At all relevant times, Gadola was a citizen and resident of Switzerland and a registered investments advisor with the U.S. SEC. He was employed as a private banker by UBS from 1995 through August 2008. In February 2009, he began working as an independent investment adviser under the business name of RG Investment Partner AG. For the matters alleged in the indictment, he partnered with an unindicted co-conspirator names in the indictment under the pseudonym SWISS BANKER, who is alleged to have been executive director UBS's North American business until 2003 and then an investment advisor in Switzerland after that. Gadola and SWISS BANKER assisted U.S. clients in establishing and maintaining undeclared accounts (i.e., accounts not declared to the U.S. in the tax returns or FBARs). Gadola and SWISS BANKER had numerous U.S. clients and met frequently with some of these clients in the U.S.
The general declarations under Manner and Means for the conspiracy are that Gadola and SWISS BANKER (i) marketed "undeclared Swiss bank accounts sand Swiss bank secrecy" to wealthy U.S. client, including the one with the specific allegations as to one U.S. client, named by the pseudonym U.S. CLIENT; (ii) traveled to the U.S. in furtherance thereof and conducted these operations from Switzerland and elsewhere by mailings, email and telephone calls to and from the U.S.; (iii) helped U.S. clients move their undeclared accounts from UBS to Basler Kantonalbank, another Swiss bank; and (iv) SWISS BANKER feared arrest in the U.S. and hence partnered with Gadola because Gadola could travel to the U.S. under the guise of being an SEC registered advisor.
The Information lists a number of "Overt Acts" in furtherance of the conspiracy. Some of the overt acts are more or less standard fare for undeclared Swiss bank accounts. Some, however, are perhaps more egregious, including:
30. In or about January 2007, as directed by SWISS BANKER, U.S. CLIENT traveled to New Orleans, Louisiana, and in a hotel room gave SWISS BANKER one-half of his cash hoard, approximately $200,000 in cash. No Form 8300 was filed with the United States Treasury reporting this transaction.
31. On or about April 26, 2007, as directed by SWISS BANKER, U.S. CLIENT traveled to New Orleans, Louisiana, and in a hotel room provided SWISS BANKER with the remainder of his cash hoard. SWISS BANKER provided U.S. CLIENT with a receipt for $245,000 in cash. The receipt noted: "Bank: Basler Kantonalbank ZH." No Form 8300 was filed with the United States Treasury reporting this transaction. While still in the United States, SWISS BANKER distributed the cash from U.S. CLIENT to his other United States clients.
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35. In or about September 2009, U.S. CLIENT called SWISS BANKER to inform SWISS BANKER that he was participating in the IRS's Voluntary Disclosure Program. SWISS BANKER told U.S. CLIENT he did not need to participate in the Voluntary Disclosure Program because his accounts were too small and the account that U.S. CLIENT shared with his siblings was a family account. SWISS BANKER also told U.S. CLIENT that even if he did disclose to the IRS the UBS account, he should not disclose his account at Basler Kantonalbank, as disclosure would bring trouble for both of them.
36. After the September 2009 conversation, SWISS BANKER repeatedly called U.S. CLIENT in the United States to dissuade him from disclosing his Basler Kantonalbank account to the IRS. During one of the calls, SWISS BANKER told U.S. CLIENT that only five of his clients had applied for the Voluntary Disclosure Program and that entering into the program was unnecessary.
37. In or about September 2009, U.S. CLIENT informed SWISS BANKER that he and his siblings met with an attorney in order to enter into the Voluntary Disclosure Program. SWISS BANKER proposed that U.S. CLIENT provide the attorney with false explanations regarding the source of the funds in the Basler Kantonalbank account. Among other things, SWISS BANKER proposed that he could create fake bank records that would misrepresent the funds as the proceeds of a loan.
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49. During the meeting on or about November 6, 2010, RENZO GADOLA provided the following advice to U.S. CLIENT regarding disclosing the Basler Kantonalbank account to the United States government:
In your particular instance [SWISS BANKER] told me there is really, the likelihood that you will be found out, that they will somehow, you know, sometime, somehow find out about the account is practically zero percent. So he really, he was very adamant about you not going forward and going through with the voluntary disclosure.50. Later in the conversation on or about November 6, 2010, RENZO GADOLA further provided U.S. CLIENT with instructions from SWISS BANKER regarding disclosure of the Basler Kantonalbank account:
In your particular case, [SWISS BANKER] told me because of the circumstances and the way, you know, everything happened, you should not go through [with] the voluntary disclosure.
51. During the meeting on or about November 6, 2010, RENZO GADOLA called SWISS BANKER on his cell phone. After RENZO GADOLA spoke with SWISS BANKER on the phone, RENZO GADOLA told U.S. CLIENT the following regarding the possibility of the Basler Kantonalbank account being discovered by the United States:
There is no paper trail because the money [was] put [in] cash in Basler Kantonalbank. [SWISS BANKER] then withdrew the money cash -- it's in a safe in our office. For about a year, the money has been out of Basler Kantonalbank. You have no link to UBS whatsoever, so 99.9% you have nothing to worry about.
