UBS Revealed Far Less Than U.S. Sought in Tax Case
Friday, February 20, 2009
One day after the Justice Department claimed to have struck a blow against Swiss bank secrecy, it became clear yesterday how limited that blow was and how much a $780 million fraud settlement with Switzerland's largest bank left unresolved.
On Wednesday, the department announced that the Swiss banking giant UBS would immediately give up the names of an unspecified number of American clients to avoid prosecution on charges that it helped them use secret accounts to evade U.S. taxes.
"The veil of secrecy has been pulled aside," John A. DiCicco, acting assistant attorney general of the Justice Department's tax division, said in a Wednesday news release.
Yesterday, the Swiss president told reporters in Switzerland that UBS had given the U.S. government the identities of up to 300 clients -- a small fraction of the information the Justice Department and Internal Revenue Service have been seeking.
The IRS underscored the enormous gap yesterday in a fresh lawsuit alleging that as many as 52,000 U.S. taxpayers used secret accounts at UBS to hide money from the tax agency. That number was more than double previous estimates, including a figure of 19,000 that a Senate investigative panel last year reported getting from UBS.
The lawsuit filed yesterday seeks to force UBS to do what it has so far refused to do: give up the names of all the suspected tax dodgers.
UBS said it plans to "vigorously contest" the new lawsuit. The information the IRS seeks "is protected from disclosure by Swiss financial privacy laws," the Swiss bank said in a statement.
The U.S. government has been probing UBS with help from sources such as a former UBS banker, Bradley Birkenfeld, who last year pleaded guilty to helping a California real estate mogul evade millions of dollars of taxes. Birkenfeld told investigators that UBS personnel went to elaborate lengths to help U.S. clients stash money in secret Swiss accounts.
The investigation led to the indictment in November of a top UBS executive. The U.S. government has used internal bank documents to accuse UBS management of conspiring to deprive the U.S. Treasury of tax revenue.
In Wednesday's settlement, UBS admitted that it schemed to defraud the United States, in some cases by helping clients set up offshore companies to hide the true ownership of their Swiss accounts. The operation allegedly generated hundreds of millions of dollars of profit for UBS. The government said it demanded smaller penalties from UBS than it could have in consideration of the international financial crisis.
"The UBS deferred prosecution agreement represents a tremendous breakthrough in the national effort to combat offshore secrecy and tax abuse," Sen. Carl M. Levin (D-Mich.), who led the Senate investigation of UBS, said in a statement Wednesday. "Efforts to tear away the offshore cloak of secrecy are gradually succeeding and will continue."
Though Justice's criminal investigation has parted the curtains on what it calls a wide-ranging conspiracy at UBS, it is unclear how seriously it has altered the terms of Switzerland's legendary bank secrecy.