The Swiss Banker, the Real Estate Billionaire, and the Smuggled Diamonds
by Byrne Hobart
Tax evasion is usually less exciting than it might sound. Often, it just amounts to shuffling some papers to create fake losses or shift profits — or, more often, ‘forgetting’ to do the paperwork that might cause a taxable gain.
Not so with the case of Igor Olenicoff and Brad Birkenfeld. Everyone in this deal tells a different story (one thing every version has in common is that the narrator is innocent), but it looks like it went something like this:
Birkenfeld was a middling banker at a very well-reputed bank, with exactly one great client. Igor Olenicoff was a billionaire with office space and apartments in Vegas, Arizona and Florida — he wasn’t exactly thrilled with the performance of his bankers. At some point, Birkenfeld started shifting assets offshore, presumably to keep Olenicoff happy. Unlike a normal tax cheat who might do this by wiring money around cleverly, or arranging dummy sales, Birkenfeld stuffed diamonds into a toothpaste tube and personally carried them overseas.
A bad idea for several reasons, not the least of which is that X-rays see right through toothpaste tubes. Somehow, Birkenfeld wasn’t caught for years — but once he was, he helped nail Olenicoff for his role in the fraud.
Olenicoff, who didn’t become a billionaire by taking this kind of thing lightly, sued UBS for tricking him into thinking that a transaction involving diamonds in toiletries was somehow not completely aboveboard. It took a while for him to get this together, given the time he spent doing community service and paying fines for lying on his taxes (the fines, by the way, are about seven times as high as the amount he allegedly hid).
At this point, Olenicoff is doing fine (Forbes only reports his net worth to the nearest $100 million, so he’s even despite paying a fine of over one thousand times the annual median salary). Birkenfeld is trying to figure out if he should stick around in America, where he may go to jail for aiding tax evasion — or go back to Switzerland, where he’ll definitely go to jail for violating bank secrecy laws. And UBS has started to suspect that when super-rich Americans are desperate to deal with Swiss bankers, it’s not because they think they might get a collectible cuckoo clock as a bonus for opening a new account.
Oh, and the IRS? Olenicoff allegedly got away with about $7 million in evaded taxes, but they got $52 million in fines. Add that to the money they’re doubtless collecting from his legitimate businesses, and it looks like they’re the only ones coming out ahead, here.