UBS to Pay $780 Million Over U.S. Tax Charges

By David S. Hilzenrath and Zachary A. Goldfarb
Washington Post Staff Writers
Thursday, February 19, 2009

UBS, Switzerland's largest bank, agreed yesterday to pay $780 million to settle civil and criminal charges by the U.S. government that it helped thousands of American clients use Swiss accounts to evade U.S. taxes.

UBS also agreed to turn over the names of some of those clients.

The settlement ended a legal battle that pitted Switzerland's legendary tradition of bank secrecy against the U.S. government's determination to crack down on tax cheats.

But how the U.S. government resolved perhaps the central issue in its dispute with UBS was not disclosed, making it hard to assess how much the government gained in its battle against tax evasion.

The Justice Department charged that over several years UBS provided Swiss bank accounts to approximately 20,000 U.S. clients with assets of about $20 billion. About 17,000 of those clients concealed their identities and the existence of their UBS accounts from the IRS, the Justice Department alleged.

A key question in the investigation was whether the bank and the Swiss authorities would divulge information about all of the thousands of clients the U.S. government suspected of using UBS accounts to evade taxes or only those clients who met the much narrower Swiss legal conditions for parting the curtain of bank secrecy.

Under the settlement, UBS agreed to give up the names and account numbers of "certain United States clients." Neither the Justice Department nor UBS would say how many clients the bank would give up or the criteria they will use to identify them. The details were spelled out in a document filed under seal.

A Justice Department news release stated that, to avoid being tried on criminal charges, UBS agreed to stop letting U.S. clients use Swiss accounts to hide money from the IRS. However, the commitment wasn't new: The Swiss bank promised to do just that last year.

"UBS avoided compliance with U.S. securities laws for many years, at the same time they were engaged in other illegal conduct, which makes this one of the most egregious cases of its kind," Scott W. Friestad, deputy director of enforcement at the SEC, said in a statement.

In a statement, UBS chairman Peter Kurer said the bank remains committed to client confidentiality. But Kurer added that confidentiality was not meant to protect fraud or clients who, with the bank's assistance, made "false declarations regarding their tax status."

"It is apparent that as an organization we made mistakes and that our control systems were inadequate," UBS chief executive Marcel Rohner said.

The settlement allows UBS to delay for up to four years a big chunk of its promised payment to the U.S. government. Under the deal, the U.S. government will make further legal efforts to obtain all the names it has been seeking. However, UBS is explicitly permitted to argue that Swiss law bars it from complying, and the settlement document says that Swiss law may limit the bank's cooperation with U.S. investigations or prosecutions.

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