Swiss bank UBS has worked out a deal with the Justice Department and the Securities and Exchange Commission to reveal the identities and account numbers of U.S. citizens who have been stashing their money in previously secret bank accounts.
As part of the deferred prosecution agreement and in an unprecedented move, UBS, based on an order by the Swiss Financial Markets Supervisory Authority, has agreed to immediately provide the U.S. government with the identities and numbered bank accounts of certain U.S. customers of its cross-border business.
Under the agreement, the bank, which is Switzerland’s largest, has also agreed to exit the business of providing banking services to U.S. clients with undeclared accounts. In addition, UBS has further agreed to pay $780 million in fines, penalties, interest and restitution. The agreement was accepted Wednesday in Fort Lauderdale by U.S. District Judge James I. Cohn.
“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,” said UBS chairman Peter Kurer (pictured) in a statement.
In announcing the deal, the Justice Department also unsealed a criminal information that charges UBS with conspiring to defraud the United States by impeding the Internal Revenue Service. According to court documents, in 2000, after it purchased the brokerage firm Paine Webber, UBS voluntarily entered into an agreement with the IRS that required UBS to report to the IRS income and other identifying information for its U.S. clients who held U.S. securities in a UBS account.
Court documents allege that the agreement also required UBS to withhold income taxes from U.S. clients who directed investment activities in foreign securities from the U.S. However, in order to evade those new reporting requirements, employees and managers within the cross-border business, with the knowledge of certain UBS executives, allegedly helped U.S. taxpayers open new UBS accounts in the names of nominees and/or sham entities.
According to court documents, the assets of the individual’s accounts were then transferred to the newly created accounts where the U.S. taxpayer would not be identified as a beneficiary.
Swiss bankers routinely traveled to the U.S. to market Swiss bank secrecy to U.S. clients interested in attempting to evade U.S. income taxes, according to the Justice Department. In 2004 alone, Swiss bankers traveled to the U.S. approximately 3,800 times to discuss their clients’ Swiss bank accounts, according to court documents.
UBS managers and employees also allegedly used encrypted laptops and other counter-surveillance techniques to help prevent detection of their marketing efforts and the identities and offshore assets of their U.S. clients. Clients of the cross-border business in turn filed false tax returns that omitted the income earned on their Swiss bank accounts and failed to disclose the existence of those accounts to the IRS.
In light of the bank’s willingness to acknowledge responsibility for its actions and omissions, its cooperation and remedial actions to date, and its promised continuing cooperation and remedial actions, the government said that it would recommend dismissal of the charge, provided the bank fully carries out its obligations under the agreement.
IRS Commissioner Douglas Shulman welcomed the agreement, but added that it did not completely settle the matter. “Today’s action resolves a number of issues and requires the bank to make a substantial payment to the government,” he said in a statement. “However, it does not resolve all outstanding matters. Last summer the IRS received permission from the court to issue a summons to UBS to identify taxpayers who were hiding unreported income offshore. These taxpayers should note that today’s agreement states that the U.S. government will continue to seek enforcement of the summons.
"Today’s agreement also stipulates that if the bank fails to comply with a final order to produce the information, the U.S. government may deem UBS to be in violation of the agreement," he added. "People who have hidden unreported income offshore need to get right with their government. They should come forward and take advantage of our voluntary disclosure process.”
In June 2008, the U.S. District Court in Miami authorized the IRS to serve UBS with a so-called “John Doe” summons seeking records that would identify U.S. taxpayers with accounts at UBS in Switzerland who have elected to conceal the existence of their accounts from the IRS.
Despite the agreement, UBS said Thursday it intends to challenge the John Doe summons after the IRS commenced a civil action in Florida to enforce it. The bank said it believes it has "substantial defenses" to the enforcement of the summons and intends to "vigorously contest the enforcement of the summons in the civil proceeding," which is permitted under the terms of the deferred prosecution agreement.
Both the Justice Department and the IRS have been steadily pressuring UBS to divulge its U.S. clients’ accounts. In November 2008, UBS executive Raoul Weil was indicted by a federal grand jury in Fort Lauderdale and charged with conspiring to defraud the United States for his alleged role in overseeing the U.S. cross-border business. The district court recently declared him to be a fugitive.
In June 2008, former UBS private banker Bradley Birkenfeld pleaded guilty to a charge of conspiring to defraud the U.S. for similar conduct. Birkenfeld is scheduled to be sentenced on May 1, 2009.
