in Fort Lauderdale, Florida, in June 2008.
By serving as couriers, the UBS bankers enabled clients to sidestep a U.S. surveillance system that reviews large cash transfers. That program is intended to prevent fraud, money laundering and the movement of funds by terrorists.
Encrypted Laptops
Such transactions often trigger the filing of a so-called suspicious activity report by the Treasury Department. Those alerts can prompt investigations into the money’s source.
The bank had extensive schemes to avoid getting caught by U.S. regulators, Birkenfeld told Senate investigators. UBS bankers carried encrypted laptop computers, and the Swiss bank trained its staff to dodge detection by U.S. authorities.
The bankers falsely said on customs forms that they were traveling for pleasure, not business, and told clients to destroy offshore records that could be tied to UBS, Birkenfeld said in his guilty plea.
“Very few people would have imagined the level of complicity of the UBS bankers and executives,” says Josh Ungerman, a tax lawyer at Meadows, Collier, Reed, Cousins & Blau LLP in Dallas. “It’s almost unbelievable that a major worldwide bank that was as well respected would have employees engage in that type of behavior.”
Peter Kurer, before he resigned as UBS’s chairman, apologized in a statement on Feb. 18 for the bank’s wrongdoing.
‘Full Responsibility’
“UBS sincerely regrets the compliance failures in its U.S. cross-border business,” he said. “We accept full responsibility for these activities. Client confidentiality, to which UBS remains committed, was never designed to protect fraudulent acts.”
Olenicoff, who moved from the Soviet Union to Tehran as a boy and emigrated to the U.S. in 1957, has sued UBS, Birkenfeld and 37 other defendants.
His lawsuit filed on Sept. 16 and amended twice in federal court in Santa Ana, California, claims they misled him about his tax liabilities, tarred his reputation and cheated him out of millions of dollars.
He’s seeking $500 million in damages that he says he would give to charities through the Andrei Olenicoff Memorial Foundation, named after his son, who died at age 32 in a 2005 auto accident. The foundation supports medical research on eye diseases and helps orphans in eastern Europe.
‘Defend Ourselves Vigorously’
UBS says Olenicoff’s complaint lacks merit.
“We will defend ourselves vigorously,” UBS spokesman Mark Arena says. In a court filing, UBS denied its actions had subjected Olenicoff to tax penalties, interest or criminal investigations.
Olenicoff, who has silver hair, blue eyes and a thin nose, says he’s not backing away from his December 2007 guilty plea to one count of filing a false tax return in 2002. Olenicoff also admitted in federal court in Santa Ana that from 1998 to 2004, he failed to declare accounts in the Bahamas, England, Liechtenstein and Switzerland.
U.S. District Judge Cormac Carney sentenced Olenicoff on April 14, 2008, to two years probation and 120 hours of community service. He paid $52 million in back taxes, interest and penalties.
‘Not Crystal Clear’
The judge asked Olenicoff why he had failed to fill in a box on his tax returns asking if he controlled foreign bank accounts. “It’s not crystal clear to me why someone of Mr. Olenicoff’s intelligence would answer a question that seems to be so easily proved to be false,” the judge said. He praised Olenicoff’s business success and charitable work for eastern European orphans.
“You are an incredible man,” the judge said. “When I find out that people of your stature and standing lie on your tax returns, it frustrates me, saddens me.”
Olenicoff told Carney that bankers gave him bad advice.
“Should I have known that that income should have been reported here probably two years into it?” Olenicoff said. “Yes, your honor. I probably should have checked the box, but I didn’t.”
After a three-year criminal probe that included a search of his office and house by IRS agents in 2005, Olenicoff says he decided to plead guilty.
‘You Fess Up’
“I would have clearly gotten my ears boxed in by the Justice Department,” Olenicoff says at his Newport Beach office, which is filled with paintings, sculptures and artifacts from Russia and his travels to Latin America and Greece. “Once you do something wrong, you fess up to it and you pay for it.”
Olenicoff has built an empire by buying land and building industrial and office parks and apartment buildings in four U.S. states. The son of a father who fled the Soviet Union in 1945, he became that distinctly American phenomenon -- a self-made billionaire who is largely an unknown.
Brandon Birtcher, an Orange County land developer, says Olenicoff has kept a low profile as he has correctly timed economic cycles.
“He’s had a very good instinct for selecting excellent locations for his projects,” says Birtcher, CEO of Birtcher Development & Investments Co. in Irvine, California. “He’s appeared to develop them with style architecturally. They’ve leased quickly and have endured the test of time.”
Olenicoff built his company’s headquarters using classic European architecture. Visitors to his office pass a fountain outside and walk into a domed two-story structure. The building has long hallways of granite slab with inlaid pieces of French limestone and Greek mosaics.
Aiding Tax Evasion
Olenicoff’s office is large and sun drenched and features walnut-trimmed furniture. Olenicoff, who owns a cup given to his grandfather by Czar Nicholas II at the time of his 1894 coronation, says he’s glad that UBS admitted in court that it had helped Americans avoid U.S. taxes.
