UBS AG has decided to exit its offshore banking business for US clients, the Swiss banker's representative told a Senate committee hearing.
Mark Branson, chief financial officer of global wealth management and business banking, of the swiss banking group UBS, told a US Senate subcommittee hearing on tax haven banks that UBS AG has decided to exit its offshore banking business for US clients and the bank was taking necessary action to address any compliance failures that may have occurred in the US cross-border business.
"That means UBS will no longer provide offshore banking and securities services to US residents through its bank branches. Such services will only be provided to residents of this country through companies licensed in the United States."
The senate subcommittee says tax evasion through offshore accounts robs the U.S. Treasury of $100 billion annually. and is investigating tax compliance by banks in countries designated as tax havens.
UBS, the biggest Swiss bank, is cooperating with tax-evasion probes by US prosecutors and regulators. Branson told the subcommittee that UBS was working with the US government to identify the names of US clients who may have engaged in tax fraud.
Though cient identity is generally protected from disclosure under Swiss law, Branson said such privacy protections do not apply when disclosure of client names is requested in connection with an investigation of tax fraud and where the requests are presented to the Swiss government through established legal channels and that "UBS will fully support and assist that process," he aserted.
At the hearing Branson also pointed out that the cross-border business under the QI agreement was, and is, entirely legal in both Switzerland and the US. Indeed, the QI expressly contemplated that US citizens could access bank accounts in Switzerland and other countries without providing a form W-9, as long as they held no US securities.
Branson said, "Unless or until those rules are changed, that is the framework with which we and other banks must comply."
The swiss banking group said that last year, in response to the ongoing investigations of the US Department of Justice and the SEC, UBS launched a comprehensive internal investigation into its cross-border business with US 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. While our own review is not complete, it is apparent now, that our controls and supervision were inadequate. UBS is committed to taking both corrective and disciplinary measures."
The Senate permanent subcommittee on investigations revelaed in a 114-page report released late yesterday that though UBS was not licensed to conduct business or solicit clients in the US, it frequently did so to solicit rich US citizens to open secret Swiss accounts and trusts or shell companies in tax havens such as the British Virgin Islands.
It further said in its report that the bank concealed $17.9 billion for 19,000 Americans who didn't declare assets to the Internal Revenue Service.
US authorities had earlier this month secured a court order to seek information from UBS, Switzerland's largest bank, on US taxpayers suspected to be avoiding income taxes. (See: US wins court order for UBS bank records; steps up probe)
The probe in to UBS followed revelations in May by a former UBS banker, Bradley Birkenfeld, that he helped defraud the IRS by assisting UBS clients in avoiding US reporting requirements on income in Swiss bank accounts. UBS employees helped wealthy US clients to conceal their ownership of assets held offshore by creating bogus entities and then filing IRS forms falsely claiming the entities owned the accounts, Bireknfeld told the court while pleading guilty.
Offshore banking for U.S. clients brought UBS about $200 million in annual revenue, former UBS banker Bradley Birkenfeld said in a statement when he pleaded guilty last month to helping a billionaire UBS customer evade US taxes.
UBS had about $20 billion of assets under management in "undeclared" accounts for US taxpayers, according to Birkenfeld.
As part of the IRS investigations, the justice department has also sought records of services provided by UBS to US clients from 2000 to 2007.
In addition to the Justice Department's probe, the US Securities and Exchange Commission is also investigating whether the bank's employees in Switzerland who advised US clients failed to register with the agency as required.
As a further twist to the tale, this is not the first instance in recent times that UBS has found itself embroiled in tax evasion controversies. Only a month back, on 31 March, the Mannheim Prosecutors' Office had declared the possibility of opening a criminal probe into allegations that UBS offered Germans help in hiding funds from local tax authorities.
Under pressure to overhaul its business after reporting more than $37 billion in writedowns during the global credit turmoil, had announced on 1 July that four of its board members were stepping down later this year.