52. During the meeting on or about November 6, 2010, RENZO GADOLA handed the phone to U.S. CLIENT so that U.S. CLIENT could speak to SWISS BANKER. During that conversation, SWISS BANKER again instructed U.S. CLIENT not to disclose the Basler Kantonalbank account in the Voluntary Disclosure Program. SWISS BANKER told U.S. CLIENT there was no "paper trail" of the Basler Kantonalbank account or the funding of the Basler Kantonalbank account. SWISS BANKER told U.S. CLIENT he was looking into ways to repatriate the funds to U.S. CLIENT.And the final paragraph of the Overt Act alleges:
53. On or about November 8, 2010, upon arrest by federal law enforcement officers, RENZO GADOLA claimed that there must be some mistake, as he was a registered investment advisor with the SEC and produced documentation of his SEC registration.
This should be required reading for anyone (account holders, bankers and other offshore servive providers) who believes that they can get around the IRS radar. The information shows that the IRS is aware of the tactics and methods used to avoid detection.
ReplyDeleteMany lessons to take away. First, Mr. Gadola utilized a smaller bank, Basler Kantonalbank, rather than UBS which was being investigated by the US Goverment, in the hopes of avoiding detection. Lesson one: even smaller banks are “on the radar”.
Second, it is alleged that Mr. Gadola advised the US account holder that the account at Basler Kantonalbank would be too small to be detected. Lesson two: accounts of all sizes are vulnerable. The IRS does not want taxpayers to believe that an account under a certain size is “safe” from discovery.
Third, it is alleged that Mr. Gadola kept his US client’s funds in cash, advising “There is no paper trail.” Lesson three: there is always a paper trail or a wire transfer trail.
Fourth, it is alleged that Mr. Gadola advised his US client to falsify banking records to make the money look like a loan. Lesson four: this strategy will not work. It will also likely result in additional criminal charges.
Finally, Mr. Gadola advised his US client not to enroll in the Voluntary Disclosure Program by which the US client could have made his account tax-compliant and avoid criminal prosecution. Obviously the lesson here is that owners of non-compliant foreign accounts should consider the IRS voluntary disclosure program.
Mr. Rubinstein,
ReplyDeleteYour comments are excellent. I would like to address certain points:
1. I am not sure a takeaway is that smaller banks are not necessarily exempt. Gadola started his pattern while at UBS and continued it, not as an employee of, but as an advisor with respect to the taxpayer's account that was moved from UBS. If Kantonalbank knew of and encouraged Gadola's behavior, it is culpable, but it is one step removed from UBS type behavior based on the facts charged in the information.
2. While I think it is true that, as to U.S. depositors, the IRS cannot say that small accounts are not vulnerable, I do think that the IRS will generally tilt its prosecutorial resources of U.S. depositors toward the larger accounts except where there is a really egregious pattern of behavior on the U.S. depositors part.
3. Gadola was an enabler rather than a U.S. depositor. I suspect that the Government believes that the egregious behavior he exhibited for the family of U.S. depositors was something he replicated with many other U.S. depositors. The Government seems to have had a good cooperating witness (the U.S. depositor in the VD program), so they could trot out the details of the egregious conduct. But there is surely more U.S. depositors using Gadola.
4. Urging false paper trails (loans) and staying out of the VD program are just instances of the type of egregious behavior that serve to make enablers such as Gadola targets against whom the Government will expend prosecutorial resources.
Thanks
I agree with your comments.
ReplyDeleteKantonalbank may not be culpable, as you suggested. My point was more from the perspective of the US account holder as the IRS target. US taxpayers should not think that their accounts are off the radar because (i) the accounts are either at a smaller bank, or (ii) the accounts are relatively smaller in value. I think more banks will soon be on the receiving end of John Doe summonses, or MLAT or TIE requests, without much regard to the size of the bank. (Although foreign banks with US assets will be easier for the IRS or DOJ to pressure, as the UBS case demonstrates.) Similarly, if we look at the UBS-related prosecutions thus far, some accounts are large and some are not-so-large. The message here is that all non-compliant accounts are vulnerable to discovery and prosecution. I do agree with you, however, that the IRS will tilt its resources towards the larger accounts and/or fact patterns that are particularly egregious. But taxpayers shouldn't rest easy that their smaller accounts, or smaller banks, are "safe".
Kantonalbank would be culpable if it outsourced its U.S. tax evasion activities to advisers (as opposed to in-house employees), but I am not sure we can draw that conclusion from the facts we know. (I would think it is at least worthy of inquiry by those having an interest in knowing.)
ReplyDeleteThe rumor mill is certainly that more foreign banks, particularly Swiss banks, are being investigated and more enablers employed by or in association with Swiss banks are being investigated.
Your comments about the U.S. using more pressure tactics is a good one.
In this regard, I had expected that, because the Swiss ultimately justified the turnover of UBS's "John Doe" account information based upon the Swiss new interpretation of the exchange of information provision in the Swiss-US Double Tax Treaty, the US would have a basis for seeking additional "John Doe" account information from other Swiss banks for US depositors with similar account characteristics. But, the new Swiss Ordinance seems to preclude that. See Ordinance on the Administrative Assistance according to Double Taxation Conventions (9/1/10) (http://www.news.admin.ch/NSBSubscriber/message/attachments/21549.pdf) I may blog on this later if I have time.
Further to our discussion, the New York Times is reporting about the Kantonalbanks now being under investigation by DOJ. There is an interesting allegation regarding US taxpayers disclosing some funds at a Kantonal bank while maintaining undeclared, undisclosed funds elsewhere.
ReplyDeletehttp://www.nytimes.com/2010/12/24/business/24tax.html?src=busln
Thanks Asher, I was just in the process of preparing the new blog on the article when your comment came over. Please keep me advised of new information because I often am too distracted (I do work for a living) to catch many of the recent developments.
ReplyDeleteHave a great holiday!
Jack