Bloomberg News

Swiss Lawyer’s Guilty Plea Discloses Help in U.S. Tax Probe (3)

August 16, 2013

A Swiss lawyer pleaded guilty in a U.S. probe of offshore tax evasion and has been telling prosecutors how he helped American clients use secret accounts to hide assets from the Internal Revenue Service.

Edgar Paltzer, 57, admitted today in federal court in New York that he conspired for more than a decade to commit tax fraud by helping U.S. clients hide millions of dollars. He was indicted on April 16 with a Swiss banker, Stefan Buck.

Paltzer is cooperating with U.S. authorities in their broader investigation of how foreign banks and advisers helped American clients evade taxes, his lawyer, Thomas Ostrander, said.

“His cooperation is complete and without any limitation,” Ostrander said outside of court. “He very quickly made a decision to face these charges and come to the U.S.”

Paltzer’s assistance offers investigators a rare inside look at how Swiss bankers and advisers used sham trusts and corporations and moved cash and jewelry across borders to hide their assets from the IRS. Since 2008, the U.S. has charged at least 90 people in a crackdown on offshore tax evasion, including two dozen bankers, lawyers and advisers.

Paltzer admitted that from 2000 to 2012 he acted as a financial intermediary, helping U.S. taxpayers escape taxes on worldwide income.

Hidden Accounts

“I intentionally formed foundations and corporations which permitted these U.S. taxpayers to hide from the IRS these accounts and the income earned in these accounts,” he told U.S. Magistrate Judge Ronald Ellis. “I assisted these taxpayers in violating their legal duties. I was aware that this conduct was wrong.”

He admitted communicating with clients using code words such as “postcards” to refer to checks sent from an undisclosed account.

Assistant U.S. Attorney Jason Cowley said today that Paltzer had control of, and access to, bank vaults in Zurich, where U.S. taxpayers had stashed assets and valuables.

Ellis yesterday signed a court order prohibiting Paltzer, his wife, or anyone else acting as their agent, from transferring, distributing or moving assets held in safes at five numbered bank vaults at UBS AG (UBSN) in Zurich.

Cowley said Paltzer helped dozens of U.S. taxpayers maintain undeclared Swiss accounts with “millions and millions of dollars in undeclared assets.” When some Swiss banks decided to close accounts amid the U.S. crackdown, Paltzer helped American taxpayers move accounts to other Swiss banks, he said.

Dual Citizenship

Paltzer, who holds dual U.S. and Swiss citizenship and is licensed to practice law in New York, flew to Manhattan two days ago for the first time since his indictment, and was taken into custody by IRS agents, said Ostrander, a partner at Duane Morris LLP. He is returning to Switzerland, Ostrander said.

Paltzer also has agreed to pay restitution and forfeit fees earned from his crime. He faces a potential prison term of five years, though as a cooperator he’d probably get less.

The U.S. crackdown accelerated after 2009, when UBS, Switzerland’s largest bank, avoided prosecution by paying $780 million, admitting it aided U.S. tax evasion and handing over data on 4,500 accounts. Last year, the U.S. indicted Wegelin & Co., the oldest Swiss private bank. Wegelin pleaded guilty in January, handing over $74 million.

Avoiding Prosecution

On July 31, Liechtensteinische Landesbank AG (LLB), the oldest bank in Liechtenstein, avoided U.S. prosecution by agreeing to pay $23.8 million and admitting it helped clients hide as much as $341 million from the IRS.

Paltzer pleaded today to a charging document called a criminal information.

His more-detailed indictment describes his assistance to clients including a California woman who hid $3.1 million in an undeclared account she inherited from her father. The account was allegedly held at UBS in the name of a sham foundation in Liechtenstein.

Paltzer helped the woman move the money to another Swiss bank, set up an “off-the-shelf corporation” in the British Virgin Islands, and sent her e-mails referring to checks sent from the account as “postcards,” prosecutors said.

He allegedly helped another client in Connecticut repatriate millions of dollars through jewelry that he had delivered to him, including a $1.98 million ruby ring and $1.7 million in loose diamonds.

Bank Frey

Buck, who was indicted with Paltzer, was Bank Frey & Co.’s head of private banking in Switzerland and a member of the executive board, according to the bank. Zurich-based Bank Frey, said at the time of the indictment it was “reviewing the legal situation that derives from the indictment brought against a member of its executive board.”

Buck, a Swiss citizen, lives in Switzerland and remains at large.

From March 2009 to February 2012, Buck’s bank experienced an increase of about 300 percent in clients who were U.S. taxpayers, U.S. Attorney Preet Bharara in Manhattan said in a statement at the time of the indictment.

As of Sept. 30, the bank had about 2 billion Swiss francs ($2.17 billion) in assets under management, according to the indictment. About 882.5 million francs, or 44 percent of the total, was held on behalf of U.S. taxpayers living in the U.S., he said.

Since 2009, 38,000 Americans have avoided prosecution through an IRS amnesty program that let them repatriate their accounts by paying back taxes and penalties.

The case is U.S. v Paltzer, 13-cr-00282, U.S. District Court, Southern District of New York (Manhattan).

To contact the reporters on this story: Patricia Hurtado in Manhattan federal court at pathurtado@bloomberg.net; David Voreacos in Newark, New Jersey at dvoreacos@bloomberg.net;

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net


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