Cracking the Vault

With help from a former UBS banker, the Feds are demystifying how the Swiss do business. Inside the tradecraft.

Evan Thomas and Mark Hosenball
NEWSWEEK
From the magazine issue dated Mar 23, 2009

Among the very rich, it's known as "the nut." That's the amount of money they need to salt away for a "rainy day"—for when the bubble bursts or the subpoenas arrive. It's enough money to keep paying for, say, the grandkids' private-school tuitions or the landscape gardener on Martha's Vineyard. ("Every Master of the Universe knows the number," wrote "The Bonfire of the Vanities" author Tom Wolfe.) Usually, the money is invested in something safe, such as T-bills. But sometimes it's sent, as they say, "offshore," stashed away in what one Swiss bank described as a "posterity fund."

Just how many rich people, and how much money? According to a recent U.S. Senate investigation, a single Swiss bank—the biggest, UBS—holds the secret bank accounts of 46,000 Americans, worth an estimated $18 billion. Lately, the Feds have tried to crack down on these rich Americans as tax evaders (generally, the depositors do not pay any taxes on the income from these accounts). The Swiss, not surprisingly, have been resisting. For more than three centuries, Swiss bank secrecy has offered safe haven to the wealthy, some of them unsavory types—Nazis, dictators such as Saddam Hussein and, allegedly, Islamic terrorists. At a time when the rich are coming under close and unsympathetic scrutiny, the details starting to come out about the way the Swiss banking game is played are eye-popping, if not infuriating. Judging from documents and testimony examined by NEWSWEEK, Swiss bankers, like spies, practice what is known in the espionage business as tradecraft—elaborate and often clever steps to evade detection. Last month UBS issued a statement saying, "UBS sincerely regrets the compliance failures in its U.S. cross-border business that have been identified by the various government investigations in Switzerland and the U.S., as well as our own internal review." Translation: the Swiss bank was running a shadowy operation to help rich Americans get their money out of the country, and sometimes back in, without the Feds finding out.

The story is best told through the misadventures of an extremely rich American businessman named Igor Olenicoff and his dealings with an American-born Swiss banker named Bradley Birkenfeld, whose name seems to come from a Hollywood story treatment, along with some of the tales he has been telling, like smuggling diamonds in a tube of toothpaste.

(More here.)