MonkeyBusinessBlog

UBS to Fork Over $780 million and Give Up Tax Cheat Names.

From the Financial Times this morning;

UBShas agreed to pay $780m (£548m) in fines and turn over some customer names to the US government as part of a landmark settlement in which the Swiss bank admitted it helped thousands of clients evade taxes.

The deferred prosecution agreement settles a long-running criminal investigation by the US Department of Justice into whether UBS helped wealthy US clients hide bank accounts from the Internal Revenue Service.

 “The veil of secrecy has been pulled aside and we will continue to aggressively pursue those who shirk their federal tax obligations or assist others in doing so,’’ said John DiCicco, acting assistant attorney-general of the justice department’s tax division.

Here is the full article from FT UBS Settles Tax Probe  So this is some good news.  Between the fine and what we get from the 250 names UBS is handing over could keep the bailout and stimulus going for a few hours AT LEAST!

We have had a lot of fun with UBS and the Swiss the last year or so.  Full disclosure is I worked at one of them and well........now I'm a world famous blogger and let's leave it at that!  Anyway, when this first came to light last June we wrote a couple of things on it that you may find interesting and amusing.  This piece was written June 20, 2008 Swiss Banking Having It's Joe Valachi Moment.

Here's a piece that tackles the general decline of all that is or was Swiss titled "What the Heck Happened to Switzerland?" back on June 1, 2008

There has been a lot of news lately about UBS private bankers getting nabbed by the U.S. Justice Department for aiding and abetting wealthy U.S. individuals to evade U.S. taxes.  Not only are the UBS private bankers getting nailed, their clients are too!  This week the big news was Igor Olenicoff pleaded guilty to using several offshore banks, mostly in Switzerland and Liechtenstein, to evade taxes on nearly $200 million in assets.  Former UBS banker Bradley Birkenfeld was indicted April 10 for "helping" Olenicoff.  I have a number of questions, leading up to a major question.

Question #1 - Aren't very wealthy people SUPPOSED to do this?  I grew up always hearing about Swiss bank accounts.  I thought having one was a true sign of success!  I thought the whole reason Liechtenstein existed was to hide rich people's money.....seriously!

Question #2 - Didn't the Swiss USED to be GOOD at this kind of stuff?  I thought the whole point of having a Swiss private banker and a Swiss bank was that they were great at hiding your money!  Every movie I've ever seen where somebody bad has to go and get their real money, they'd show up at some discreet Swiss bank and get it.  Hell, back in the day, the Swiss were able to do the banking of Hitler's Germany, and nobody could touch them.  Seriously, when Hitler needed to buy iron ore from Sweden, or something like that, they would do all the banking through the Swiss!  You would think that would have warranted a bombing run or two....but it never did because they had everybody else's money too!    When did the Swiss start sucking at this?  Also, when it comes to the strategy and execution regarding the hiding of an American's money, why was the banker doing it a U.S. citizen?  Didn't that kind of defeat the purpose?  It looks like it did...no?

Question #3 - With regard to banking in general, weren't the Swiss supposed to be good at this too? When its all said and done, UBS (the top Swiss bank) may come out of this current banking meltdown as the dumbest of the bunch.  They actually may top the dopey German Landbanks, who were never regarded as the sharpest tools in the shed to begin with.  UBS has given itself more self-inflicted wounds than anyone. Even more than Citi!  They PURPOSELY held on to billions of "AAA" CDO's and levered them up umpteen times in off-balance sheet transactions (SIVs).  They also set up Dillon Read and gave it a mandate to make as much bonus money as humanly possible for it's traders while putting the whole bank at major risk.... which they succeeded in doing handsomely!  You really had to try hard to run UBS into the ground and I'm afraid the Swiss have done just that.  The question here I guess is, were they ever really good at banking or is it just another myth destroyed?  I'm afraid I'm going to go with the latter on this.

Question #4 - Besides banking and chocolate, the other thing the Swiss were supposed to be really good at is skiing.  I've done a little research here and it's shocking.  Do you know the last time the Swiss won the world championships of Alpine Skiing?  1989!  When I was a kid they ALWAYS won.  They came in first place EVERY TIME in the 1980's!  The best they've done since is second in 2001, and other than that they have been pretty dismal.  I have no idea why this is.  Except for the freakishly good Roger Federer, are they really good at any other sport?  They grow up in the mountains, shouldn't skiing be to them what basketball is to us?  I don't know what's happened with the skiing but it seems to have coincided with the crumbling banking myth.

Question #5 - Chocolate? I've had better and I'll leave it at that. 

