The Bank Robber: The computer technician who exposed a Swiss bank’s darkest secrets

Patrick Radden Keefe, The Bank Robber: The computer technician who exposed a Swiss bank’s darkest secrets. The New Yorker, 30 May 2016. “A few days before Christmas in 2008, Hervé Falciani was in a meeting at his office, in Geneva, when a team of police officers arrived to arrest him. Falciani, who was thirty-six, worked for H.S.B.C., then the largest bank in the world. He was on the staff of the company’s private Swiss bank, which serves clients who are wealthy enough to afford the minimum deposit—half a million dollars—required to open an account…. As the Swiss police escorted him from the building, he insisted that he had done nothing wrong.”

Officers questioned Falciani at a nearby station. They were investigating a data theft from the bank. Since 1713, when the Great Council of Geneva banned banks from revealing the private information of their customers, Switzerland had thrived on its reputation as a stronghold of financial secrecy. International élites could place their fortunes beyond the reach of tax authorities in their own countries. For Swiss wealth managers, who oversaw more than two trillion dollars in international deposits, the promise to maintain financial privacy was akin to a religious vow of silence. Switzerland is the home of the numbered account: customers often specify that they prefer not to receive statements, in order to avoid a paper trail. In light of these safeguards, the notion of a breach at H.S.B.C. was shocking.

Police officials told Falciani that someone calling himself Ruben al-Chidiak had stolen client data from the bank. They weren’t sure how much information had been taken or how the theft had been engineered. But they suspected that Chidiak was a pseudonym, and that the real culprit was Falciani.

Falciani told the police that his job was to protect data: How could they accuse him of compromising such information? As darkness fell, he asked to go home. His wife, Simona, would be worried about him. The investigators released him, but instructed him to return for further questioning the next morning.

Falciani walked through streets strung with Christmas lights to his apartment, in a dingy building on the Rue des Mouettes. He and Simona packed a few bags, bundled their three-year-old daughter, Kim, against the cold, and prepared to flee the country. Despite his protests, Falciani had stolen the data….

W. Somerset Maugham once described the Côte d’Azur as “a sunny place for shady people,” and Falciani, who was now a fugitive, hunkered down in Castellar [a hill town near the French-Italian border]….

Falciani’s flight to France coincided with the onset of the global financial crisis. Many countries were scrambling to secure revenues and crack down on citizens whose fortunes were stashed in offshore tax havens. Years before the leak, this April, of the Panama Papers—a cache of documents from Mossack Fonseca, a law firm in Panama City that specializes in the creation of anonymous shell companies—there was ample evidence that the global plutocracy has many outlets for dissimulation in the realm of personal finance. “Only the little people pay taxes,” the billionaire Leona Helmsley once remarked—to her housekeeper. In 1989, the housekeeper recounted the exchange to a New York jury, and Helmsley spent eighteen months in prison. Most tax evasion, however, goes unpunished.

According to a 2012 study by James Henry, a former chief economist at McKinsey who now advises the Tax Justice Network, the world’s wealthiest people salt away at least twenty-one trillion dollars beyond the reach of tax authorities….

H.S.B.C., or the Hong Kong and Shanghai Banking Corporation, traces its origins to 1865, and its early success to the opium trade. The bank has grown substantially over the past two decades—it now has nearly fifty million customers—and it has acquired a reputation for being less than scrupulous, even by the loose standards of international banking. In 2012, a U.S. Senate investigation concluded that H.S.B.C. had worked with rogue regimes, terrorist financiers, and narco-traffickers. The bank eventually acknowledged having laundered more than eight hundred million dollars in drug proceeds for Mexican and Colombian cartels. Carl Levin, of Michigan, who chaired the Senate investigation, said that H.S.B.C. had a “pervasively polluted” culture that placed profit ahead of due diligence. In December, 2012, H.S.B.C. avoided criminal charges by agreeing to pay a $1.9-billion penalty. The company’s C.E.O., Stuart Gulliver, said that he was “profoundly sorry” for the bank’s transgressions. No executives faced penalties….

