Significant Setbacks to U.S. War on Offshore Tax Evasion with Two Not Guilty Verdicts for Offshore Bankers

As reported in this blog and elsewhere over the past few weeks, Raoul Weil was on trial in Florida for conspiring with U.S. taxpayers to hide their assets from the IRS through secret accounts held at UBS AG. Weil was the former third-ranked officer at UBS and head of its wealth management division. He claimed that he was never told about the tax shelters and that he believed that the accounts that he was aware of complied with U.S. laws.

The government put on a number of witnesses, primarily lower-level former UBS employees who had obtained immunity in exchange for testimony and were shown to be unreliable under cross-examination. On Monday morning, defense counsel announced that they were resting their case without calling any witnesses, and closing arguments immediately were heard. The jury deliberated for 90 minutes and returned a not guilty verdict. For more discussion of the case, see Nathan Hale, Ex-UBS Exec Found Not Guilty in Tax Evasion Trial (Law360, 11/03/2014), available here.

Commentators have subsequently suggested that the government erred by charging one single conspiracy involving Weil and all of UBS’s U.S. clients who held secret accounts. Another government error was not appropriately considering the Weil’s ability to re-direct blame to lower-level employees, who directly manage the relationship with the bank’s U.S. clients, and to the U.S. clients themselves, who filed false tax returns with the IRS. See Jack Townsend, Raoul Weil Found Not Guilty, (Federal Tax Crimes, 11/3/14), available here, and Ex-UBS Executive Weil Acquitted in Tax Probe (swissinfo.ch, 11/04/2014), available here.

The other offshore banker to beat federal charges within the past week is Shokrollah Baravarian who was found not guilty on Friday. Mr. Baravarian, a former senior vice president at Mizrahi Bank, was on trial in Los Angeles for conspiring to conceal undeclared bank accounts held by Iranian Jewish exile customers in the U.S. The witnesses marshaled by the government for this trial included several individuals who had been indicted for tax evasion for hiding assets in accounts at Mizrahi Bank but pleaded guilty only to conspiracy, which then allowed the government to charge Mr. Baravarian with conspiracy. The government’s case unraveled when those witnesses testified that there was no agreement with Mr. Baravarian to hide assets from the IRS. After four hours of deliberation, the jury returned a not guilty verdict. For more reporting on the verdict, see Daniel Siegal, Banker Beats Israeli Account Tax Fraud Charges at Trial (Law360, 10/31/2014), available here.

While the government will likely continue to prosecute offshore banks and its bankers, it is unknown how these losses will affect the government’s overall strategy going forward. There are approximately 30 bankers and advisers who have been indicted by the Justice Department living in Switzerland, successfully avoiding extradition. And, approximately 100 Swiss banks had applied to the Justice Department’s amnesty program for Swiss banks, many of which recently pushed back on the obligations the Justice Department was requiring to obtain a non-prosecution agreement. Whether some of those banks drop out of the program in light of the government’s failure in these trials will soon be seen.

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