70 000 Years of Hard Labor

UBS banker Hanspeter Walder embezzled his US clients for 75 Million dollars. He invested the money to convert an old castle into a luxury hotel. These days, however, he is no longer lounging in posh hotels and restaurants; he is behind bars.

By Peter Hossli

walderheadshot.jpgA quiet arrest was planned for Tuesday morning. Hanspeter Walder would voluntarily surrender to the FBI in his offices in New York City. The previous Thursday, he had confessed to stealing dozens of millions of dollars from his employer, Swiss Bank UBS, over the course of almost 20 years. During the confession, he dryly commented that the money had bought him a castle in the quaint village of Tarrytown just outside New York. He had it lavishly converted into one of America’s most luxurious hotels. For years, he indulged in playing Lord of his castle.

The promised discreet arrest never happened. On Monday evening, the 24th of September 2001, a local cop and two FBI agents crashed Walder and his wife Steffi’s 30th wedding anniversary party at the castle. The policemen asked him to follow them into an adjoining room. When the slightly tipsy man resisted arrest, they put him in handcuffs and led him away – right before his family’s and friend’s eyes. Shocked, they witnessed how Walder sank into the backseat of the waiting police car.

Later that evening, Steffi went to see her husband at the Tarrytown jailhouse, bringing his toothbrush along. According to the rules, she kept a distance of six feet from his cell. Their conversation was to be in English only. “Did you do what they are accusing you of?” she asked. “Yes,” answered Walder. “I don’t believe you,” she replied. Back home, Steffi broke down in tears.

“I will never forgive UBS for the indignity of having to go through this public arrest,” says Walder two years later. But he understands: “I’ve humiliated them, now it’s their turn to humiliate me.”

The tall, 64-year-old man with the densely curled salt-and-pepper hair is sitting at a plain metallic table. He is wearing a green shirt and olive pants. “Walder” says a white patch in synthetic material stitched to the shirt, followed by his number: 509 13-054. If his record shows good behavior, he will be set free on April 8, 2008 – after 97 months of imprisonment.

The summer sunlight glistens outside the window of the spare interview room at the Federal Correctional Institution of Elkton, Ohio. The meeting with the reporter marks the first time Walder has spoken to the media since his arrest. The prison warden has granted just one 60 minute meeting. After that, Walder and the reporter agree to conduct most of the interview in writing. Also, dozens of letters are being exchanged. They meet a second time. The reporter is signed in as a visitor. No pen or paper is allowed, but in depth discussions over two days take place.

Those meetings, and the letters, help to piece together one of the most bizarre cases of fraud in Swiss banking history. A long-standing, popular and successful employee embezzles 75 million dollars, according to his confession. He doesn’t squander the money, but buys an old castle and converts it into a respectable luxury hotel. His wife decorates the palace, while one of his two daughters and her husband are put in charge as managers. He himself is quite pleased in his role of magnanimous Lord of the Chateau.

peterhossliwalder_small.jpgBut, nobody knows that the hotelier is continuously stealing the funds needed for his “project.” Walder pretends he gets the money from a rich Egyptian. Neither the colleagues at UBS nor the construction workers question how some mid-level banker can afford a luxury hotel with 100 employees and prices of up to $ 800 dollars per room.

In the end, after spending more than twenty years in America, he reacts like an archetypal Swiss citizen would: He confesses and hopes for forgiveness — ultimately underestimating the harsh US justice system. The confession lands him the maximal sentence and entices the bank into filing a 210 million dollar lawsuit. Not only he, but also his wife and older daughter are charged in the civil case. In addition, UBS sues for a refund of the entire salary Walder has earned from them over the years. The Walders are now divorced and flat broke.

Walder does not seem frustrated. His eyes shine. His handshake is firm. He is radiant. “Welcome to my new home,” he says. Walder doesn’t get too many guests up here in prison, which is sometimes describes at “hotel” and sometimes as “gates community”. His former boss Chris Rowland, CEO of UBS private banking in New York, did visit him once, in the company of William Courtney, a representative of PricewaterhouseCoopers, the auditing firm acting as forensic accountants in the case. “They asked if there was any money left. I had to disappoint them since it was all used up for the castle. They kept looking for years. They won’t find anything.”

