We have just recently learnt of a whistleblower that got a $104 million payout for providing insider information on a scheme

run by UBS, Switzerland’s largest bank, that was devised to help rich Americans evade taxes. The US authorities, with their legendary efficiency when dealing with attacks on their country, dealt with the matter promptly.   If one reads this formidable piece of legal work we can only marvel at the efficiency displayed by the IRS and the SEC against a bank that was accused, principally, of facilitating tax evasion by U.S. citizens.

Now if one is acquainted with the Spanish Equity Release Fraud, sold under different denominations but nothing short of a scheme devised by a number of Danish and UK banks, in collaboration with a selection of co-conspirators (unregulated unqualified IFAs) operating illegally in Spain, to cheat British expats on the main, as well as the Spanish Tax Office, we can draw very interesting parallelisms between both.

Here are some of the finding of the Securities and Exchange Commission (SEC) and the Internal Revenue Service (IRS):

“…The United States charges that UBS, through certain private bankers and managers in the US cross-border-business, participated in a scheme to defraud the US and its agency, the IRS, by actively assisting or otherwise facilitating a number of U S individual taxpayers in establishing accounts at UBS in a manner designed to conceal beneficial owners…

“…It was further part of the conspiracy that Managers, Desk Heads and Bankers assisted US clients in preparing IRS forms that falsely and fraudulently stated that nominee offshore structures, and not the US clients, were the beneficial owners of offshore bank and financial accounts maintained in foreign countries, including accounts in Switzerland and the UBS.

“…UBS did not generally refrain from conducting banking operations within the United States.  UBS Swiss bankers targeted U.S. clients, traveled across the country in search of wealthy individuals, and aggressively marketed their services to U.S. taxpayers who might otherwise never have opened Swiss accounts.  UBS practices resulted in its U.S. clients maintaining undeclared Swiss accounts that collectively held billions of dollars in assets that were not disclosed to the IRS.

The Government recognizes that UBS has previously announced that it will exit the United States cross-border business…

And here are examples of what some banks did, mirroring UBS’ awful behaviour:

Sydbank (Schweiz) ran an unauthorized office in Fuengirola wherefrom clients were contacted. After it was closed down, the managers, namely Mads S. Petersen, would travel to Spain to sign up new British customers, registering mortgage loans, in cooperation with Nykredit A/S, against their Spanish properties, after which Sydbank would destine the proceeds o to Belize-registered companies, whose ultimate beneficiaries were the real owners of the properties in Spain.

Danske Bank Luxembourg Branch, led by Morten Runo Waaben, John Lundskov Larsen and others are currently indicted in a criminal case for defrauding a British expat by falsely representing an illegal tax evasion scheme as a legal tax optimization tool, consisting in mortgaging a home to reduce the perceived value of it with a view to consequently file a reduced wealth and inheritance tax return. Their website has eliminated any trace of tax evasion propositions.

Nordea Bank Luxembourg branch, led by Jesper Hertz, Anders Bergmann and Michel Woidemann, all indicted in a criminal case for defrauding a British couple by providing them with fraudulent advertising, detailed their tax evasion plan in several brochures that minutely explained the processes employed by their company to reduce or eliminate Spanish Wealth Tax and Inheritance Taxes.  A brazen Nordea even reflects on the risks of the Spanish Tax man challenging the scheme…Such brochures were later withdrawn from public circulation.

Sparekassen Lolland (former Finansbanken) executives, namely Michael Beck Christensen and Pernille Bering , would travel  to Spain, from Denmark, to meet their clients, for the first and only time the day before granting artificial mortgage loans worth up to €3m to unsophisticated investors and investing the funds away from the Spanish Tax Office.

Claire Whittet from NM Rothschild & Sons, who have repeatedly declared that they were only the lender, in spite of brochures like the NMR Dispatch Spring2005 where it is clear they were also providing financial advice, has been commissioned to travel to Spain to meet with disgruntled clients, all of whom face losing their homes after signing up a fraudulent product that was sold by Mark Countach and Steve Dewsnip as follows:

“…Far too many expatriates find out the hard way that inheritance tax (IHT) does not work the same way in Spain…” “…the answer is to minimize the amount of assets that are exposed to this…the extreme rate of Spanish IHT is 81.60%…” “…a mortgage is a very effective way of reducing the total value of your Spanish estate to IHT…”

And also: …A Non-Tax Resident, owning a Spanish property, would legally register a charge against the property and invest the proceeds of the loan into the Capital Plus Protected Fund Euro Series…Monies Invested would stay out of Spain…legally no need to declare investment to Spanish Tax authorities”

Peter Rose, Managing Director for NM Rothschild & Sons, had no qualms in affirming that “…when buying property in Spain, you should make sure that you don’t get burnt by unexpected tax consequences…” To this effect, he develops a textbook tax evasion proposition that talks about “…the dream, the nightmare and the antidote“, the latter being the core sales pitch for the CreditSelect 4 Series product.

