Thursday, March 3, 2011

Credit Suisse Advisor / UBS Banker Charged; DOJ Reaches Out to Him (3/3/11)

Christos Bagios another Swiss banker has been charged with the Klein / defraud conspiracy (18 USC 371). Bagios worked serially with UBS AG, UBS Swiss Financial Advisors AG and then with Credit Suisse Private Advisors. The charge was made by complaint.  (The complaint (with affidavit) is here and is posted with the permission of Tax Analysts).  Interesting underlying facts alleged in the affidavit supporting the complaint that, if true, continues to paint a damning, even if predictable, picture for the Swiss banks. The focus of the misconduct alleged relates to Bagios' time with UBS AG and UBS Swiss Financial Advisors AG.

Bagios was arrested earlier. In the hearing on the complaint, the magistrate judge held that there was probable cause to charge Bagios and required a $500,000 corporate surety bond and $150,000 cash bond.

While at UBS, Bagios is alleged to have conspired with Renzo Gadola, who previously pled (see here) and gave incriminating information on Bagios. Kevin Downing is reported to have represented by telephone during the hearing that "Bagios and Gadola worked together in a UBS unit focused on helping American tax evaders." Also reported is that DOJ officials represented that "they had reached out to Bagios to see if he would cooperate with ongoing tax fraud investigations but said he had not responded."

The Manner and Means alleged in the affidavit supporting the conspiracy are:

The manner and means by which the conspiracy was sought to be accomplished included, among others, the following:

19. According to the Statement of Facts entered into by UBS and according to information provided by Renzo Gadola, it was a part and an object of the conspiracy that CHRISTOS BAGIOS and others would and did market undeclared Swiss bank accounts and Swiss bank secrecy to wealthy United States clients who were interested in attempting to evade United States income taxes.

20. According to the Statement of Facts entered into by UBS and according to information provided by Renzo Gadola, it was further a part of the conspiracy that CHRISTOS BAGIOS and others would and did travel to the United States to provide investment advice to United States clients and to conduct banking with United States clients. CHRISTOS BAGIOS and others would and did conduct banking with United States clients with undeclared accounts from Switzerland and elsewhere via mailings, emails, and telephone calls to and from the United States.

21. According to the Statement of Facts entered into by UBS and according to information provided by Renzo Gadola, it was further a part of the conspiracy that CHRISTOS BAGIOS and others would and did assist United States clients in concealing assets and income from the United States government, including the IRS.

22. It was further a part of the conspiracy that CHRISTOS BAGIOS and others would and did invite United States clients with undeclared accounts to attend UBS marketing events at Art Basel in Miami, Florida.
Bloomberg reports:

“He doesn’t understand what he’s accused of doing wrong,” Arthur Greenspan, a lawyer for Bagios, told the judge yesterday. “He doesn’t believe he did anything wrong. He doesn’t believe that he aided tax evaders.”
One thing I refocused on in reading the articles were Credit Suisse's claims (i) that it was cooperating in the investigation of the Credit Suisse bankers previously indicted and (ii) that it was not a target. I commented on that target business in the blog (including comments) entitled "More on Credit Suisse and Its Enablers," so I won't discuss further here. But the business about cooperating in the investigation of the four who have been indicted is interesting. How about the overall investigation which certainly is broader in scope than the 4 Credit Suisse persons who have been indicted? Does Credit Suisse's cooperation extend that far? What we are seeing is the same phenomenon that occurs regularly in the white collar crime context (including tax) where employees doing the entity's bidding are served up to protect the entity. (Think KPMG.) If that is the game that is being played, why would not some Swiss bankers want to come to the Government first to negotiate the best deal possible (perhaps NPA and perhaps even some whistleblower rewards, although the two may be inconsistent) before their banks turn on them?

News Articles:


Westlaw / Reuters


  1. Jack, Good post.

    Would it be possible to post the affidavit also, if your source agrees.

    If I may make a political observation in the hope that people at the DOJ are paying attention: IMHO the public (I and innumerable colleagues) are fed up and disappointed with Government going after lowly personnel (even if they are well compensated by the institution--another item of confusion) when the fat cats who benefit are left away scott free. THis is disgraceful and contributing enormously to the mistrust and creeping outright hostility to Government. The fat cats like senior people at CS and HSBC need to be heavily penalized, if faith is to restored in this once great nation. I submit that by only going after low fruit (including US account holders who were duped by slick salesmen and no doubt women), the DOJ would undermine rather than restore any confidence. KPMG indeed! It should have gone the way of AA.