Walder had an unblemished career as a banker, switching from jobs in Zurich and Geneva to Cairo. In 1982, UBS promoted him to assistant vice president of Private Banking in New York. His wife was expecting their second child. The young family took up residence in Tarrytown, an hour north of the city. From here, the father could easily commute to Manhattan, while the children attended the German School in White Plains.

He was in for a rude awakening. Everything was more expensive than they were used to: the cost of living, the car, and the food. Walder’s modest salary as a newcomer was only $ 47,139 per year and did not suffice to maintain the rather lavish lifestyle the family had previously enjoyed in Egypt.

“Hanspeter enjoyed living like a lord,” says Steffi, who is back to using her maiden name again. “I can’t do anything with the name Walder again”, she says, and does not want to see her name in print. “He loved to go out, entertaining friends and clients. He wanted to be admired, and thought he could buy love.”

For that, the income just wasn’t enough. Walder states that the lack of funds was the motive for his first stealing. “This is how my problems started,” he wrote in a copy of a letter, dated January 17th, 1983. In the letter, Walders tax accountant demands an immediate payment to the IRS of $ 9,500 — a lot of money for a family whose father preferred lavish lunches to paying taxes.

Walder searched for a way out and found it in the client roster of the bank. For years, the account of Iranian business man, Ibrahim F.*, in the amount of $700,000 dollars had been untouched. At the time, he thought it was a dormant account. “I emptied it without anybody noticing,” he says with a grin. It wasn’t spitefulness that drove him – it was just too easy to steal F.’s money. At regular intervals, he transferred the stolen funds to his account at Credit Suisse (CS) in Zurich. He chose CS because they allowed him to withdraw cash in New York. The money paid for family vacations and treats such as tickets for Broadway plays and fine dinners.

Years later, F. suddenly reappeared and asked for his money. Walder panicked. He flew to Los Angeles to meet F. and talked him into opening a new account in California, where F’s son lived. Walder now had to transfer the $700,000 plus accrued interest to that account. The necessary capital had to be stolen from other clients.

That’s how it worked: He requested a line of credit for clients without informing them. As collateral he used their investment portfolios, i.e. real estate, equities, or precious metals. Because investments and loans are booked on different accounts, no one ever found out, even those clients who read their statements diligently. Why didn’t the bank realize what was going on for almost twenty years? After all, copies of all statements were kept at the bank. “Complacent negligence,” says Walder.

There were rules and regulations in place, but no one ever adhered to them. “UBS has not acted negligently, says UBS press officer, Ms. Christine Walton. “The bank trusts its employees. If someone like Walder had, for years, used an intricate criminal scheme to misappropriate funds, it is difficult to discover it. We have, however, discovered and stopped him.”

Walder claims that his forged credit applications were never checked. “They were always blindly approved,” he says. He fabricated them on an old typewriter, forging the client’s signature and adding his own. As per rules of compliance, he then submitted the application to a colleague of his for a second signature. Unhesitatingly and without checking if the client really needed the loan, the colleague signed. “The compliance manual clearly states that the second signature requires the same amount of responsibility as the first and needs ‘proper due diligence’,” says Walder. At the very least, a banker other than the original account officer needed to check back with the client via telephone or in writing. “Nobody ever did,” he points out in every conversation, “stealing money from UBS was child’s play.”

UBS did only respond in a written statements. “Our business model is client-advisor centric, with the main relationship the one established between the Advisor and the Client.” Because Walder had forged the application and had always acted alone, it was impossible to “truly verify,” the official reply claims. “Employees who co-signed on transactions did so in the belief that information was accurate and proper.”

Surprisingly, all the fraudulent transfers went to one and the same account at Bank of New York (BNY). This caught nobody’s attention, even tough there were more than 50 illegal transfers. Each “loan” ended up in the BNY account of a firm called “400 Benedict Corporation.” 400 Benedict? That’s the address of the castle in Tarrytown.

Everyone involved knew the castle. Many UBS-bankers routinely visited, as guests, partygoers, attendees of meetings and for conferences. Some even arranged their weddings at the castle. It belonged to their colleague Hanspeter Walder. Everybody knew this. “Even Marcel Ospel,” he says. Ospel, the current chairman of UBS, attended at least one conference at the castle, Steffi Walder says.

