A light sentence handed down on Friday for a former top UBS private banker who became a U.S. government informant on wealthy American tax cheats ramps up pressure on the Swiss banking industry.
Renzo Gadola, who worked at Swiss bank UBS AG from 1995 to 2008, received five months' probation and a $100 fine from a federal judge in Florida. Gadola had cooperated extensively with U.S. authorities conducting a wide-ranging criminal investigation of scores of Swiss banks.
That cooperation entailed disclosing to federal prosecutors for the first time the role of Swiss cantonal banks, including Basler Kantonalbank, in helping Americans to evade U.S. taxes on at least hundreds of millions of dollars in assets. His cooperation will continue as a condition of his probation.
Gadola, a Swiss national, may now be called "to testify before a grand jury or at a trial against former clients, Swiss bank colleagues, or other banks," said a senior government official briefed on the matter.
Added a senior white-collar criminal defense lawyer briefed on the matter: "He gave them gold on a silver platter. They still have their hook into him -- the probation is conditioned on him continuing to cooperate."
The 45-year-old Gadola could have been sentenced to a maximum of 16 months in prison; federal prosecutors had sought leniency, but still requested five months' prison time.
Gadola appeared in court for his sentencing dressed in a dark gray suit and blue-striped tie.
Contrast with Bradley Birkenfeld
His light sentence contrasts with the fate of his onetime colleague, former UBS private banker Bradley Birkenfeld.
Birkenfeld in January 2010 began serving a 40-month sentence in a rural Pennsylvania prison after admitting he helped wealthy Americans defraud the U.S. Internal Revenue Service by hiding their money in secret Swiss accounts.
Birkenfeld, an American, spilled many UBS secrets that effectively fueled a crackdown on the bank that later swelled into a still-widening investigation by the U.S. Justice Department of a dozen or so other Swiss banks.
The crackdown spawned a diplomatic showdown between the Swiss and U.S. governments that in 2010 led UBS to agree to disclose 4,450 American client names.
In 2009, UBS paid $780 million to settle Justice Department criminal charges that the bank helped some 17,000 American clients hide $20 billion in their accounts.
But Birkenfeld, who famously admitted to carrying diamonds in a toothpaste tube for one client, also lied to U.S. prosecutors about his work for his top client, California billionaire property developer Igor Olenicoff, said government officials briefed on the matter and court papers in his case.
The contrast between the fates of the two bankers "shows the perils of not being completely truthful with the U.S. government, and of not wearing the 'Team USA'" shirt," said Bryan Skarlatos, a white-collar criminal-defense attorney in New York who represents clients of Swiss banks.
Gadola Spilled All the Beans
Almost immediately after his arrest on Nov. 8, 2010, Gadola started cooperating with U.S. officials, providing key insight into other bankers and Swiss financial institutions offering offshore banking services, according to prosecutors.
He turned over fellow bankers' names and participated in recorded conversations with clients, according to an unsealed government document filed last week seeking leniency in his sentencing.
Those bankers included Martin Lack, a former senior UBS banker indicted in August for selling offshore-tax-evasion services. Lack, a Swiss national, is a fugitive. He was Gadola's business partner after Gadola left UBS. The two worked to help U.S. clients hide money in Swiss cantonal banks after the crackdown on UBS, said people briefed on the matter.
"The cantonal banks are the bloodline of the Swiss banking system, with the Swiss government being the heart," said Jeffrey Neiman, a former federal prosecutor who handled early portions of the government's case against Gadola. "The cantonal banks' exposure in this is a direct shot to the heart."
U.S. authorities, who suspect tens of thousands of Americans are using Swiss banks to avoid paying billions of dollars in taxes, are investigating scores of Swiss banks and international banks with Swiss operations.
Banks under investigation include Credit Suisse, HSBC Holdings PLC, and Basler Kantonalbank, a large Swiss cantonal, or regional, bank, said U.S. judicial sources. Cantonal banks are largely government-owned in Switzerland.
Gadola's case involved a Mississippi client who kept $445,000 in a safe-deposit box before transferring it first to UBS and then to a Basler Kantonalbank account. The unidentified client said he wanted to declare the money under a voluntary IRS disclosure program, but Gadola advised against it, arguing the money would go undetected by officials.
Gadola's cooperation led to charges against other bankers with UBS ties. In January, U.S. officials arrested Christos Bagios, a banker at Credit Suisse, and accused him of helping as many as 150 U.S. clients hide as much as $500 million from the IRS when he worked at UBS. Bagios is out on bail.