They ALL now deny liability…but brochures that remain buried in old files held by their victims are testament to the wrongdoing and of course, www.waybackmachine.org will grass them all up if they had compromising online brochures.

Early this week the Audiencia Nacional chose to reject the investigation of the “Equity Release” alleged fraud on grounds that include, on the one side, the argument that they lack “geographical” jurisdiction and on the other, that there is not enough evidence within the claim (250 pages) to merit starting a criminal investigation by their Courts. And if those grounds were not enough, to further convince themselves of the wisdom of their decision, they also mentioned that we had not managed to prove enough the relationship between the cowboy coastal IFAs and the reported banks (informally known in Spain as “chiringuitos financieros”), as if to suggest that we should have eavesdropped on their board meetings or tapped their telephone conversations. I would be lying if I said that we were not aware that it would very be difficult to get these elitist Magistrates to deal with white-collar crime, even if as serious as this.

In our opinion, this is a clear case of judicial apathy by the Court which, after probably not reading the claim, considered it nevertheless irrelevant in what is a steadily worsening record of protecting rights of consumers.

In stark contrast to this indignant “skimping over”, the Danish Government has reacted forcefully to the allegations published by the largest newspaper in Denmark, the Morgenavisen Jyllands-Posten. According to the daily newspaper, Sydbank targeted wealthy expat residents of Spain, encouraging them to take out a Danish mortgage on their property and offering to transfer the released money to Switzerland. Jyllands-Posten claims that the Aabenraa-based bank was aware that Swiss bank secrecy rules would allow these assets to be hidden from the Spanish tax authorities.

The newspaper points to an internal mail sent from a director of Sydbank Switzerland to senior management in Denmark, including CEO Karen Frøsig. EPN.dk quoted the email admitting that in Spain, tax on inheritance on real estate only applies on the equity. Mortgaging serves primarily the purpose of inheritance tax reduction. It was also mentioned that Sydbank may not even have had a license for operating in Spain, let alone offering tax evasion products.

The Danish Tax Minister, Thor Möger Pedersen, has indicated that It is clear that my awareness increased if a large bank is proposing a maneuver in which the tax due on the loan is placed in a tax haven country without accountability. If it is a widespread traffic in the financial sector, it is definitely something we will look at.

According to Johnny Schaadt Hansen, director of The Danish Tax Office Special Department of Economic Crime, there may be a counselor responsibility, which the bank may be punished for. It does not sound very good if a Danish bank is involved in such a concept. It will be included in our priorities, and one should not forget that in such a case can be a counselor responsibility, as one can be punished for, whether you are accountant, lawyer or banker, said Johnny Hansen Schaadt.

The articles also quotes Lars Krull, a senior consultant and expert in banks from Aalborg University, saying that if it is primarily tax that drives it, and not a real need for funding, you should be wary. Also, the specialized financial daily Finanswatch.dk openly regards this practice as a scam.

Finally, a few days ago we learned that three Swiss bankers are charged in a New York indictment with conspiring to hide more than $1.2 billion of taxpayer assets from the Internal Revenue Service, in what is a very similar tax dodging scheme (they were using offshore companies, straw-men and other mechanisms to defraud).

News from the Danish Media (in Danish)

• Sydbank hjalp med at skjule formuer 09-01-2012 – epn.dk
• Flere banker arbejder i skattely 10-01-2012 – epn.dk
• Sydbank: Vi var måske for offensive  10-01-2012 – epn.dk
• Spansk advokat jagter danske banker 13-01-2012 – epn.dk
• Skyer over Solkysten 14-01-2012 – Finans Watch (Subscription Required)
• Kommentar: Bankernes kulsorte hemmelighed 15-01-2012 – Finans Watch (Subscription Required)

As we were almost expecting, the Audiencia Nacional has chosen to not deal with this case. Just as they chose to do with the “Urdangarin” case, King Juan Carlos’ son-in-law, they consider this matter not susceptible of being investigated by the higher AN but directly via the local Courts of First Instance. Below is a brief explanation of the position of the case and what we will be proposing next:

Dear Sir/Madam,

We are writing to you to advise that the Audiencia Nacional, the Madrid Courts specialized in major criminal cases, terrorism, money laundering and other high-profile cases, has rejected investigating the matter on jurisdictions grounds.

This decision comes as no surprise after learning, via the press, that only a few days ago they also rejected (on similar grounds) a petition to investigate the activities of the King Juan Carlos’ son-in-law, on corruption and tax evasion grounds, in spite of the very serious charges brought against him as well the geographically dispersed nature of his activities, throughout Spain (two key elements to attribute jurisdiction). The case is therefore now back to Court number 3 in Palma de Mallorca against the wishes of the, surprisingly, indicted person.

This relocation of jurisdiction in favour of district Courts of First Instance is thus a mere formality that has, in principle, the following immediate consequences:

1. The choice of legal action (civil or criminal) will be determined by the specifics of the case, the situation of the mortgage and namely the existence is enough evidence to demonstrate criminality, in the form of deceitful publicity and swindle when selling the equity release products.

