A top executive of Swiss banking giant UBS was indicted Wednesday in a massive tax evasion scheme in which he allegedly helped the bank’s U.S. clients hide $20 billion in assets from the Internal Revenue Service.

Raoul Weil, chairman and chief executive of UBS’s global wealth management and business banking, is accused of allegedly using “nominee entities, encrypted laptops, numbered accounts and other counter surveillance techniques,” to help the bank’s “U.S. clients conceal their identities and offshore assets from the IRS.”

The indictment was issued under seal Thursday and did not identify UBS by name. But Weil, who is identified by name in the indictment, worked for the bank between 2002 and 2007, the years that covered the conspiracy charge. Additionally, a UBS spokeswoman confirmed that the “Swiss bank” referred to in the indictment is UBS.

Between 2002 and 2007, Weil oversaw the Swiss bank’s cross-border private banking business that provided services to 20,000 U.S. clients who “concealed their identities and the existence of their Swiss bank accounts from the IRS,” according to the Department of Justice’s criminal indictment.

About 17,000 “of these clients willfully failed to pay tax to the IRS on income earned on their Swiss bank accounts,” the indictment says. UBS “assisted these United States clients [to] conceal the income earned on Swiss bank accounts…”

The indictment says there are other unnamed UBS executives who are unindicted co-conspirators that assisted Weil’s efforts. In addition, UBS may be charged with federal crimes for its role in the tax fraud, DOJ officials said.

“These executives occupied positions at the highest levels of management within [UBS] including positions on the committee that oversaw legal, compliance, tax risk, and regulatory issues related to the United States cross-border business,” the indictment states.   

Weil is charged with fraud conspiracy that carries a maximum sentence of five-years in prison.

However, Weil is a citizen of Switzerland and because the country does not extradite its citizens to the U.S. he would have to be arrested in another country to answer the charges in a U.S. court.

UBS lost billions of dollars in the subprime mortgage meltdown and is the subject of a federal investigation. The company, which received a $5.3 billion bailout from the Swiss government, wrote down $37 billion in losses during the first two quarters of the 2008. Republican presidential candidate John McCain had tapped former Sen. Phil Gramm, who was employed by UBS as a lobbyist, to advise him on economic issues.

John A. Marrella, Deputy Assistant Attorney General of the Justice Department’s Tax Division, said Weil and others “face severe consequences including imprisonment and substantial fines.”

“Professionals, including bankers, who promote fraudulent offshore tax schemes against the United States, will be held accountable,” Marrella said.

In a statement Wednesday, UBS said Weil, who is a member of the bank’s group executive board, has agreed to step down “in the interest of the firm and its clients, in order to defend himself.”

The bank has suspended its cross-border private banking services to U.S. clients.

“UBS is fully committed to continuing its efforts to cooperate with the investigation of its U.S. cross-border business and to working in a responsible manner with all relevant authorities toward a satisfactory resolution of this matter,” the bank said in the statement.

Aaron Marcu, an attorney representing Weil, said the indictment is “totally unjustified and without factual basis.”

“Mr. Weil is a highly respected banking executive in Switzerland with an unblemished record for integrity,” Marcu said.

According to the government’s indictment, Weil, who turned 49 on the same day he was indicted, referred to the bank’s cross-border private banking business as “toxic waste” “because [Weil and the unindicted co-conspirators] knew that it was not being conducted in a manner that complied with United States law.”

Weil allegedly demanded that the company’s bankers increase the size of its cross-border business, despite the fact that doing so was a federal crime.

The DOJ said Weil was given a choice: sell or spin off the cross border business. Instead, the government alleges he chose to continue the business because it was highly profitable, generating upwards of $200 million in annual revenue for UBS.

“Weil and other executives would not implement effective restrictions on United States cross-border business because the business was too profitable,” the indictment says.

The government’s five-year federal investigation uncovered evidence of UBS bankers who routinely traveled to the United States to market Swiss bank secrecy to U.S. clients interested in attempting to evade federal income taxes, the indictment says.

In 2004 alone, about 32 UBS bankers, who ultimately reported to Weil, traveled to the United States approximately 3,800 times to discuss their clients’ Swiss bank accounts. Clients of the cross-border business filed false tax returns that omitted the income earned on their Swiss bank accounts and failed to disclose the existence of those bank accounts to the IRS.

Furthermore, in 2002, the indictment states, Weil “and other executives” authorized managers in the cross-border division to “institute a temporary five month travel ban to the United States.”

“The ban coincided with an IRS initiative relating to identifying holders of offshore credit cards,” the indictment says.

“On or about January 22, 2003, after being advised by outside lawyers to take immediate action in order to build a defense against a possible future criminal case brought against [UBS] Manager #2 instructed Manager #3 to limit written communications relating to offshore structures created for United States clients and instructed Manager #3 to begin issuing Form 1099 information to clients, but not the IRS, for certain Swiss bank accounts where [UBS] Bank Officials served as a manager for the offshore structures,” the indictment says.

Two days later, on Jan. 24, 2003, two managers in UBS’s cross-border division sent a form letter to clients with holdings in Swiss bank accounts reminding them that since 1939 UBS has successfully concealed the identity of its account holders from law U.S. Authorities.

“Even after [UBS's] presence in the United States recently increased after the purchase of a large brokerage firm, [UBS] was still dedicated to the protection of their identities.”