So the big question here is, "Switzerland, what the heck happened to you?"  Is there hope for this country or were they just a pretender all along?

There has been a lot of news lately about UBS private bankers getting nabbed by the U.S. Justice Department for aiding and abetting wealthy U.S. individuals to evade U.S. taxes.  Not only are the UBS private bankers getting nailed, their clients are too!  This week the big news was Igor Olenicoff pleaded guilty to using several offshore banks, mostly in Switzerland and Liechtenstein, to evade taxes on nearly $200 million in assets.  Former UBS banker Bradley Birkenfeld was indicted April 10 for "helping" Olenicoff.  I have a number of questions, leading up to a major question.

Question #1 - Aren't very wealthy people SUPPOSED to do this?  I grew up always hearing about Swiss bank accounts.  I thought having one was a true sign of success!  I thought the whole reason Liechtenstein existed was to hide rich people's money.....seriously!

Question #2 - Didn't the Swiss USED to be GOOD at this kind of stuff?  I thought the whole point of having a Swiss private banker and a Swiss bank was that they were great at hiding your money!  Every movie I've ever seen where somebody bad has to go and get their real money, they'd show up at some discreet Swiss bank and get it.  Hell, back in the day, the Swiss were able to do the banking of Hitler's Germany, and nobody could touch them.  Seriously, when Hitler needed to buy iron ore from Sweden, or something like that, they would do all the banking through the Swiss!  You would think that would have warranted a bombing run or two....but it never did because they had everybody else's money too!    When did the Swiss start sucking at this?  Also, when it comes to the strategy and execution regarding the hiding of an American's money, why was the banker doing it a U.S. citizen?  Didn't that kind of defeat the purpose?  It looks like it did...no?

Question #3 - With regard to banking in general, weren't the Swiss supposed to be good at this too? When its all said and done, UBS (the top Swiss bank) may come out of this current banking meltdown as the dumbest of the bunch.  They actually may top the dopey German Landbanks, who were never regarded as the sharpest tools in the shed to begin with.  UBS has given itself more self-inflicted wounds than anyone. Even more than Citi!  They PURPOSELY held on to billions of "AAA" CDO's and levered them up umpteen times in off-balance sheet transactions (SIVs).  They also set up Dillon Read and gave it a mandate to make as much bonus money as humanly possible for it's traders while putting the whole bank at major risk.... which they succeeded in doing handsomely!  You really had to try hard to run UBS into the ground and I'm afraid the Swiss have done just that.  The question here I guess is, were they ever really good at banking or is it just another myth destroyed?  I'm afraid I'm going to go with the latter on this.

Question #4 - Besides banking and chocolate, the other thing the Swiss were supposed to be really good at is skiing.  I've done a little research here and it's shocking.  Do you know the last time the Swiss won the world championships of Alpine Skiing?  1989!  When I was a kid they ALWAYS won.  They came in first place EVERY TIME in the 1980's!  The best they've done since is second in 2001, and other than that they have been pretty dismal.  I have no idea why this is.  Except for the freakishly good Roger Federer, are they really good at any other sport?  They grow up in the mountains, shouldn't skiing be to them what basketball is to us?  I don't know what's happened with the skiing but it seems to have coincided with the crumbling banking myth.

Question #5 - Chocolate? I've had better and I'll leave it at that. 

So the big question here is, "Switzerland, what the heck happened to you?"  Is there hope for this country or were they just a pretender all along?

"Hey Boys...I Think We Just Found Out Who is Gonna Pay For the Bailout!"

I woke up this morning and did my usual stroll down the driveway to get the papers and it went something like this, "Hmm, its Thursday today, the sun will rise in the east and set in the west again, the Swiss and Liechtenstein helped U.S. clients avoid billions in taxes, blah blah blah, RONNIE WOOD BACK IN REHAB!!?? Now THAT is surprising!  I thought he just got out of rehab, THIS is shocking!"

The fact that the Swiss and whatever the hell the 22 people from Liechtenstein call themselves, have been aiding and abetting U.S. citizens to avoid paying BILLIONS in income tax is absolutely no surprise.  It's been going on forever.  The fact that a decent chunk of money in those Swiss accounts is dirty money (meaning it was "ill-gotten", like Tony Soprano's money) made clean should be no surprise either.  This is what the Swiss do.  They don't care whose money it is, if its green they take it.  They were doing Hitler's banking when American's were fighting and dying to liberate Europe.  Hell, while we were liberating Europe, the Swiss were "liberating" millions from Holocaust victims!