  2. "What we are seeing is the same phenomenon that occurs regularly in the white collar crime context (including tax) where employees doing the entity's bidding are served up to protect the entity. (Think KPMG.)"

    The obvious exception is UBS. Per Jack's Offshore Convictions Chart (a very informative summary), all the "enablers" were charged after the criminal and civil proceedings were begun against UBS (with the one exception being Raoul Weil who was charged in 2008).

    I'm not sure that these Credit Suisse bankers were "served up" by Credit Suisse. I think the bankers were targeted by DOJ because prosecutors felt that they had a good case against the individuals, which would create further leverage against the bank itself and perhaps, like UBS, cause Credit Suisse to capitulate. From DOJ's perspective, what would be the point of not charging the bankers?

  3. Reply to Asher:

    Both UBS and Credit Suisse found it in their interests to cooperate at some stage. I assume that cooperation is not a free exercise of the obligations of living in a civilized world community but rather the fear that, without cooperation, something much worse will happen to the banks. And, I assume that, in the context of Credit Suisse's claim of cooperation in the investigations of the 4 indicted Credit Suisse bankers, that means delivering the goods on them in order to help the Government make its case. In that sense Credit Suisse is throwing them under the bus. What is Credit Suisse buying for itself with that cooperation? We'll see.

    The larger point is that, if individuals help an organization commit criminal misconduct, they should not be surprised when the organization turns on them for its own self-interest. I would just say to those individuals that they should make sure they are making the organization pay a premium for their participation in the misconduct and the risks (including indictment and conviction) involved in the adventure. The taxi cab driver should get a premium fare for driving the getaway car, otherwise it makes no sense to participate in the bank robbery and assume that risk of indictment and conviction.

  4. Response to Anonymous:

    I agree with your comment. The senior officials of these banks knew what these guys were doing. The activity, although cloaked in some degree of secrecy, was really open and notorious; everyone with a resl interest knew -- hell, I knew -- what the Swiss banks were doing. For the senior officials not to know and condone is just not credible. So, calling out a few senior officials with criminal charges seems entirely appropriate and consistent with criminal tax enforcement priorities. Even if those officials avoid the ultimate punishment by avoiding their presence in the U.S., the right statement would have been made by their mere indictment.

    Of course, to bring that type of indictment, the Government ultimately must be able to connect the dots to the senior officials. But, then, of course, perhaps the type of evidence that would pass muster in an ultimate trial may not be needed. An indictment can be brought with less evidence and, if the indicted senior officials never show for a trial, the Government will never suffer because of the quality of the evidence connecting the dots to the senior officials. But, if one or more of them does come into the U.S. (however they come), the Government might be put to the test (if they can't squeeze a plea)and have egg on its face if it can't connect the dots with admissible and credible evidence in the trial. So, coming round on this,I would think the Government would want to devote the substantial resources required in advance of indictment of senior officials so that, if it needs to, it can credibly take them to trial and bring them down.

    Which is all to say that the Government is not foreclosed from setting their sites higher. Indeed, it is not uncommon at all for the Government to zero in on the low-level people first as they move to the higher level players.

  5. To Mr. Rubinstein's point and Jack's response, I guess another issue that prosecutors' might consider is the compensation of these relatively low individuals. Based on the statements of Mr. Birkenfeld, it seems they are paid enormous amounts of money to wine and dine, or, in other words, to recruit the cash accounts. Their compensation is way, way too high for ordinary smoozing work. So perhaps they are being compensated for the risk. Or, looked at differently, wouldn't/shouldn't their bosses be questioning their enormous expense accounts unless of course they knew precisely the operation that was being conducted. From the ground troops' perspective, what was all the big spending in the US intended to accomplish. In other words, back into what they were all up to through their spending habits, which, I can tell you was "no holds barred." Also, surely, surely, the expense report back to base identified the target.

    Germ of an idea, not very well articulated, but please chime in.

  6. Anonymous,

    I just posted the complaint with affidavit.

    Thanks for your interest and for your comments.



Please make sure that your comment is relevant to the blog entry. For those regular commenters on the blog who otherwise do not want to identify by name, readers would find it helpful if you would choose a unique anonymous indentifier other than just Anonymous. This will help readers identify other comments from a trusted source, so to speak.