Still, he believes UBS hasn’t been sufficiently penalized for aiding tax evasion over seven years.
“They pay $780 million,” Olenicoff says. “That’s lunch money for them, right? But there’s nobody being penalized for this. I have been -- and I paid. There will be 52,000 Americans that will be somehow affected by their fraud. The bank needs to be exposed and needs to pay for its wrongdoing.”
Last edited by CovOps on Tue Jun 09, 2009 5:04 am; edited 1 time in total
Subject: Re: Billionaire Tax 'Felon' & 'The GoodFellas' @ UBS Tue Jun 09, 2009 3:53 am
Part II
IRS Battles
Olenicoff had spent years battling the IRS. Starting in 2001, he contested IRS civil rulings that Olen owed back taxes dating to 1993. In civil cases against Olenicoff and Olen, the IRS said Olenicoff began hiding money in the Bahamas in 1990, which he denied.
The issues were resolved with two civil settlements and the guilty plea in the UBS case.
Like many wealthy Americans and corporations, Olenicoff had used offshore accounts that allowed him to pay less in U.S. taxes. Moving money to such havens is legal as long as a taxpayer reports the accounts and any income to the IRS.
Failing to report such information can result in criminal charges of filing a false tax return or tax evasion.
Birkenfeld, who faces up to five years in prison, is seeking leniency for his cooperation. His sentencing is set for Aug. 21. His lawyer, David Meier, didn’t respond to requests for comment.
Olenicoff was born in 1942, during World War II, the second son of a father who was an engineer and a mother who was a singer in Baku on the Caspian Sea. His grandfather, a wealthy Moscow merchant and czarist officer, was executed by the Bolsheviks in 1918.
Leo Tolstoy
In 1945, after the war ended, his father moved the family to northern Persia. After the Soviets tried to kidnap his father, Olenicoff says, the family moved to Tehran, where he learned English in an American missionary school.
In 1957, the Olenicoffs immigrated to the U.S. and lived on a farm in upstate New York run by one of Leo Tolstoy’s daughters. They soon moved to Los Angeles, where Olenicoff’s father, who spoke no English, worked as a janitor.
Olenicoff, who is fluent in English, Farsi and Russian, attended the University of Southern California in Los Angeles, where he earned an undergraduate degree in general management and a master’s degree in quantitative business analysis.
He helped manage Shell Oil Co.’s businesses in crop- dusting, gold mining and shipping before joining the accounting firm Touche, Ross, Bailey & Smart as a management consultant in 1966. He met Berry Gordy Jr., founder of Motown Records Corp., who hired him in 1970 to help manage such recording stars as the Temptations and Gladys Knight & The Pips.
6.2 Million Square Feet
After developing industrial parks for two real estate companies, he borrowed $2.2 million from United California Bank in 1973 to buy a 10-acre (4-hectare) farm in Placentia, California, 30 miles (48 kilometers) south of Los Angeles.
He built an industrial park there that his firm still owns. Olenicoff repeated the formula dozens of times, buying land, building business parks and leasing space. He constructed apartment buildings in Arizona, California, Florida and Nevada and bought a 40-story office tower in Chicago.
Today, Olen owns 6.2 million square feet (580,000 square meters) of commercial space, 11,200 apartments, two marinas, a shopping center, a restaurant and a golf course, Olenicoff says.
Olenicoff began banking offshore in 1980 on advice from Lloyds Bank California, then a subsidiary of the London-based bank now known as Lloyds Banking Group Plc, which had extended $44.5 million to Olen in unsecured loans.
Cayman Islands
Olenicoff says he opened an account in the Cayman Islands and eventually moved tens of millions of dollars to the Bahamas, where he began banking with Barclays Plc. He says he got a call out of the blue in 2000 from Birkenfeld at the Geneva office of London-based Barclays, where he worked before joining UBS.
Olenicoff says Birkenfeld set out to befriend him and asked to visit him in Newport Beach to discuss his Barclays holdings, which exceeded $90 million at the time.
Birkenfeld, who was born in Brookline, Massachusetts, had worked at State Street Bank & Trust Co. and Credit Suisse before joining Barclays.
“Your money in the Bahamas is in jeopardy,” Olenicoff says Birkenfeld told him. Olenicoff says Birkenfeld said he had inside information that Barclays would sell its Bahamas business. Barclays did sell it six years later, according to the bank.
Birkenfeld advised Olenicoff to take his funds to another bank. Three months after that, Olenicoff says, Birkenfeld called again.
‘Move Your Money’
“Igor, it’s time to move your money,” Olenicoff says Birkenfeld said. “You ought to move it to UBS here in Geneva.”
Olenicoff says Birkenfeld arranged for him to meet a UBS banker in Geneva. Olenicoff says he moved $70 million from Barclays in the Bahamas to UBS in Switzerland. Birkenfeld then left Barclays and was hired at UBS and became Olenicoff’s private banker.