When Falciani arrived in Geneva [in 2006], he told me, he realized that H.S.B.C. was engaged in a “gigantic swindle.” Clients were not only placing their fortunes in accounts that were “undeclared” to tax authorities; H.S.B.C. bankers were actively assisting clients in hiding their money, by setting up shell companies and sham trusts in the British Virgin Islands and Panama….

Swiss banks routinely dispatched emissaries to cultivate new clients at art shows and regattas, and the illegality of the service was implicit in the pitch: if you bank with us, your fortune will not be taxed. It is not illegal for a person or a corporation to hold a Swiss bank account, or to engage in tax “avoidance”—skirting tax requirements through gymnastic accounting and the exploitation of loopholes. But tax evasion, in which wealth is actively concealed from authorities, is illegal, and the behavior of Swiss bankers often suggested that they knew they were crossing the line….

…[L]ike Edward Snowden, with whom he claims a strong affinity, Falciani was a systems guy. His technical expertise allowed him to outmaneuver the bank’s security software. In Geneva, he was working on a new customer-relations management system. One day, as he harvested data from the bank’s internal network, he says, he stumbled upon information to which he should not have had access: not just the names and account numbers of customers but also the confidential notes that H.S.B.C. bankers maintained about their meetings with clients. “I’d never heard about this sort of flaw in the computer system,” Falciani later told the investigators. The data were being updated in real time—it seemed that he had stumbled into a wormhole that held the bank’s deepest secrets. He even came across the details of his own account with the bank. At this point, another computer technician might have hastened to inform his superiors about the vulnerability. Falciani did not….

Swiss officials threatened to halt a series of unrelated intergovernmental initiatives if the French refused to return the data. The Swiss newspaper Le Temps characterized the clash over Falciani’s files as “a diplomatic earthquake.” One Swiss justice official sent Montgolfier an intemperate letter saying that Falciani had not merely damaged the bank; he had attacked the Swiss state. “It was extraordinary,” Montgolfier said. “To harm H.S.B.C. was to harm Switzerland.”…

When the Group of 20 met in London in 2009, offshore accounts and tax evasion were high on the agenda for the first time, under the rubric “The End of Bank Secrecy.” Neutrality is another cherished Swiss tradition, but now Switzerland’s closest neighbors were tabulating the ways in which bank secrecy had enriched the country at the expense of others. As Nicholas Shaxson suggests in his book “Treasure Islands: Uncovering the Damage of Offshore Banking and Tax Havens,” the Swiss banking industry was predicated on the idea that “it is perfectly O.K. for one jurisdiction to exercise its sovereign right to get rich by undermining the sovereign laws and rules of other places.”

In this political context, the Falciani list posed an existential threat to the Swiss economy. The files had ended up in the possession of the French, but they contained incriminating details related to H.S.B.C. clients around the world….

French authorities…shared portions of the list with [the United Kingdom, Italy,] Argentina, Russia, Canada, Australia, Sweden, Belgium, Spain, Germany, and India (where the hidden funds were described as “black money”). Scandals erupted in each country, but the biggest aftershock was felt in Greece, which was already suffering from the global economic crisis….

Until recently, it seemed impossible to shame the Swiss into breaking their tradition of banking secrecy. In the nineteen-nineties, when U.S. investigators came looking for looted assets that had been stolen from Jews during the Second World War, the Swiss government stonewalled. But by 2012 Falciani’s revelations and other pressures threatened to overwhelm the Swiss resistance to transparency. In 2010, the U.S. Congress passed a law requiring banks overseas to submit to the I.R.S. the names and account details of American clients. The Organisation for Economic Co-operation and Development, meanwhile, amended a convention on mutual administrative assistance in tax matters so that Swiss banks could be obligated to divulge client information. In February, 2012, prosecutors in New York indicted Wegelin & Company, the oldest bank in Switzerland, for money laundering and abetting tax evasion. The bank was effectively put out of business. Chancellor Angela Merkel infuriated Swiss officials when she announced that the German government would happily pay a Swiss bank employee who was offering to sell information about secret accounts held by German taxpayers. “If these data are relevant, we should aim to get hold of them,” she said. This established a frightening precedent for Swiss banks. Oswald Grübel, the chief executive of U.B.S., said, “If governments are in the market of buying illegal data, that changes the world.”…

