Swiss banker plea seen intensifying U.S. tax dodge inquiry

Mon Nov 5, 2012 7:00am EST

* Former banker seen pleading guilty in Florida

* Plea could signal he is cooperating in tax dodge probe

* Swiss banks said to be seeking end to investigation

By Lynnley Browning and Katharina Bart

Nov 5 (Reuters) - These are gloomy times for once super-secret Swiss banks, with a tax evasion probe by U.S. authorities grinding on and a former Swiss banker expected to plead guilty in a Florida court on Tuesday to helping wealthy Americans dodge U.S. taxes.

Christos Bagios, formerly employed by Credit Suisse and UBS AG, is accused of helping rich Americans evade t a xes. He pleaded not guilty last month but is expected to change his plea to guilty.

If he does, lawyers said, it would signal he is cooperating with U.S. investigators in a wide probe of Swiss banks, including Credit Suisse.

Bagios' cooperation could prolong a costly and embarrassing inquiry that has tarnished Swiss banking secrecy, even as the banks have tried to bring it to an end.

Bagios, a Greek citizen and Swiss resident, was arrested in New York in January 2011 and accused of helping about 150 U.S. clients hide as much as $500 million from the tax-collecting U.S. Internal Revenue Service while he was employed at UBS.

He has been under government detention for nearly two years in a rented apartment in Miami and forced to wear an ankle monitoring bracelet. Matthew Menchel, a lawyer for Bagios, declined to comment.

In the international financial world, Swiss banking secrecy has long provided a haven of privacy and discretion, but that legacy is under pressure. The United States and other nations, dealing with severe budget deficits, are tightening tax law enforcement and demanding more openness and cooperation from tax-haven nations including Switzerland.

Credit Suisse and other banks are pressing the Swiss government to hand over data that the U.S. authorities want on American clients suspected of offshore tax evasion, according to U.S. and Swiss persons briefed on the matter.

But the government of Switzerland, where bank secrecy is enshrined in law and tradition, has pushed back.

"The banks are frustrated because their hands are tied with the secrecy laws, and they are pressing the Swiss government for a resolution," said Milan Patel, a tax lawyer in Zurich and a former senior attorney at the U.S. Internal Revenue Service.

"Some banks want to cooperate and get this over with, but the Swiss government hasn't been able to come up with a mechanism," said Patel, who has clients involved in the dispute.

Mario Tuor, spokesman for the Swiss State Secretariat for International Financial Affairs (SIF), declined to comment.

MANY BANKS INVOLVED

Banks under criminal investigation by U.S. authorities include Credit Suisse, which received a target letter last July saying it was under a U.S. grand jury investigation.

Zurich-based Julius Baer and some cantonal, or regional, banks are also under scrutiny. So are UK-based HSBC Holdings and three Israeli banks, Hapoalim, Mizrahi-Tefahot Bank Ltd and Bank Leumi.

In February, Wegelin, Switzerland's oldest private bank, was indicted.

Bagios, who worked at UBS from about 1999 through 2008, then at Credit Suisse, is expected to change his plea to guilty on Tuesday to charges of selling tax evasion services to Americans and cooperate with U.S. authorities, lawyers said.

Patel said U.S. authorities would use the expected plea "to put pressure on Credit Suisse."

Victoria Harmon, a spokesperson for Credit Suisse in New York, declined to comment. Spokespersons for UBS, Julius Baer and HSBC declined to comment.

Charles Miller, a Justice Department spokesman, also declined to comment.

Swiss banking secrecy was relaxed in 2009 in a U.S. tax evasion case involving UBS, which paid a $780 million fine and handed over more than 4,500 American client names.

U.S. officials say the UBS case, now closed, remains a template for resolving the current disputes. But Switzerland has argued that the UBS case was strictly a one-off matter.

GLOBAL DEAL SOUGHT

Support among some Swiss banks for handing over client data to U.S. authorities represents a new approach. It comes as efforts by Swiss officials to craft a settlement with the United States have stalled. Such a settlement would cover the entire Swiss banking industry, with billion-dollar fines and a handover of some client data. In return, the Swiss government has sought guarantees of no further criminal proceedings.

But the U.S. Justice Department has rejected this "global settlement" idea, according to U.S. and Swiss government sources and tax lawyers close to the matter.

Instead, each bank under criminal investigation must "negotiate its own deal" with the Justice Department, said a U.S. person briefed on the matter.

Michel Derobert, secretary general of the Swiss Private Bankers' Association, a trade group in Geneva, said: "I don't think a global deal is very realistic."

He said the banks "will find some solution for themselves."

A Swiss official who declined to be identified said that "nothing is happening" with regard to a global settlement.

William Sharp, a tax lawyer in Zurich and Tampa, Fla., with bank clients mired in the probe, said that "since the global settlement talks have stalled, many Swiss banks are pressing their own cases to settle all U.S. legal issues."

Credit Suisse wanted to hand over some client names last spring, but the bank was stopped by FINMA, the Swiss financial regulatory agency, according to a U.S. person briefed on the matter and Douglas Hornung, a tax lawyer in Geneva.

A spokesperson for FINMA declined to comment.

"The Swiss banks are frustrated as much with the Swiss government as with the U.S.," said Urs Schenker, a tax lawyer and managing partner at Baker & McKenzie in Zurich. "It's important to them that the government takes action, but the banks are somewhat limited."

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