Buongiorno
UBS Will Disclose Names, Pay $780 Million to End U.S. Tax Case
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By David Voreacos, Carlyn Kolker and David Scheer
Feb. 19 (Bloomberg) --
UBS AG, Switzerland’s largest bank, will pay $780 million and disclose the names of some secret account holders to avoid U.S. prosecution on a charge that it helped thousands of wealthy Americans evade taxes.
The
Justice Department accused UBS of conspiring to defraud the U.S. by helping 17,000 Americans hide accounts from the Internal Revenue Service. The U.S. will drop the charge in 18 months if the bank reforms its practices, helps prosecutors and makes payments. UBS will immediately turn over names of about 250 clients, according to people familiar with the matter.
By gaining those names, the U.S. will pierce the veil of Swiss bank secrecy. The IRS, which has sought the names of all U.S. account holders since July, has met resistance from the Swiss government. The final number of account holders Zurich- based UBS must disclose will hinge on future legal battles, according to the agreement.
“UBS sincerely regrets the compliance failures,” Chairman
Peter Kurer, 59, said in a statement after the accord was unsealed yesterday in federal court in Fort Lauderdale, Florida. “Client confidentiality, to which UBS remains committed, was never designed to protect fraudulent acts or the identity of those clients, who, with the active assistance of bank personnel, misused the confidentiality protections.”
The Securities and Exchange Commission also reached an agreement to resolve claims that UBS acted as an unregistered broker-dealer and investment adviser to U.S. citizens who held accounts directly or in the names of others.
Settlement Estimates
The $780 million is lower than previous settlement estimates, which exceeded $1 billion. The U.S. government agreed to the lower amount because of the bank’s eroding financial condition, according to a person familiar with the matter.
UBS has announced more than 11,000
job cuts, exited parts of debt trading and commodities businesses and raised $32 billion from investors to offset record losses at the securities unit. Last week, it posted a fourth-quarter loss of 8.1 billion Swiss francs ($6.9 billion) on trading losses and leveraged loan impairments.
Financial institutions worldwide have amassed $1.1 trillion of writedowns and credit losses and shed more than 274,000 jobs since the U.S. subprime-mortgage market collapsed in 2007, data compiled by Bloomberg show.
UBS will pay $380 million to disgorge profits from its cross-border business from 2001 to 2008, and $400 million in interest, penalties and restitution for unpaid taxes.
IRS Summons
On July 1, a federal judge in Miami approved an IRS summons seeking information on thousands of UBS accounts owned or controlled by U.S. citizens. Under the deferred prosecution agreement, UBS and the government disagree on how many names the bank must disclose. The U.S. may continue to seek enforcement of the summons, and UBS may assert legal defenses.
U.S. law views tax evasion as a crime, Swiss law does not. The Swiss view tax fraud as a more serious offense. A dispute between the two governments slowed negotiations on the agreement, which was filed under seal last week and made public yesterday.
UBS agreed only to the immediate disclosure of account holders involved in fraudulent or sham offshore account structures, according to people familiar with the matter.
It’s “extremely likely” the government will prevail in U.S. court on the summonses, said Eileen O’Connor, who oversaw the Justice Department’s Tax Division from 2001 until 2007.
“We didn’t have to sue to enforce very often, but when we did we were successful,” said O’Connor, now a partner at the Washington law firm Pillsbury Winthrop Shaw Pittman.
‘Expeditious’ Exit
UBS said in July it would stop providing cross-border banking services to American clients through units that aren’t licensed in the U.S. Under the accord, UBS agreed to give banking advice in the U.S. only through licensed subsidiaries and appoint an internal risk committee to oversee its “orderly and expeditious” exit from the business.
Bank executives “knew that UBS’s cross-border business violated the law,” R.
Alexander Acosta, U.S. Attorney for the Southern District of Florida, said in a statement. “They refused to stop this activity, however, and in fact instructed their bankers to grow the business. The reason was money -- the business was too profitable to give up.”
Since at least 1999, UBS held billions of dollars for U.S. clients in accounts in Switzerland and other overseas locations while ignoring requirements that it register with the SEC, the agency said in a civil lawsuit in federal court in Washington.
Yachting Events
The bank’s Swiss advisers traveled to the U.S. a few times a year to solicit customers at art shows, as well as yachting and other sporting events, the SEC said. To conceal their activities, advisers carried encrypted laptop computers and got training from the bank on avoiding detection, the agency said.
UBS settled the probes after a series of disclosures that followed the guilty plea last June of a former private banker,
Bradley Birkenfeld.
The company reaped $200 million a year by helping high- income clients through such practices as setting up sham entities in tax havens including Switzerland, Panama, the British Virgin Islands, Hong Kong and Liechtenstein, Birkenfeld said in pleading guilty in federal court in Fort Lauderdale.
The bank helped Americans evade taxes even after signing a 2001 agreement that required it to identify account holders and their income to U.S. authorities, according to prosecutors. Birkenfeld said many clients refused to disclose their assets because it would defeat the purpose of banking with UBS -- evading taxes.
Senate Hearing
UBS announced it was ending its cross-border business in July at a hearing of the U.S. Senate Permanent Subcommittee on Investigations where the company was criticized for sending bankers to the U.S. to woo wealthy Americans. The announcement yesterday precedes another subcommittee hearing set for Feb. 24.
The agreement is “a tremendous breakthrough in the national effort to combat offshore secrecy and tax abuse,” said Senator
Carl Levin, the Michigan Democrat who leads the subcommittee. “Efforts to tear away the offshore cloak of secrecy are gradually succeeding.”
In November, Switzerland-based UBS executive
Raoul Weil was indicted in Florida on a charge that he helped rich Americans evade taxes. Weil attorney
Aaron Marcu said it was “extremely disappointing” that the government did not drop its case.
“Mr. Weil is an innocent victim of a political dispute between the United States and Switzerland over Swiss bank secrecy,” Marcu said in a statement.
To contact the reporters on this story:
David Voreacos in Newark, New Jersey, at
dvoreacos@bloomberg.net;
Carlyn Kolker in New York at
ckolker@bloomberg.net;
David Scheer in New York at
dscheer@bloomberg.net;
Last Updated: February 18, 2009 22:37 EST
