IRS divulges criteria for targeting UBS accounts

UBS has admitted that it schemed to defraud the U.S. government by helping Americans hide money in secret Swiss accounts.
UBS has admitted that it schemed to defraud the U.S. government by helping Americans hide money in secret Swiss accounts. (Adrian Moser/bloomberg News)

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By David S. Hilzenrath
Washington Post Staff Writer
Wednesday, November 18, 2009

If your secret Swiss bank account was small enough, you can breathe easier: A landmark deal between the United States and Switzerland to expose American tax dodgers does not call for the Swiss to blow your cover.

But if you exceeded certain thresholds and failed to disclose the account to the Internal Revenue Service, don't count on Switzerland's legendary tradition of bank secrecy to protect you any longer. Your account details may be on their way to U.S. tax collectors and federal prosecutors.

That is the upshot of a previously confidential annex to a settlement reached in August by the IRS with the Swiss government and Swiss banking giant UBS.

The IRS revealed Tuesday that Swiss authorities did not have to spill the beans on Americans who had less than $248,200 (250,000 Swiss francs) in their accounts or received less than $99,280 (100,000 Swiss francs) in annual revenue from them.

Before the showdown over UBS, Swiss law generally shielded depositors whose only offense was failing to disclose assets and income on tax forms. To jeopardize their entitlement to secrecy, bank clients had to engage in more overt acts of concealment, described as "fraud and the like."

According to the newly unveiled annex, however, the Swiss appear to have stretched the definition of that kind of subterfuge. Under the annex, Switzerland defined "fraud and the like" to include failure to provide a W-9 disclosure form for three years if the account met two measures: having more than $992,802 (1 million Swiss francs) at any time from 2001 through 2008, and generating average annual revenue of more than 100,000 Swiss francs over three years.

The agreement also covers accounts of at least 250,000 Swiss francs if the American depositors used an off-shore shell company to hide ownership of the funds and if they engaged in a "scheme of lies." That could include using calling cards to disguise trading orders, and using debit cards, credit cards or loans to mask withdrawals from the Swiss accounts.

Under the sometimes fuzzy terms of the international agreement, the Swiss have not explicitly promised to turn over the account information, only to "process" a U.S. request. Nonetheless, the U.S. government has made clear that, once the Swiss review runs its course, it expects to get details on about 4,450 accounts.

"Switzerland is no longer a place where Americans can freely think that their account information will be forever protected," said Scott D. Michel of the law firm Caplin & Drysdale, which represents UBS clients.

The Swiss government said it has 40 people processing the disclosure requests. UBS admitted early this year that it schemed to defraud the U.S. government by helping Americans hide money in secret Swiss accounts. The bank surreptitiously recruited wealthy Americans as clients and then helped some of them set up shell companies to obscure their connection to the accounts.

To avoid a potentially ruinous criminal prosecution, UBS agreed to pay the U.S. government $780 million. Then, the U.S. government stepped up a civil action against UBS, asking a federal court to force the bank to disclose the holders of 52,000 accounts. Through the deal struck in August, the two governments chose accommodation over confrontation, with face-saving measures for both sides. The U.S. government has accepted the possibility that some people who used UBS to evade taxes will get away with it.

Details as to which accounts the two governments would target for disclosure under the agreement were withheld until Tuesday to keep depositors guessing about their risk of being exposed -- and to keep them under pressure to confess in return for an IRS offer of leniency.

The offer, originally set to expire in September, was extended to mid-October. As the deadline loomed, a crush of depositors filed voluntary disclosures. All told, more than 14,700 people turned themselves in under the IRS leniency program, more than 12,000 of them after the deal with Switzerland was announced, IRS Commissioner Douglas Shulman said in a briefing Tuesday.

Those figures went beyond UBS clients to include people with accounts at other banks and in other countries; Shulman did not provide a subtotal for UBS.

It was not immediately clear how much money the government stands to recoup from taxpayers who turned themselves in or face exposure under the UBS settlement.

"We are talking about billions of dollars coming into the U.S. Treasury," Shulman said.

On Capitol Hill, the deal came under sharp criticism from Sen. Carl M. Levin (D-Mich.), who leads the Senate Homeland Security and Governmental Affairs Committee's permanent subcommittee on investigations.

"[T]he tortured wording and the many limitations in this annex shows the Swiss government trying to preserve as much bank secrecy as it can for the future, while pushing to conceal the names of tens of thousands of suspected U.S. tax cheats," he said in a statement. "It is disappointing that the U.S. government went along."


© 2009 The Washington Post Company

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