1. Jurisdictional matters will now have to be re-addressed, depending on whether civil or criminal charges are instigated, the place of signing the contracts (both investment and mortgage loans) and where the offices of these banks are situated (some have closed their offices altogether).

Our firm is in favour of filing civil cases pursuing the declaration of “nullity and voidness” of equity release contracts on broader grounds, as is permitted in the civil jurisdiction where the legal standard of proof is reduced to “the balance of probabilities”, often referred to “more likely than not”. Our main arguments will be based on 2 Supreme Court rulings on an almost identical case, which found a Spanish bank guilty of mis-selling financial products to customers with no financial knowledge. A summary of the cases and how they relate to equity release can be found on the following links:

http://belegal.com/blog-by-antonio-flores/equity-release-contracts-full-of-cracks-i/

http://belegal.com/equity-release/equity-release-contracts-full-of-cracks-ii/

From our perspective however, the need for further clarification of the nature of the contracts necessarily will require an expert opinion, financial in this case. Also, we are very keen to obtain the opinion of the Spanish regulators in respect of the following, for which we will apply directly to them (as we had requested the rejecting Madrid Courts to obtain such reports and will now not be getting them):

 

1. If the Tax Office considers that mortgaging one’s home and hiding the proceeds in Luxembourg is a valid way to avoid taxes.
2. If the Bank of Spain gave clearance to this speculative product, aimed at retirees, pensioners and older people.
3. If the Financial Regulator (CNMV) gave clearance to this investment vehicle, the promotional literature devised to sell it, the IFAs through which the products were sold and the content of the contracts, from a consumer protection legislation perspective.
4. Where the investment vehicle was a unit-linked insurance policy, if the Insurance regulator (DGS) approved the items on point c).

We will write to you shortly with a legal representation proposition as soon as we decide the venues for bringing an action and whether we can join together lawsuits where the defendant is one same bank, regardless of the address of the mortgaged property. Needless to say, from a legal fee point of view this proposition take into account your financial situation and will give weight to the no-win no-fee element of the legal fee, in detriment of the retainer, that will be much reduced and that can be paid by installments.
B. regards

Story originally posted on The Equity Release Fiasco blog.

The Equity Release Victims Association (ERVA) – (www.erva.es) is now up and running. Having been formally incorporated last Wednesday, through a Marbella Notary Public, it has, among its aims, denouncing the magnitude of the infringements committed by a number of banks, mostly Scandinavian who, in clear breach of applicable legislation (regulatory, consumer protection, civil, banking, financial, and not the least, ethical), devised a tax-evading scheme that would be offered to pensioners to profit from them, using the illicit excuse that it was suicidal not to have a mortgage registered against their properties.

The ERVA will be formally filing claims with the appropriate Government offices, requesting formally not only that these products are banned in future but also, that the banks that offered them are disciplined in accordance to the seriousness of the offences committed. Of particular importance are:

• Denunciation at the Spanish Prosecution Office (Fiscalia), requesting that a full investigation is conducted into the alleged tax-evasion proposition that constituted the main selling feature of these Equity Release schemes, and consequently, the well-defined target market this scheme was aimed at: financially conservative and vulnerable pensioners owners of an unencumbered retirement homes. Equally, of great significance is the financial state these schemes have left countless numbers of victims, as well as the major implications for their state of mental health and well-being  (typically, the infliction of mental and emotional anguish of being deprived of their life-savings ultimately and more immediately, a roof to live under). Even if these banks are no longer offering these obnoxious products, the writ will specifically request that the Spanish Prosecution Office, by application of article 26 of the 34/1988 Publicity Act, in relation to article 29, pursues the cessation action to prevent them from offering them in future.
• Denunciation at the financial and insurance regulators (Comisión Nacional Mercado de Valores and Dirección General de Seguros), and the Bank of Spain (Banco de España), who will be requested that a thorough study is made into the validity of a contract of Equity Release, not approved for use in Spain under 2007 Reverse Mortgages Act and prior to its enactment, by the uses and customs of banking practices (as the Spanish equity release equivalent was not regulated formally until then although, it was specifically described as a product to allow asset “rich” pensioners access to this wealth, all the while having full guarantees of living in the property for the rest of their lives). The ERVA will specifically request that disciplinary and exemplary fines are imposed on the infringing banks, inclusive of a temporary suspension of their activities within Spain.
• Denunciation at the Regional and National Consumers Association, to obtain a ruling condemning the publicity as false or deceptive advertising and fining these entities proportionally, in accordance to article 36 of the 26/ 1984 Consumers and Users Protection Act, applicable prior to 2007. Given the impact, relevance and geographical scope of the mis-selling of Equity Release schemes, the ERVA should request that the infractions committed by these banks are deemed “very serious” and the highest possible fines imposed (from €600,000 to 5 times the amount of the product mis-sold, as well the closing of the branch offices of the offending banks wherefrom the products were sold, for up to 5 years).

The list of proposed actions is not exhaustive and may include other proposals in the countries of origin of the offending banks.

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Original Post: The Equity Release Victims Association Up and Running