The only difference between 50-60 years ago and now, is the Swiss got real bad at just about everything!  UBS has shown that a global bank can actually lose mountains of money in just about EVERY major business-line, simultaneously!  At least most of the U.S. firms (except Citi, but they can be excused as mentally challenged) were playing the subprime, alt-a game like it was a big ponzi scheme.  They got the loans, ran it through the sausage factory, created securities and blasted them out the door.  Their problem was the machine broke down with a whole lot of garbage still stuck at the factory.  UBS? 

"Hey Otto, zees AAA CDO's are paying a spread of 50 basis points better zan ze normal AAA's.  Lets buy billions and lever zem up ten times and make a killing!  Traders are leaving?  Tell zem to vait, ve vill set up our own hedge fund for zem to vork zer creative magic on every illiquid security out zere.  Vat vas ze name of zat firm ve bought a while back, Dillon Read?  Let zem vork under zat banner, we put up two-thirds of ze capital!"

Even dumber than this is how they ran "Swiss Banking" here in the United States.  They had American "bankers" like Brad Birkenfeld advising American citizens on American soil how to get their money out of the country and avoid taxes.  Not a very smart move.  If the Justice Department nails a Swissee or a Lichtee banker, they really can't hold him.  A high-ranking American? Hah!  He gave up the goods in about ten minutes.  At least Liechtenstein's bank LGT got busted because a disgruntled employee sold the banks entire account list to the Germans!  What's funny about that is, the entire principality of Liechtenstein has essentially been wiped out by one email!  You have to admit that that's pretty damn funny.  Here's some good stuff from the Financial  Times Article, "UBS Used 'Cloak of Band Secrecy' to Help Clients Avoid U.S. Taxes"

"Methods allegedly used by LGT included telling U.S. clients to open accounts in the name of foundations to hide the ownership and advising them on the use of offshore structures and 'transfer corporations' to disguise transfers via LGT accounts.  UBS told committee investigators it held 19,000 accounts worth about $18 billion for US clients that it had not declared to the IRS."

Well now, this should be real interesting when the government goes through the names on the accounts and tracks back the real U.S. citizens (getting though all the phony foundations and shell companies) who have done this.  I am going to make a bet now, that at least 25% of these individuals have given large donations to congressional, gubernatorial and presidential campaigns.  It's going to be a hoot watching all the politicians scrambling to cut ties with all these guys and give back the contributions that they probably already spent!

The good news out of all this as far as I'm concerned is we just found at least $20 billion from just one Swiss bank, and you know the other ones are going to be "volunteering to help" too very soon.  Right now they are lining up the patsies that will take the fall as "rogue bankers", violating bank policy.  These banks will be handing over names and accounts too.  I bet there's another $20 billion for the good guys.  The timing is perfect.  Freddie and Fannie are in huge trouble, everyone is starting to complain about spending tax-payer money and here we just found at least $40 billion of "tax-avoider" money!  That should keep Freddie and Fannie floating for at least a quarter or two.  Perfect!

Erin Callan Pulls Off the BEST Trade of 2008!

Yesterday, Credit Suisse announced that:

"Erin Callan will be joining the Bank as Head of Global Hedge Fund Business.  In this newly created position, Ms. Callan will join the Investment Bank Management Committee and the Global Client Steering Committee"

Bravo for Ms. Callan.  As far as I am concerned, she is like a ballplayer who got traded from a last place team to a team in pennant contention in September!  Ms. Callan's old gig was CFO for Lehman Brothers, where everyday she had to do a little thing, the late great Gregory Hines called, "The Ethiopian Shim-Sham"!  In that job she essentially had equivocate and triangulate her way around the disaster that is Lehman.  Her job was almost as bad as a White House Press Secretary (Bush or Clinton's).  The CFO of a company hiding bad things has to pee down very smart people's legs everyday and tell them its raining!  Meanwhile, your boss is "staying above it all."

Well screw that!  Now Ms. Callan gets a dream job, actually a job I always wanted!  She will be a gigantic relationship manager.  She will have a BIG corner office with a big Rolodex of names and she will "manage relationships".  She will have a staff of people who are responsible for keeping her up to date on where the firm ranks in all areas with important hedge fund clients.  She will field calls from heads of hedge funds who will tell her, "Erin, if CS wants our prime brokerage business, and our futures brokerage business, you have to make us better markets in product X".  She will call in the salesmen and traders who "haven't been making good markets" and tell them that they better start bending over for the particular hedge fund because there's a lot of fee business the firm is missing out on."  She will then dismiss them, call the hedge fund back to tell them "problem solved, lets go to lunch!" 