Georgina Mikhael [a technical administrator at H.S.B.C. in 2006] has said that Falciani’s overtures to foreign governments were simply a hedge on his efforts to sell the data: if he failed to make a deal with a bank, he would seek a buyer in the intelligence community. He was aware that Germany had paid millions to the leaker from L.G.T. Group, the Liechtenstein bank. In “Falciani’s Tax Bomb,” a 2015 documentary by the British filmmaker Ben Lewis, Mikhael says that it was the Liechtenstein deal that “gave him the idea to sell the data to secret services.” Of course, someone can have a desire to expose wrongdoing and also want to be rewarded for his trouble. Government agreements with whistle-blowers often look morally confused. In 2009, Bradley Birkenfeld, the American banker who leaked documents about illegal activity at U.B.S., was sent to prison for his role in the conspiracy. He served two and a half years. (Though U.B.S. paid a fine, no other executive went to jail for the misconduct that Birkenfeld exposed.) Upon Birkenfeld’s release, he received a government reward of a hundred and four million dollars—the largest ever paid by the I.R.S….

One day in early 2014, someone dropped off a memory stick at the reception desk of Le Monde, in Paris. It contained a copy of Falciani’s data. Until that point, bits of the list had become public, but no media outlet possessed a complete copy. Overwhelmed by the amount of information, the editors of Le Monde joined with the International Consortium of Investigative Journalists to comb through it. In February, 2015, the project, SwissLeaks, resulted in dozens of articles in newspapers around the world.

The novelty and importance of the list lay more in its magnitude than in its confirmation of individual venality. Nevertheless, it was bracing to put human faces—many of them famous—on the story. The Guardian and other SwissLeaks participants revealed that the Falciani list included politicians, arms dealers, and people linked to terrorist financing and to the trade in blood diamonds. Stuart Gulliver, the C.E.O. of H.S.B.C., acknowledged that the list had become “a source of shame.”…

There were serious consequences for a few of the named clients…. But the vast majority of people identified as holding undeclared accounts were not prosecuted. Instead, they appear to have settled with their respective governments, in a series of quiet amnesties….

…[I]n 2009, the I.R.S. introduced a plan allowing U.S. citizens with undeclared accounts to volunteer the details to the government and pay outstanding taxes, without fear of criminal penalties. I.R.S. officials maintain that they have collected more than eight billion dollars through this program, and it stands to reason that some people who settled in this fashion were on Falciani’s list. Indeed, there is evidence that U.S. authorities have used the list to pursue cases against American taxpayers….

Last November [2015], at a federal court in Bellinzona, Switzerland, a prosecutor named Carlo Bulletti argued that Falciani was no crusader. “The whole construct of the White Knight is a tissue of lies,” he said. Falciani was being tried in absentia, for industrial espionage and data theft….

The prosecution claimed that the privacy of thousands of honorable clients had been violated, but, as Henzelin pointed out, this was hard to reconcile with the damning particulars of the list. Of six hundred and twenty-eight Indian names on the list, only seventy-nine had declared their assets to the Indian government. The proportion was similar for Argentina and Greece. Gabriel Zucman, the economist, estimates that eighty per cent of assets in offshore havens are undeclared. Tax evasion wasn’t incidental to H.S.B.C.’s Swiss bank, Henzelin concluded; it was the bank’s raison d’être.