Walder’s salary steadily increased from $47,139 in 1982 to $365,918 in 2001. But that was simply not enough to buy a castle and refurbish it luxuriously. “We knew of the castle,” says UBS spokesperson Walton, “but we do not check on the private fortunes of our employees.”

Some clients, however, spotted irregularities. As per Walder, the UN ambassador of a European country wondered why he had to pay interest for a loan he never took out. Such an enquiry should have been passed on to the legal department of the bank. From there, the client should have been contacted. “This never happened,” Walder writes. Instead, he, the client advisor, was contacted. “Another instance of complete negligence on the part of UBS,” he states.

Many bankers in higher positions moved on to another job after two or three years. “It helped me that the big shots were replaced regularly.” Walder stayed and knew the system. The clients from whom he stole liked him, and so did his colleagues. He had a reputation for know-how and flair in resolving difficult issues. When a fire drill was needed, HP–short for Hanspeter—was called. He became an irreplaceable institution. Calls were transferred to his mobile phone, even during his vacations. On the Caribbean island of St. Barth’s, he once juggled a loan. The investor in the action movie “Swordfish,” starring Halle Berry and John Travolta, desperately needed additional funding, to the tune of another million dollars, to finish the project. But Walder had already used the client’s limit to the fullest. On the phone from the marina, he reassured his boss: “Don’t worry, everything will be all right. There must be some mistake and as soon as I’m back I will correct it. In the meantime, just pay the sum as requested.” It was done without any further checking.

Walder was the king of account officers. He was so successful that the UBS executives invited him to London where he was inducted as a member of the “Chairman’s Club,” the most exclusive association of big UBS bankers. This honor came shortly before the confession. Walder tossed and turned in his sleep. He drank a lot, and his conscience bothered him day and night. So far, he had no exit strategy.

In 1992, Walder thought he had found a way out, when he heard that the 100-year-old Castle in Tarrytown was for sale. “It occurred to me to transfer it into a luxurious boutique Hotel and then sell it at a profit”.

At first, all went well. For two—instead of the asked for five—million dollars, he finally bought the real estate in 1994. The money, he claimed, stemmed from funds of an Egyptian eye specialist. He had met the doctor, Abul Z.*, as a client of the bank years ago in Cairo. Z. was the personal eye specialist of the Saudi Arabian Royal Family. They rewarded his loyalty royally. Parts of Z’s wealth came under Walder’s management.

When Walder bought the castle, he gave Z.’s name as the main investor. He chose Z. as a cover “because I needed someone rich and slightly mysterious.” Nobody doubted his story, not even his wife, who personally knew Z. She never talked about it with Walder. “I learned in Cairo that Middle Eastern women never get involved in financial affairs. They leave this up to their husbands,” says Steffi.

As soon as the castle was purchased, things started to snowball. The condition of the building was worse than assumed. The costs kept right on rising. The feasibility study turned to out to be more or less a hoax. Not ten, but more than twenty-five million dollars were needed. He quickly saw that the project was doomed to fail. “Now, there was no backing out anymore, but full speed ahead. I wanted to finish the project as luxuriously as possible,” he says.

He transferred millions and millions incessantly. “I drove down the high way full speed straight into a wall,” he muses metaphorically. “I could no longer turn around, but drove faster and faster. I visited even fancier restaurants and invested more into the castle than ever before.” He had passed the point of no return. “I just wanted to savor the castle and the social standing it gave me as long as possible.”

In the end, he didn’t care anymore. He squandered money wherever he could. In the kitchen, he had installed French import luxury ovens made by Bonet and Viking. To the park he added “the most expensive swimming pool in the entire USA.” A painter had to finger-paint the molded ceiling, so that no brush strokes were visible. He had his clients picked up in a 1948 Bentley. All Furniture—antique as well as new—was top quality. The beds were the best on the market, as were the sheets. “I wanted the best hotel, the best restaurant, the best chef, the biggest wine cellar.”

Walder made all the important financial decisions. He was not involved in the day-to-day activities of the hotel. He simply couldn’t: He was working full-time at UBS. “I only played the part of the hotel owner.”