Meanwhile, the poor trader will spend the rest of the year letting the hedge fund run him over so the firm can get all that juicy fee business.  Then on bonus day, the trader gets dinged because he didn't make his numbers.  He will say, "I didn't make my numbers because the head of hedge fund relations told me to bend over for this hedge fund.  Sure I lost $10 million, but what about all those fees we got in return?"  Upon hearing this his manager will just laugh at him!  The manager is aware of no such arrangement.  As far as Ms. Callan, she gets a nice bonus for getting the "riskless fees" up!  She just went from the "dirty end of the stick" at Lehman, to the clean end at CS!  For that we say congratulations!  As for what Ms. Callan should say to Dick Fuld, lets go with Robbie Benson from the great movie, "One on One".

David Shulman Come on Down!! You're Next on Celebrity Perp Walk!

Remember yesterday we talked about how some of the big banks, Like UBS, were pushing municipal and student loan agency auction rate debt onto retail (mom and pop) investors as they saw the institutional market for the product vanishing in late 2007?  Most of the investors didn't seem to know that the liquidity of their new investment relied on an auction process, that was sort of a scam to begin with.  They thought it was AAA, good as cash.  It wasn't.

Well today most financial pages are reporting that UBS is being sued by the State of Massachusetts for fraud. The suit says they misled clients with regard to the liquidity and quality of the auction rate debt.  William Galvin, secretary of the Commonwealth of Massachusetts, is quoted in the NY Times:

"The thing that is most amazing to me is what a comprehensive and deliberate strategy this was by UBS.  They wanted to reduce their inventory, so they decided to gear up their sales campaign using cashlike arguments deliberately."

Galvin is on to the sham auctions the banks ran on these instruments for years, taking down issues that weren't bid on to make it look like real auction.  This in turn gave the instruments a false appearance of high liquidity.

Anyway, the complaint has identified David Shulman, the Head of UBS Fixed Income Global Sales, as the main culprit in aiming these inappropriate retail trades at mom and pop.  They've got emails that Mr. Shulman sent out to the global sales force in mid-December.  Here is a quote from the email, "We need to move this paper and have to explore all angles possible.  We need to do this as quickly as possible.  Please work on this as a priority."   At the same time UBS was warning issuers that the market for their debt was seizing up.

Now there was one "retail" investor who sold his auction rate debt securities.  Dave Shulman!  According to the NY  Times, Shulman had been selling them all through late 2007.  He sold the last chunk December 12, 2007, one day after he sent out the "SELL MORTIMOR SELL" memo!  According to the Times:

"In testimony before Massachusetts investigators, Mr. Shulman said that his 'risk tolerance' drove him to sell.  He said he replaced the securities with issues that were more liquid and seemed to offer 'more protection', according to the complaint."

Well now!  Ralph Cioffi and Matt Tannin got led out of their homes at 5am and perp walked in handcuffs for less than this.  At least the Bear guys were picking off other institutional investors.  Shulman was going after individual's life savings.  If Ralph and Matt go, this guy has to go too.   

Swiss Banking Having it's Joe Valachi Moment

Back in October 1963 Joseph Valachi, a soldier in the Genovese Crime Family, testified in front of the United States Congress, essentially becoming the first member of La Costa Nostra to admit its's existence.  Valachi's testimony, while not enough to put away top mobsters (Joe was a soldier and as the famous Willi Cicci said in Godfather II, "Yeah Senator, the family had  a lot of buffers.") it gave insight into how the mob operated and it set the precedent for flipping mobsters and eventually delivering big hits to the mob's senior leadership.

Yesterday, Brad Birkenfeld of UBS pleaded guilty to a charge of assisting American billionare, Igor Olenicoff. in evading millions of dollars of federal income taxes. Mr. Birkenfeld also sang like a canary to the judge, essentially laying out all the neat little tricks UBS recommended for it's American clients. See, unlike Joe "Cargo Joe" Valachi, Birkenfeld is a lot higher than soldier in his little gang.   Here are some of the best evasion tips:

• Destroy all banking records to conceal off-shore accounts,
• Stash watches, jewelry and artwork that they had bought with "hidden money" in Swiss safe deposit boxes. (Funny, I think the Nazi's did this too with their Swiss bank accounts).
• Use Swiss credit cards so the IRS couldn't track their purchases.
• Use Swiss bankers in the USA to smuggle out cash, diamonds, etc, (Birkenfeld claims he once smuggled a clients diamonds out of the USA in a tube of toothpaste).