Switzerland has been hard on those who violate bank secrecy…. In Swiss society, to violate the covenant of secrecy is to risk not just prison but also ostracism….

On November 27, 2015, Falciani was convicted of aggravated industrial espionage, and sentenced to five years in prison. H.S.B.C. released a statement celebrating the verdict, and noted that the bank “has always maintained that Falciani systematically stole clients’ information in order to sell it.” It was the harshest sentence ever delivered in Switzerland for the violation of bank secrecy, but the authorities were clearly waging a rearguard battle. Marc Henzelin, Falciani’s attorney, noted that his client was being prosecuted while Switzerland succumbed to international pressure to dismantle bank secrecy altogether. “It is not Falciani who is being judged,” Henzelin said. “It is Switzerland.” Eckert, the French budget minister, told me, “I think the Swiss are now convinced that secret banking doesn’t have much of a future.”

The French are pursuing a criminal case against H.S.B.C. over the Falciani revelations, and have indicted the bank for direct marketing to nationals, money laundering, and facilitating tax fraud. But in Switzerland authorities dropped an investigation of H.S.B.C. after the bank agreed to apologize for “organizational deficiencies” and pay a conspicuously manageable fine of forty-three million dollars. (Last year, H.S.B.C.’s net profits exceeded thirteen billion dollars.) When I asked Birkenfeld, the former U.B.S. banker, about the penalty H.S.B.C. paid in Switzerland, he laughed. “I had friends who worked at H.S.B.C. who handled accounts that were larger than that,” he said. The system is rigged, Birkenfeld said: “The Swiss government can’t investigate the bank. They would be investigating themselves!”

A few days after Falciani’s sentencing, I visited Geneva….

No [H.S.B.C.] executives would meet with me, but a beleaguered-seeming British press spokesman escorted me through a series of sleek glass interiors to a conference room on a high floor, and assured me that the bank has changed. H.S.B.C. has nearly tripled its number of compliance officers, to nine thousand, and has ceased operations in a dozen countries. “The number of accounts has been managed down,” he said.

Where will the profits that H.S.B.C. is forfeiting go? To other banks, he said, or other countries. Money has a tendency to move, and Switzerland is hardly the only tax haven. If it becomes impractical to hide fortunes there, the money could migrate to Singapore, or, for that matter, to America. Shruti Shah, the vice-president of Transparency International U.S.A., recently found that in such states as Delaware and Nevada it is easier to establish an anonymous shell company than it is to obtain a library card. It seems unlikely that reforming the Swiss banking sector will diminish the widespread practice of tax evasion, because wealthy clients can simply transfer their money to a more lax jurisdiction or convert their cash to art or gold or some other easily laundered asset. The Times recently observed that fighting tax evasion by striking deals with an individual banking haven is like “plugging one hole in a colander.”

Whether the culture at H.S.B.C. has actually changed is open to debate. After the bank was implicated in servicing drug cartels and sanctioned regimes, the U.S. Justice Department appointed an independent monitor to assess H.S.B.C.’s efforts at reform. Last summer, the monitor reported that employees continued to display a lack of coöperation with internal audits. Managers maintained the same approach to in-house compliance: “discredit, deny, deflect, and delay.”…

This spring, the Falciani list was dwarfed by the Panama Papers leak. An anonymous source released eleven and a half million documents relating to the practices of Mossack Fonseca, exposing the financial dealings of a dozen current and former heads of state, and underscoring how extensively the global élite uses shell companies and tax havens to obscure its wealth. The leak documented that H.S.B.C. and its subsidiaries had created some twenty-three hundred shell companies that had been registered by Mossack Fonseca….

Falciani remains in Paris, and the week the Panama Papers were released I spoke with him over Skype. He welcomed the leak, he told me, but he was dubious about the prospects of broader change. The banking industry, he said, will make the minimum reforms necessary in order to quell outrage. Then executives will figure out how to game the new regulatory environment. Bankers, Falciani observed, have a great “ability to adapt.”