labels: Banks general
US justice dept hauls UBS to court to force disclosures news
20 February 2009

The US justice department yesterday filed a lawsuit in the federal court in Miami to compel Switzerland's largest bank, UBS to disclose the names of as many as 52,000 Americans who evaded paying tax in the US by not disclosing their accounts that held cash and securities in secret accounts in UBS.

The US Internal Revenue Service had started a probe against UBS in June 2008 following revelations 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.

The justice department lawsuit states that 32,940 Americans held secret cash holding accounts in UBS while 20,877 held accounts holding securities and the account holders had assets totaling $14.8 billion from the year 2001 to 2006 to which, they had avoided paying taxes in the US from the income earned from this secret accounts.

The lawsuit was filed despite UBS agreeing yesterday to pay $780 million to settle civil and criminal charges filed last year, where a US court granted the IRS to serve summons on UBS to obtain information on bank records (See: US wins court order for UBS bank records; steps up probe) to prove that the bank helped rich US citizens to open secret Swiss accounts and trusts or shell companies in tax havens such as the British Virgin Islands and Bahamas thereby evade paying US taxes.

Although, yesterday UBS agreed to give up the names and account numbers of a few American account holders, the US Justice Department has gone ahead and filed the lawsuit wanting to exert pressure on the bank to disclose all the 52,000 Americans who hold secret accounts in UBS.

Acting assistant attorney general in the Justice Department's tax division, John DiCicco said in a statement ''At a time when millions of Americans are losing their jobs, their homes and their health care, it is appalling that more than 50,000 of the wealthiest among us have actively sought to evade their civic and legal duty to pay taxes.''

A business that gave UBS revenue of nearly $200 million, the Swiss banker may not reveal all the names seeking refuge in Switzerland's strict banking secrecy laws, which bars Swiss banks from disclosing client information, a tradition carried on by Swiss bankers from the middle ages.

But in November 2008, under immense pressure from the US regulators and the court, UBS for the first time breached Swiss banking laws and disclosed names of 70 undeclared accounts held by Americans with its bank. (See: UBS reveals US client details to Federal authorities)

UBS was forced to reveal the names when Birkenfeld, who cooperated with the authorities in revealing details of accounts in lieu for a lighter sentence in a case where he pleaded guilty for helping a real estate developer conceal $200 million and evade $7.2 million in taxes.

Investigators have also managed to lay their hands on an additional 30 American holders of undeclared UBS accounts from whistle blowers who are entitled to get 30 per cent of the money IRS is able to recover with their input.

The US government had held talks with the Swiss government regarding to its tax haven status, which has been a bone of contention for not only the US but also with several EU nations, but apparently the talks led to nowhere.

Switzerland only provides information about clients of banks when competent law enforcement agencies from different countries are able to present concrete evidence of criminal activity by a client.

But in this case the US government has not proved that the 52,000 American account holders in UBS have conducted any criminal activity but UBS may reveal additional names as it fears that US regulators will clamp down heavily on the bank if it chose not to cooperate as it had wide operations in the US.

Swiss finance minister Hand-Rudolf Merz said that the Swiss banking secrecy laws were not infringed and added that under the agreement with the US Justice Department, UBS had only disclosed client details where under Swiss law there was sufficient evidence of fraud in each case.

He also insisted that the Swiss banking secrecy will remain intact and the tradition and reputation of a responsible nation like Switzerland that manages over $4 trillion in cash and assets for people all over the world, will not be tarnished by this case.

President Barack Obama, during his election campaign had called UBS "tax cheats", and said at that time that he would crack-down on international tax havens and has signaled he will introduce a law as part of a wide ranging revenue raising and tax reform package where the crackdown could raise at least $50 billion a year in lost US tax revenues.

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US justice dept hauls UBS to court to force disclosures