UBS to Divulge Account Details

August 20, 2009


In a massive blow to Swiss banking secrecy, Zurich-based UBS will disclose names and details on 4,450 secret accounts to the Swiss government, which, in turn, will hand them over to the Internal Revenue Service for its wide-ranging investigation of American tax cheats hiding money offshore.

Under the accord disclosed Wednesday, the Internal Revenue Service will drop its aggressive legal battle in Miami federal court that sought to force Switzerland’s largest bank to name 52,000 UBS clients with offshore accounts that may have been used to dodge income taxes.

The United States instead will request the information on tax dodgers under the more gentlemanly process of a formal treaty request — but with the Swiss promise to provide the information on a fast track.

Terms call for the Swiss Federal Tax Administration to set up a special task force of tax and legal experts to decide on the first 500 UBS accounts within 90 days and resolve all cases within 360 days.

“This is a thoughtful and very clever resolution of the case,” said William M. Sharp, a Tampa tax attorney who represents customers with accounts at UBS and other Swiss banks. “The United States is extracting its pound of flesh and yet we are respecting Swiss banking law by going through the treaty process.”

The case began when former UBS private banker Bradley Birkenfeld blew the whistle on the bank’s brazen practices in assisting Americans in evading taxes.

Birkenfeld, who is to be sentenced in Fort Lauderdale Friday on a single count of conspiracy to defraud the government, opened the window on UBS’s sophisticated scheme to solicit affluent Americans to sign on to its private banking with the promise of secret offshore bank accounts out of sight of U.S. tax authorities.

Private bankers traveled to the United States under false pretenses and sometimes used events like Art Basel Miami Beach, which UBS sponsored, to solicit new clients, according to court papers.

The resolution is expected to encourage even more tax cheats to come forward under a special IRS program that expires Sept. 23. If they make voluntary disclosures about their tax sins by the deadline, they will avoid possible criminal prosecution and pay lesser penalties.

IRS commissioner Doug Shulman hailed the accord as “a major step forward with the IRS’s efforts to pierce the veil of bank secrecy and combat offshore tax evasion.”

The accord also provides a template for the United States to obtain future bank information beyond UBS. “This agreement is very extensive and expansive,” said Alan Weisberg, a tax attorney with WEISBERG KAINEN MARK, PL in Miami. He represents clients making voluntary IRS disclosures of hidden offshore accounts. UBS said it welcomed the resolution of the case, which had placed it in the crossfire of U.S. and Swiss law.

The IRS pointed to the bank’s own admissions of its elaborate role in helping Americans hide money offshore when UBS signed a deferred prosecution agreement in February and paid a fine of $780 million to avoid criminal prosecution.

At the time, the Swiss government disclosed information on 250 to 300 UBS customers who met the definition of tax fraud under Swiss law, and U.S. prosecutors said in court papers this week that the information has spawned more than 150 criminal investigations across the country.

To keep pressure on all UBS customers with undisclosed accounts, the criteria used to select the targeted accounts won’t immediately be revealed. Affected UBS customers will be notified before information is turned over to the IRS and have an opportunity to appeal under Swiss law.

UBS customers — even those who are facing disclosure under the agreement — remain eligible for the IRS’s voluntary disclosure program as long as they step forward before the Sept. 23 deadline.

“The consequences are going to be a lot more serious after Sept. 23 and that’s going to bring people in [for voluntary disclosures],” said Seth J. Entin, a tax attorney at Greenberg Traurig in Miami. “It’s the carrot and the stick. They want people to come in voluntarily.”

The U.S. government agreed to cap the investigation at a maximum of 10,000 UBS accounts, including voluntary disclosures and treaty requests.

Switzerland has long made exceptions to its strict bank secrecy laws and provided information on bank account holders who commit “tax fraud and the like” under its own standards.

As part of the deal, the Swiss will provide information under the administrative assistance procedure on broader grounds that include “serious tax offenses such as continuous tax evasion involving large amounts,” Swiss officials said in a statement Wednesday.

In another key breakthrough for the IRS, the Swiss agreed to provide information in cases where the names of the individuals involved are not known.

The settlement marks a victory for the Obama Administration, which has placed a high priority on cracking down on offshore tax cheats in a bid to pull in much needed revenue.

According to Michigan Democrat Sen. Carl Levin, who chairs the Permanent Subcommittee on Investigations, the United States loses an estimated $100 billion a year from U.S. taxpayers using offshore tax schemes to dodge U.S. tax obligations.

The UBS case marks the biggest assault ever on Swiss banking secrecy, and fallout is reaching well beyond UBS. UBS and other Swiss banks, such as Credit Suisse, are closing their cross-border business that provides accounts to U.S. clients.

Meanwhile, federal prosecutors keep pursuing information obtained through the voluntary disclosures to build more cases and already are on the trail of at least one more Swiss bank, according to a recent criminal case filed in Fort Lauderdale federal court.

Tax attorney Weisberg, a former federal prosecutor, said during IRS debriefings of taxpayers who are making voluntary disclosures IRS officials are extracting details about bankers and others who facilitated tax evasion. “They’re looking to indict not just Americans who cheated on their taxes, but the bankers and others involved.”