Olenicoff says Birkenfeld visited him in Miami, invited him to a regatta and encouraged him to come to Switzerland.
In Geneva, Olenicoff says, Birkenfeld and other bankers promised UBS would provide estate planning and meet IRS reporting requirements.
“They did the full sales pitch, and they convinced me to move the securities accounts over to UBS and move the balance of the money from the Bahamas to UBS,” he says.
Birkenfeld told investigators that he and UBS knew their cross-border bankers were not registered with the SEC as broker- dealers or investment advisers, meaning they were not legally permitted to recruit or service clients in the U.S. UBS bankers made 3,800 U.S. client visits in 2004, according to its court filing.
IRS Agreement
UBS began to make promises to the IRS after buying Paine Webber Group Inc. for $11.9 billion in 2000. The New York-based securities firm had 8,000 brokers and held about $500 billion in assets.
That year, UBS signed a so-called qualified intermediary agreement with the IRS to give tax information to the U.S. agency about American clients holding securities in Swiss accounts. UBS was supposed to withhold taxes at a 28 percent rate if clients didn’t declare their accounts to the IRS.
The arrangement allowed UBS to shield client names from the IRS for those who had taxes withheld.
Baker & McKenzie LLP, an outside international law firm advising UBS, warned that the bank could violate U.S. criminal laws if it didn’t adhere to its agreement with the IRS, according to a 2000 UBS memo filed by the IRS in court in Miami.
‘Evade U.S. Tax’
The law firm advised that the bank could put itself in jeopardy if it used offshore companies to hide accounts from the IRS.
“This could be viewed as actively helping our clients to evade U.S. tax, which is a U.S. criminal offense,” the memo said.
Olenicoff says no one at UBS told him about the qualified intermediary accord.
“Had somebody said, ‘Igor, we have this QI agreement, right, and so we have to report it or you have to report it,’ the answer would have been real simple: ‘Sure,’” he says.
UBS helped clients circumvent U.S. securities restrictions by referring them to outside advisers who set up sham companies in tax havens like the British Virgin Islands, Hong Kong and Panama, according to the bank’s Feb. 18 admission.
UBS kept records showing the true owners of accounts as well as phony records saying they were owned by the sham firms.
‘Hide From the IRS’
“UBS used this procedure to help Igor Olenicoff hide from the IRS his beneficial ownership of undeclared accounts,” the IRS said in court papers.
Birkenfeld began working in 2001 with Mario Staggl, a Liechtenstein investment adviser at New Haven Trust Co., to create accounts for Olenicoff, according to documents made public by the U.S. Senate.
Staggl contacted Olenicoff about setting up a Danish shell corporation and a Liechtenstein trust as well as transferring his yacht ownership to Gibraltar, Olenicoff says. In 2005, Birkenfeld and Staggl told Olenicoff to transfer his UBS accounts to Liechtenstein because it had better bank secrecy laws, the Senate reported.
Staggl and Birkenfeld traveled for nine days in 2004 with Olenicoff and his friends to Mayan ruins in Honduras. Olenicoff says he flew the group on his Citation jet to Roatan Island off Honduras, where he sent ahead his Sterling yacht, which was built in Japan in 1986.
‘Dear Friends’
After that, they flew to Puerto Barrios in Guatemala, he says.
“It was lots of activity and adventure,” Olenicoff says. “I considered them dear friends. Otherwise, I would never have invited them to share this experience with me.”
Staggl was criminally charged by a U.S. grand jury in a sealed indictment with Birkenfeld in April 2008. On May 7, 2008, Birkenfeld had flown into the U.S. to a high school reunion when he was arrested at Logan International Airport in Boston.
A U.S. judge later declared Staggl a fugitive. Staggl couldn’t be reached for comment.
Olenicoff says that after his guilty plea and before his sentencing in April 2008, Birkenfeld visited him in California.
“The guy was still a friend and he was helping me, and he was consoling me with my IRS issues,” Olenicoff says. “Talk about a two-faced liar. I considered these bankers friends, but all the time they were screwing me. That’s the way that group works. They talk right, they smell right, but they’re not right.”
UBS Cooperating
UBS has now stopped recruiting clients without proper licensing in the U.S. and is cooperating with the Justice Department.
With the deferred-prosecution agreement, the bank has promised not to repeat a dark chapter in its history. Still, UBS is battling in a Miami courtroom to protect Swiss bank secrecy. It refuses to release the names of the 52,000 U.S. account holders.
For UBS and its U.S. clients, the question of whether they’ll be charged with a crime hinges on whether they cooperate with the IRS.
Customers who remain silent about their offshore accounts could end up in jail.
And as long as UBS insists on protecting the names of its offshore customers, it will be playing what amounts to a high- stakes game of chicken with the U.S. government. If UBS misgauges the resolve of the American authorities, it could find itself under indictment and fighting in a U.S. court to defend its very existence.
Subject: Billionaire Tax 'Felon' & 'The GoodFellas' @ UBS 
Tue Jun 09, 2009 3:53 am