Armed with this information, the Justice Department is now looking to compel UBS to give up as many as 20,000 names of American off-shore clients.  I wonder how long it will take the Swiss to come up with some embarrasing names to cool the DOJ off?  In any event the Swiss will fight this.  In Switzerland, tax evasion is not illegal.  At first that looks pretty shocking but if you think about it, that's the country's main industry.  If they outlawed it what would they have?  They have served as the washer and stasher of illegal money for years.  These are the same guys who held on to Holocaust victim's assets for decades, as opposed to seeking their rightful owners.  They did the banking of HItler's Germany too. Good people the Swiss.

What really strikes me is how badly UBS bungled this.  Why would they have ANY American senior enough running this kind of operation?  If you have one American, on American soil, advising and aiding another American to evade U.S. taxes, isn't the whole operation at risk?  If the private banker were Swiss, or Leichtensteinian (I don't know what those Leichtys call themselves to be honest)  would the Fed's be able to arrest and hold him to get the inside scoop?  Probably not because the Swiss or the Leichtys would go bat-sh*t and demand his release!  Also, if it's an American banker why the hell didn't they at least meet in some friendly foreign location, like the Caymans, to conduct these one-on-one tax evasion seminars?

I've reconciled myself to the fact that Swiss Banking has always been dirty.  What I must now reconcile myself to is that the Swiss really ain't that smart.  I wonder if they really make those great watches?

What the Heck Happened to Switzerland?

There has been a lot of news lately about UBS private bankers getting nabbed by the U.S. Justice Department for aiding and abetting wealthy U.S. individuals to evade U.S. taxes.  Not only are the UBS private bankers getting nailed, their clients are too!  This week the big news was Igor Olenicoff pleaded guilty to using several offshore banks, mostly in Switzerland and Liechtenstein, to evade taxes on nearly $200 million in assets.  Former UBS banker Bradley Birkenfeld was indicted April 10 for "helping" Olenicoff.  I have a number of questions, leading up to a major question.

Question #1 - Aren't very wealthy people SUPPOSED to do this?  I grew up always hearing about Swiss bank accounts.  I thought having one was a true sign of success!  I thought the whole reason Liechtenstein existed was to hide rich people's money.....seriously!

Question #2 - Didn't the Swiss USED to be GOOD at this kind of stuff?  I thought the whole point of having a Swiss private banker and a Swiss bank was that they were great at hiding your money!  Every movie I've ever seen where somebody bad has to go and get their real money, they'd show up at some discreet Swiss bank and get it.  Hell, back in the day, the Swiss were able to do the banking of Hitler's Germany, and nobody could touch them.  Seriously, when Hitler needed to buy iron ore from Sweden, or something like that, they would do all the banking through the Swiss!  You would think that would have warranted a bombing run or two....but it never did because they had everybody else's money too!    When did the Swiss start sucking at this?  Also, when it comes to the strategy and execution regarding the hiding of an American's money, why was the banker doing it a U.S. citizen?  Didn't that kind of defeat the purpose?  It looks like it did...no?

Question #3 - With regard to banking in general, weren't the Swiss supposed to be good at this too? When its all said and done, UBS (the top Swiss bank) may come out of this current banking meltdown as the dumbest of the bunch.  They actually may top the dopey German Landbanks, who were never regarded as the sharpest tools in the shed to begin with.  UBS has given itself more self-inflicted wounds than anyone. Even more than Citi!  They PURPOSELY held on to billions of "AAA" CDO's and levered them up umpteen times in off-balance sheet transactions (SIVs).  They also set up Dillon Read and gave it a mandate to make as much bonus money as humanly possible for it's traders while putting the whole bank at major risk.... which they succeeded in doing handsomely!  You really had to try hard to run UBS into the ground and I'm afraid the Swiss have done just that.  The question here I guess is, were they ever really good at banking or is it just another myth destroyed?  I'm afraid I'm going to go with the latter on this.

Question #4 - Besides banking and chocolate, the other thing the Swiss were supposed to be really good at is skiing.  I've done a little research here and it's shocking.  Do you know the last time the Swiss won the world championships of Alpine Skiing?  1989!  When I was a kid they ALWAYS won.  They came in first place EVERY TIME in the 1980's!  The best they've done since is second in 2001, and other than that they have been pretty dismal.  I have no idea why this is.  Except for the freakishly good Roger Federer, are they really good at any other sport?  They grow up in the mountains, shouldn't skiing be to them what basketball is to us?  I don't know what's happened with the skiing but it seems to have coincided with the crumbling banking myth.

Question #5 - Chocolate? I've had better and I'll leave it at that. 

So the big question here is, "Switzerland, what the heck happened to you?"  Is there hope for this country or were they just a pretender all along?