Swiss banker blows whistle on tax evasion

Last Updated 21 January 2010, 15:26 IST

From his home in the quiet village of Rorbas, outside Zurich, Rudolf M Elmer is chipping away at the centuries-old traditions of Swiss banking secrecy.

Elmer, who ran the Caribbean operations of the Swiss bank Julius Baer for eight years until he was dismissed in 2002, moved to Mauritius in the Indian Ocean and began parceling out to global tax authorities what he said were the secrets of his former employer.

Now back in his native country, he continues to disclose the inner workings of Julius Baer — one of many Swiss institutions that investigators say help clients evade billions of dollars in taxes by routing money through offshore havens in the Caribbean and Switzerland.

“It is a global problem, and I am only the messenger who provides the bad news, or even better, the truth,” Elmer, 54, wrote in a recent e-mail message. “Offshore tax evasion is the biggest theft among societies and neighbour states in this world.”
He said that he would fly to Duesseldorf, Germany, where the tax authorities are putting him up in a five-star hotel as he prepares to divulge client secrets.

Elmer joins a group of whistle-blowers that includes Bradley Birkenfeld, the former UBS private banker who disclosed the bank’s secrets, pushing it toward a settlement with the US government, and Heinrich Kieber, a former data clerk at the LGT Group, the Liechtenstein royal bank, who stole client data and funnelled it to US and European authorities.
Elmer’s disclosures are attracting particular interest as the IRS and the justice department embark upon a strategy of “it takes a rogue to catch a thief” to encourage insiders who engaged in wrongdoing to reveal the secrets of their employers.

Lawyers and congressional investigators who have begun to review Elmer’s claims say that his internal bank and client documents provide fresh ammunition for US authorities as they take their crackdown on offshore tax evasion beyond UBS to clients of other banks.

Elmer has given documents to the IRS, a senate subcommittee investigating tax evasion and investigators for Robert M Morgenthau, then the Manhattan district attorney, his lawyer Jack Blum said. They cover more than 100 trusts, dozens of companies and hedge funds and more than 1,300 individuals, from 1997 through 2002, Blum said.

Elmer contends that his documents detail the undisclosed role of American investment management companies in funnelling American, European and South American clients who wished to avoid taxes to Julius Baer; the backdating of documents to establish trusts and foundations used to evade taxes; and the funnelling of trades for hedge funds and private equity firms from high-tax jurisdictions through Baer entities in the Cayman Islands.

“What he has is the confirmation of something very important: that a number of other banks in the voluntary disclosure process are turning up,” Blum said, referring to 14,700 wealthy Americans, many of them UBS clients, who came forward to disclose their secret accounts last year. The IRS declined to comment on Elmer’s case but said in a statement that it was “investigating other banks that have enabled Americans to evade taxes”.
Nothing indicates that Julius Baer, a 120-year-old private bank, is under IRS investigation. The bank is known for intense privacy. Its board chairman, Raymond J Baer, told shareholders last April that “the fiction of citizens being fully transparent must never become reality”.

Under federal scrutiny
Julius Baer, based in Zurich, had profits of more than $245 million in the first half of 2009 on more than $200 billion in client assets. In 2004, it sold its American wealth management business to UBS, whose offshore private banking operations for Americans came under federal scrutiny and led the bank to pay a $780 million fine in 2009 and admit to criminal wrongdoing. The acquired business was folded into a group led by Raoul Weil, the top UBS private banker who fled to Switzerland in 2009, after being indicted in the UBS case touched off by Birkenfeld.

Elmer worked for Julius Baer nearly two decades, the first 15 years in Switzerland and then as chief operating officer of Julius Baer Bank & Trust in Grand Cayman, beginning in 1994. As far as his own role in helping clients evade taxes, he said, “I didn’t realise what was going on”. Elmer said he discovered the tax evasion in 2002 and decided to expose Julius Baer’s operations.

Julius Baer denies that version of events. It contends that Elmer stole internal documents and client data around 2002, the year he was dismissed after raising concerns about the bank in the wake of being passed over for a promotion. He moved to Mauritius a year later.

“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,” the bank wrote by e-mail in December.

“This campaign has included threats against individuals and the use of documents inappropriately obtained and/or retained by Elmer following the termination of his employment, many of which were altered to create a distorted fact pattern or supplemented by forged documents, the creation of which Elmer has since admitted,” the bank wrote.

Swiss authorities, who briefly held Elmer in jail in 2005 on charges of breaching Swiss bank secrecy laws, are investigating whether he stole the documents.
In 2008, Elmer posted some of his documents on Wikileaks, a website that publishes whistle-blower information about government and corporate activity. In court papers the bank filed in February of that year, seeking unsuccessfully to prevent the disclosure of the records, the bank revealed the names of certain clients that Elmer had accused of tax evasion.
They include Jonathan Lampitt, the president and chief executive of the Jupiter Investment Group, in Rancho Santa Fe; Winston B Layne, a wealthy resident of New York; and Anna Kanellakis, an owner of a shipping company, Alpha Tankers and Freighters, based in Athens. A spokesman for Lampitt did not respond to requests for comment. Messages left at Layne’s Upper East Side Manhattan home were not answered. A spokesman for Alpha Tankers said that it knew nothing about accounts at Julius Baer.

Elements of the dispute between Elmer and Julius Baer resemble a spy thriller. He said that Julius Baer had him followed by private investigators in Zurich and that superiors told him “it might be a good idea to go for a deep dive in the sea” — assertions that the bank denies.

The bank said it suspected Elmer of having mailed a suspicious white powder to its offices, which he denies. It also said that he forged a 2007 document on Julius Baer letterhead notifying Chancellor Angela Merkel of Germany that the bank was closing her accounts because they “hid funds in offshore accounts.” Elmer says the letter, which he has posted on Wikileaks, is authentic.

His actions are “symptomatic of a generalised breakdown of bank secrecy,” said Christopher S Rizek, a tax lawyer at Caplin & Drysdale in Washington who has represented scores of wealthy American clients of Swiss banks.

(Published 21 January 2010, 15:25 IST)

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