May 3, 2010 / 7:53 PM / 9 years ago

Julius Baer whistleblower cites Swiss tax edge

MIAMI (Reuters) - A former private banker at Julius Baer, who alleges the Swiss bank knowingly helped rich clients dodge taxes, said on Monday that U.S. clients have long paid a premium for Swiss firms’ tax advantages.

Rudolf Elmer, who told his story in public for the first time, was fired from Julius Baer in 2002. He says he has divulged internal company documents with officials in several countries, including the United States and Germany.

As a former chief operating officer for Julius Baer in the Cayman Islands, Elmer says he has files that show the bank helped clients skirt taxes.

“If you look at the cost you pay for Swiss banking, it’s tremendous,” Elmer told an audience of bankers and others at an offshore financial conference in Miami. “What do you get out of it? Tax advantage. It’s that simple.”

Julius Baer denies Elmer’s allegations. They fired him after he flunked a polygraph test and has been trying to retrieve client data in his possession.

“Shortly after leaving the employment of the Julius Baer Group in 2002, Cayman-based Elmer, clearly annoyed at having been dismissed and unable to secure a financial settlement to his satisfaction, engaged in a campaign to seek to discredit the Julius Baer group and certain of its clients,” a Julius Baer spokesman said in an emailed comment.

Further, the bank alleges Elmer has threatened individuals and altered documents to create a “distorted fact pattern.”

Elmer says he failed the polygraph because he was on heart medication and contends he has been harassed by the bank. He said he brought company data home with him for security reasons and then refused to give it back because the bank owed him money.

Elmer first went to the U.S. Internal Revenue Service in 2007 with data on eight clients, and says his case is ongoing. He has also testified in a case in Germany related to an investment called Moonstone Trust.

The IRS declined to comment. The agency’s whistleblower program gives up to 30 percent of tax revenue recovered if a claim is proved legitimate.

Elmer’s allegations come as the United States and other developed countries hunt for more revenue while slowly emerging from a global recession.

About $10 trillion is held in offshore centers by nonresidents, according to the Tax Justice Network, a group seeking to increase transparency in financial flows.

Swiss banking giant UBS AG settled a criminal probe with the U.S. Department of Justice last year, after admitting it actively aided U.S. clients with $20 billion in assets to avoid tax.

A former UBS banker turned whistleblower, who officials acknowledge was instrumental in the U.S. case against UBS, is now in jail on charges he helped a U.S. billionaire hide $200 million in assets.

The UBS whistleblower, Bradley Birkenfeld, famously told prosecutors he once smuggled diamonds in a toothpaste tube for a client to avoid paying taxes on them.

NOT TALKED ABOUT

Elmer said he discovered suspicious activity in how Julius Baer client accounts were handled, including changing ownership information on trusts as owned by Americans for U.S. tax purposes.

“In the banking world, you don’t really talk about it but you know what’s happening,” he said.

Jack Blum, a lawyer known for representing whistleblowers who has taken on Elmer’s case, said it was unclear the extent of illegal activity based on the files, because they still needed to be investigated.

“What we can say is clearly the behavior of the bank suggests strongly that something fishy is going on,” he said.

Julius Baer earned net income of $435 million net income 2009. It has said inflows of client money slowed last year as international tax clampdowns caused many offshore customers to repatriate funds.

U.S. authorities have said they are probing other banks to see if they engaged in similar behavior to UBS.

Earlier in the conference, lawyers and bankers working in Bermuda, Cayman Islands, and Bahamas decried the stepped up pressure from developed countries to collect taxes.

They said offshore financial centers have come a long way in increasing transparency and defended helping companies and individuals avoid tax if done legally.

“We all realize what time it is literally and are responsible members of the international community,” said Cherise Cox-Nottage, a UBS banker in the Bahamas who said she was speaking for herself.

Reporting by Kim Dixon; Editing by Tim Dobbyn

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