By David S. Hilzenrath
Washington Post Staff Writer
Monday, November 10, 2008
The U.S. government has chipped new holes in the secrecy of Swiss bank accounts, obtaining the names of American clients of the banking giant UBS as part of an investigation into the use of foreign banks to evade taxes.
In an unusual move, the Swiss have turned over information on about 70 UBS clients for use by Justice Department investigators, a source close to the case said.
The Swiss were responding to a Justice Department request for information on Americans who held "undeclared" accounts at UBS in Switzerland -- accounts that they had not revealed to the Internal Revenue Service, the source said.
Meanwhile, criminal investigators have obtained the names of an additional 30 or so American holders of undeclared UBS accounts from other parties, and people with inside knowledge of the bank have been giving federal prosecutors information about UBS's conduct, said the source, who spoke on condition of anonymity because of the matter's sensitivity.
Switzerland has a history of divulging information on bank clients when foreign law enforcement authorities present evidence of criminal activity by specific depositors. The recent disclosures are noteworthy because the Justice Department was asking for information on people whose names it did not have, the source said. The names and account information give prosecutors fresh leads to pursue.
In addition to investigating U.S. taxpayers with secret accounts, the Justice Department has been probing UBS's serving of U.S. clients from Switzerland, a UBS executive testified in July. The Securities and Exchange Commission and the IRS have been conducting related investigations.
While the investigations involve UBS accounts based in Switzerland, the bank's extensive U.S. operations leave it more exposed than many other foreign banks to action by U.S. regulators and law enforcers.
UBS spokesman Mark Arena yesterday declined to comment on the disclosures. Earlier in the week, Arena talked generally about how the company handles such matters.
"Client data are generally protected from disclosure under Swiss law. Such protection does not apply when disclosure of client data occurs as a result of requests to Swiss authorities for administrative assistance through established legal channels," Arena said by e-mail.
The 70 or so client names have been turned over to the U.S. government over recent months, the source said. It was unclear whether they were forwarded to the U.S. government by UBS, the Swiss government or a combination. The source said the disclosures were generally authorized by the Swiss government.
Swiss Embassy spokeswoman Emilija Georgieva declined to comment on the matter yesterday except to say, "We have been asked to do something and we are working on that and it's ongoing."
The U.S. government's focus on UBS became clearer in June, when a former UBS employee pleaded guilty to helping a California real estate developer evade millions of dollars in taxes. The former banker, Bradley Birkenfeld, has been cooperating with the Justice Department, and his sentencing has been delayed twice for the government to take maximum advantage of his help, according to court records.
"When all is said and done, the full nature and scope of Brad Birkenfeld's contribution to the investigation will be very clear for all to see," David E. Meier, an attorney for Birkenfeld, said by e-mail recently, declining to comment further.
Although Birkenfeld may be the only UBS insider whose role in U.S. investigations is a matter of public record, he is not the only person with inside knowledge assisting the Justice Department's criminal investigation, the source close to the case said.
Based partly on Birkenfeld's description of UBS's business practices, Senate investigators have reported that UBS might have violated U.S. banking and securities laws.
Testifying at a Senate hearing in July, Mark Branson, a senior UBS executive, said it appeared that "misconduct occurred" in the bank's cross-border business with U.S. customers.
"We did have detailed written policies that prohibited our employees from engaging in some of the conduct that our internal investigation has uncovered, such as assisting in the creation of sham offshore companies to defraud tax authorities," Branson testified. "While our own review is not complete, it is apparent now that our controls and our supervision were inadequate. We are committed to taking both corrective and disciplinary measures."
The 70 or so names turned over by the Swiss in recent months are far from a full disclosure. According to a July report by the staff of the Senate's Permanent Subcommittee on Investigations, UBS told Senate investigators that about 19,000 Americans held undeclared accounts with the bank in Switzerland.
The secrecy of foreign accounts has taken a series of hits since late last year. First, Igor M. Olenicoff, a California real estate billionaire and client of UBS, pleaded guilty to one count of filing a false tax return. Then tax authorities from multiple countries, including the IRS, began enforcement actions against many clients of Liechtenstein's LGT Bank based on confidential information provided by a former LGT employee.
Then, in June, Birkenfeld pleaded guilty to helping Olenicoff conceal $200 million and evade $7.2 million in taxes.
The U.S. government has been trying to pry loose information about secret bank accounts by offering whistleblowers up to 30 percent of any money they help the IRS recover.
"We've seen a lot more whistleblowers walking in with lists of names" of people with offshore accounts, Commissioner of Internal Revenue Douglas Shulman said in an interview Wednesday. "And we've got a lot of names that we're combing through and will be pursuing aggressively."
Shulman was not referring to any particular bank.
"I think any individual who's using foreign bank accounts to hide assets and not pay taxes would be well advised to be nervous and would be well advised to come in," Shulman said.
In a separate development, Liechtenstein's embassy in Washington said recently that the tiny European principality has concluded negotiations on an agreement to exchange tax information.
"This agreement provides for information exchange where suspicion arises under US law concerning tax offenses committed by US taxpayers with assets in Liechtenstein," the embassy said in a statement.
"Privacy will continue to be protected under this agreement," the statement said.