And he loved it. He personally welcomed every person of distinction and celebrity. The Governor of New York, George Pataki, visited the castle with his wife. US Foreign Minister Colin Powell stayed over, as did Jennifer Lopez. The former chairman of UBS Private Banking worldwide, Mr. Georges Gagnebin, enjoyed a ten-day vacation. The Walders arranged many prestigious “Fortune 500” galas. Henry Kissinger came to stay. The actor Matt Dillon was a guest. The German Finance Minister spoke to journalists about Germany’s financial situation. When the rich and famous looked for a place to celebrate a wedding, the Tarrytown castle was often first choice.

“I wanted to show that a first class product can be successful,” says Walder. If the quality was first rate, he naively hoped, the bank might be more lenient. He pauses. “Most probably I suffered delusions of grandeur.” Walder has a difficult time explaining his actions, or at least, making them comprehensible—a fact that irritated the court in his case. The judge made out greed to be the main motive. “It was definitely not greed,” Walder says. At the sentencing, the judge announced that white-collar crime has to be prosecuted as severely as other criminal offenses.

In letters and conversations, Walder often repeats that he did much more for the bank than the bank did for him. At times, he sees himself as fallen hero, whose ascension in the ranks at the bank was blocked. “I admit that my actions were wrong and criminal,” he says, “but my contribution to the success of the private banking group was a hundred times bigger.”

The bank continues to search for the millions they believe he siphoned off. At the time of his arrest, he owned $120,000 in equities and $150,000 in cash. His pension fund contained $400,000, with a similar amount in his 401K. This was immediately frozen and seized by UBS.

After his arrest, his older daughter asked him how he could sleep, knowing what he was doing. “Not well,” he answered. Sleeplessness weighed him down; stress, he battled with alcohol. In the evenings he often went to the castle, drank, smoked a cigar, and stared into space. “Thus I could escape,” says Walder—a life long master of escapism. He never ever mentioned his problems and issues to his family.

Steffi Walder, tall, and with the short brown hair, is an elegant lady. “The family thanks you,” she recalls thinking when she learned of the extent of her husband’s misdoings. Her smile freezes in a split second. “On the day of the conviction, I lost all bearings,” she says. “I always hoped there were accomplices, people who fooled my husband.” Such people, however, don’t exist; her husband acted alone. She still can’t understand his actions. “He lied to me for over twenty years.”

She characterizes him as a gambler, a player, someone who loves to tell a story. At parties, he enjoyed giving long speeches and blinding everyone with his charm. Looking back, Steffi says she missed the signs. Her husband drank a lot. Often he came home angry. “Only the Bourbon would calm him down.”

Walder surrendered after his biggest coup collapsed. For years, he had managed a part of the fortune of the American family G.* who owned, among other assets, a majority stake in an American insurance group. For a line of credit worth $ 30 million dollars, they deposited as collateral shares of the big insurer. However, they were no longer in need of that line of credit. In February 2001, Walder, following his well-established routine, issued a loan for himself against the $30 million credit line—the most he had embezzled so far. He used the money to settle some debts and pay off invoices for the hotel.

Seemingly out of the blue, the clients replaced their financial officer in the summer of 2001. The new CFO discovered the shares and requested that they be returned. Walder sent these shares over, even though he acted starkly against procedures. This caught the attention of the loan group of the bank, who realized the shortfall in collateral. About that time, terrorists attacked the World Trade Center in New York. Walder used this tragedy and explained to the bank that the family replaced the old certificates with new ones and that the new package was already on the way back. Because of the 9/11 events, he said, FedEx was grounded and the share delivery delayed. The shares never arrived at UBS.

On Thursday, September 20th 2001, Walder asked the bank’s management to assemble in the big conference room. “I have an important statement to make,” he announced. They all sat around the large table as he stood and confessed to have stolen millions and millions of dollars. “Chris Rowland, my boss, aged instantly by ten years,” says Walder. “They were all in total shock and appeared reluctant to comprehend what I had said.” From a list of credits he pointed out the faulty ones to the speechless managers. “The castle is now yours,” he closed.

