In the hush-hush world of Swiss banking, the unthinkable is happening:
secrets are spilling into the open.
RelatedDepartment of Justice Press
Releasehttp://www.usdoj.gov/opa/pr/2009/February/09-tax-136.html
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- UBS
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UBShttp://topics.nytimes.com/top/news/business/companies/ubs_ag/index.html?inline=nyt-org,
the largest bank in Switzerland, agreed on Wednesday to divulge the names of
well-heeled Americans whom the authorities suspect of using offshore
accounts at the bank to evade taxes. The bank admitted conspiring to defraud
the Internal Revenue
Servicehttp://topics.nytimes.com/top/reference/timestopics/organizations/i/internal_revenue_service/index.html?inline=nyt-org
and
agreed to pay $780 million to settle a sweeping federal investigation into
its activities.
It is unclear how many of its clients' names UBS will divulge. Federal
prosecutors have been examining about 19,000 accounts at the bank, but UBS
ultimately may disclose the identities of only a few hundred customers.
But to some, turning over any names at all heralds the end of the secret
Swiss bank account, whose traditions date to the Middle Ages.
The Swiss are saying that this is the end of Swiss banking as they knew
it, said Jack Blum, an offshore tax specialist. Nobody will trust the
security of the Swiss bank account.
As part of the settlement, UBS agreed to cooperate with a broad summons
issued by the Justice Department to turn over the names. Under the terms of
a so-called deferred prosecution agreement, the bank and its executives
could be indicted if UBS didn't identify the customers.
UBS has said it is closing the offshore accounts of its American clients.
But under the deal with the United States authorities, the bank must provide
periodic written evidence of that to prosecutors. UBS earned $200 million
annually from the business.
Prosecutors suspect that from late 2002 to 2007, UBS helped American clients
illegally hide $20 billion, letting them evade $300 million a year in taxes.
In a striking admission, UBS said that from 2000 through 2007, some of its
private bankers and managers had participated in a scheme to defraud the
United States and the I.R.S. by helping American clients set up and conceal
offshore accounts. The scheme involved falsifying or not properly obtaining
or filing certain tax forms required of both the bank and its clients.
UBS's offshore private banking business once employed some 60 private
bankers in Lugano, Zurich and Geneva. Prosecutors claimed UBS referred
clients to lawyers and accountants who set up secret offshore entities to
conceal assets from the I.R.S.
UBS urged some American clients to destroy records and to stash watches,
jewelry and artwork that they had bought with money hidden offshore in safe
deposit boxes in Switzerland. The bank also encouraged them to use Swiss
credit cards so the I.R.S. could not track purchases. In a statement on
Wednesday, Peter Kurer, the chairman of UBS, said that UBS sincerely
regrets the compliance failures in its U.S. cross-border business that have
been identified by the various government investigations in Switzerland and
the U.S., as well as our own internal review. We accept full responsibility
for these improper activities.
Marcel Rohner, the group chief executive of UBS, said in a statement that
it is apparent that as an organization we made mistakes and that our
control systems were inadequate.
In January a senior UBS executive, Raoul Weil, was declared a fugitive, two
months after being indicted by a federal judge in connection with the
investigation of the bank. Mr. Weil, a Swiss citizen, oversaw the
cross-border private banking operations from 2002 to 2007.
UBS had fiercely resisted turning over the names, even after some executives
were indicted and implicated in the offshore private banking business. Swiss
law distinguishes broadly between tax avoidance, tax evasion and tax fraud.
Unlike in the United States, tax evasion is not a criminal offense under
Swiss law.
The move by UBS to settle the case, on the eve of a Senate subcommittee
hearing next Tuesday on the matter, signals how close the bank came to being
indicted for not cooperating with prosecutors. Indictment is a near-certain
death knell for corporations.
Of the $780 million that UBS will pay, $380 million represents disgorgement
of profits from its cross-border business. The remainder represents United
States taxes that UBS failed to withhold on the accounts. The figures
include interest, penalties and restitution for unpaid taxes
As part of the deal, UBS also entered into a consent order with the
Securities and Exchange Commission in which it agreed to charges of having
acted as an unregistered broker-dealer and investment adviser for Americans.
The settlement caps
