Telling Swiss Secrets: A Banker’s Betrayal
August 6th, 2010Via: Global Post:
It’s the inner sanctum of Swiss banking — the heavily-guarded nexus between numbered Swiss bank accounts and their owner’s good names — and it’s the rare American that is allowed entry.
Bradley Birkenfeld was one of the few Americans who held the keys to the kingdom. A Boston-born, high-flying, cross-border banker at Switzerland’s premier financial institution, UBS, he had access to the kind of secret account information that American law enforcement had only dreamed of through all the decades that terrorists, dictators, arms dealers, mafia dons and wealthy tax cheats had hidden behind the fortress of secrecy that Swiss banking promised.
Subterranean bomb-proof vaults and state-of-the-art security systems are the superficial trappings of Swiss banking and its culture of secrecy, but the cornerstone of protection for its clients is the numbered account system that offers all but foolproof privacy. Or so they thought.
At UBS, clients’ names and their account information are divided irreconcilably between separate computer servers in secret locations. Even for a world-class hacker with free roam of electronic bank records, identifying the owner of a numbered account is literally “Mission: Impossible.” Nowhere do names and numbers appear side-by-side.
At vaunted UBS, the only seam of vulnerability resided in nothing more advanced than the kind of old-school card catalog you might find in a local library.
At the start of business each morning, private bankers like Birkenfeld, then a director in the wealth management division of UBS, would check in at combination vaults to pull their “racks” — wooden trays of 4×5 paper index cards that are the Achilles heel of Swiss secrecy. Printed on each confidential client card — in plain, unencrypted typeset — is the client’s name, account and safety deposit box numbers, the fees paid, and home addresses and unique passwords — secret challenge phrases known only to the banker and the client that are used to verify identity on the phone (“Rose and Eagle” on a surreptitiously photocopied card Birkenfeld showed me).
“If I was really devious … I would have just taken my gym bag, slid them in, walked out the door, hopped on a plane,” Birkenfeld laughed during our interview.
…
The information Bradley Birkenfeld eventually provided — first to the DOJ, then to investigators from the IRS, SEC, Department of Treasury and U.S. Senate — would set off cascading criminal and civil investigations into UBS. Within two years, it would bring down UBS’ entire U.S. cross-border banking division and compel intensive negotiations between the highest levels of the American and Swiss governments.
The bank would admit to intentionally subverting U.S. tax laws and defrauding the U.S. government by sending dozens of unregistered bankers, Birkenfeld among them, to the United States on thousands of illegal trips to facilitate tax evasion schemes for wealthy U.S.-based clients — a fraud hiding as much as $20 billion in secret undeclared accounts and earning UBS up to $200 million a year in ill-begotten profits.
The East Germans faced officers walking out with its spy lists.
So they split all data over different physical databases.
If you wanted all the information, you would have to face many top officials to get any one name. So wooden trays of 4×5 paper index cards are fine if they can trust the few people who see them. Better than anything digital that could be hacked or slipped out.
The East Germans did lose their lists as they put them in digital form – the CIA walked out with the lists from deep bunkers. The need to have a list to activate sleepers in case of war was too great.