That same day, Walder voluntarily gave UBS his computer password, his palm pilot, and then surrendered his passport. “I wanted to somewhat better my precarious position, because I believed that a full confession would be best for me.” It was a decision he made on his own. He neither spoke to his family nor to any lawyer about his actions. There was no more time to come up with a strategy for a defense.

Friday, he met again with UBS and their lawyers, among them Andrew D. Kaizer and a lady from PricewaterhouseCoopers, the firm that later acted as forensic accountants in his case. Walder was asked why he did not bring a lawyer to the confession. “Honesty, albeit belated, is the best way,” he replied. Moreover, he didn’t know any lawyer, nor could he have afforded one. He then proceeded to tell them all the details of what he had done. “They were shocked and taken aback,” says Walder.

UBS opposes Walder’s account of these events and states in a written statement, that the bank by itself had uncovered his misdeeds. “UBS discovered the irregularities in account statements in an internal check during Walder’s absence. That led to a further investigation by the bank, in which Walder’s full fraudulent activities were revealed.” Walder insists on his version. “If UBS had truly known, why did they never act?”

Walder’s hopes for forgiveness proved futile. He offered UBS his full cooperation and help in pointing out to them the flaws in the bank’s system. The bank refused. Then UBS counsel Kaizer spoke. “He told me, ‘Mr. Walder, what you have done is detestable. I’ll see to it that you and your family will go through a living hell. The bank has unlimited funds to proceed against you. I will consider this case my pension fund,’” recalls Walder. Kaizer declined to comment for this article.

Walder now considers the full confession “his biggest mistake.” “Honesty is counterproductive in the US justice system,” he says. “If I would have realized earlier how the law works here, I could have held in reserve one or two million dollars to be able to afford the best lawyer.” Or, on the eve of the confession, he could have taken the first Swissair flight to Zurich and have presented himself to the authorities there, he says during one of the conversations in the visiting room in Elkton. “With enough money for a good attorney, I could have turned the whole thing into a conspiracy at the bank. All documents carried at least one or more signatures of another banker.” Quite a few of them were his superiors’.

Two years ago, Walder asked his government appointed defense counsel what would happen in the civil case of UBS against his wife and daughter, if he should die. He entertained the thought of killing himself.

Now he is more optimistic and ready to fight back. He says he stole not 75, but “only” 56 million dollars. Walder says he can prove that, as soon as he receives the requested documents from UBS in the pending civil case. “The $75 million figure includes all interests and fees,” writes UBS. “This was the amount he pleaded guilty to.”

Under banking law, each signature on the loan applications carries the same responsibility as his, says Walder. He toys with the idea of suing individual UBS bankers, “Because each of these managers today are still in the same positions as during my tenure at UBS.” Even his Boss Chris Rowland, he writes in a letter, “signed at least one forged credit application back in 2001.”

In prison, every day seems just like any other. Lunch at 10:45 a.m. From 11:30 a.m. to 3:30 p.m. the prisoners resume the work they started in the morning. Dinner is served at 5 p.m., after which the inmates have some time off. At 8:30 p.m., they have to be in the dormitories. At 9:30 the lights go out.

Prisoner Walder tries to be of use to his inmates. Speaking fluent German, French and English and also having a broad knowledge of Spanish and Arabic, he helps to translate letters and compose answers. He also teaches his fellow inmates lessons in good manners, demonstrating how a table is formally set or how to address the Queen of England.

What does he expect from life, these days? “Reconciliation with my family and inner peace,” says the inmate. He says he feels regret and some resignation. Plus a small amount of pride: “I revived a ruin of a castle to new and splendid life.”

He sleeps in a large unit with 165 fellow inmates, separated by thin walls. Every morning, he gets up at 5:30 a.m. He spends half an hour on his personal hygiene. There are twelve showers and five restrooms. At six, he gets breakfast. Shortly before eight, work starts. First, he started as library clerk, and then he worked in the kitchen. Now he recycles old PC’s and printers. At present, he is on trash call. He earns 23 cents an hour. Every three months, half of it goes to UBS, to chip away at his debts.

Walder has figured out how long he would have to work at 23 cents an hour to repay UBS fully: 70,000 years of hard labor.

* Names changed