Blowing the lid off private banking secrecy

During the past week, the US Magazine Global Post published an amazing series of articles about the insider truth of being a private banker with UBS in Switzerland.

The five article series charts the operations of one Bradley Birkenfeld - a Boston-born, high-flying, cross-border banker - at Switzerland’s premier financial institution, UBS. In this role, he had access to secret account information that law enforcement officers can only dream of.

Here are a few extracts from the series that made my eyebrows raise a little:

“At UBS, clients’ names and their account information are divided irreconcilably between separate computer servers in secret locations. Even for a world-class hacker with free roam of electronic bank records, identifying the owner of a numbered account is literally ‘Mission: Impossible’ ... the only seam of vulnerability resided in nothing more advanced than the kind of old-school card catalog you might find in a local library. At the start of business each morning, private bankers like Birkenfeld, then a director in the wealth management division of UBS, would check in at combination vaults to pull their ‘racks’ — wooden trays of 4x5 paper index cards that are the Achilles heel of Swiss secrecy. Printed on each confidential client card — in plain, unencrypted typeset — is the client’s name, account and safety deposit box numbers, the fees paid, and home addresses and unique passwords — secret challenge phrases known only to the banker and the client that are used to verify identity on the phone (‘Rose and Eagle’ on a surreptitiously photocopied card Birkenfeld showed me). ‘If I was really devious ... I would have just taken my gym bag, slid them in, walked out the door, hopped on a plane,’ Birkenfeld laughed during our interview.”

Of course, these leaks are now becoming more common (see HSBC).

“The bank had held training sessions for cross-border bankers on how to elude FBI and U.S. Customs scrutiny when traveling with sensitive bank documents; how to obscure client information on PDAs and encrypted laptops; and various other evasive trade craft not usually associated with honest banking ... The bank would admit to intentionally subverting U.S. tax laws and defrauding the U.S. government by sending dozens of unregistered bankers, Birkenfeld among them, to the United States on thousands of illegal trips to facilitate tax evasion schemes for wealthy U.S.-based clients — a fraud hiding as much as $20 billion in secret undeclared accounts and earning UBS up to $200 million a year in ill-begotten profits.”

And these are law-abiding citizens?

Oh yes, they are:

“To avoid criminal prosecution, and potential ruin, the bank would agree to pay a $780 million fine and, most controversially, agree to turn over names of thousands of American account holders to the IRS, a betrayal on par with original sin in Switzerland. The move was approved by the Swiss parliament in June, clearing the way for the release of the documents and what could be thousands of pending cases. Eventually, the Swiss government itself would bow under the weight of the evidence accumulated against UBS and, in high-level settlement discussions with the U.S. State Department, concede to new treaty terms to prevent Switzerland’s leading bank from losing its licenses to do business in the U.S. Meanwhile, the investigations sent nearly 15,000 American tax offenders, the vast majority with undeclared UBS accounts, into the arms of a new IRS amnesty program ...”

Actually, just realised that I could quote the whole lot. Instead, I just suggest you read it.

Click here for Part One