The UBS case in the US

[Sapphire Capital]

UBS’s privileged clients are running scared.

Under pressure from the authorities, UBS is considering whether to divulge the names of up to 20,000 of its well-heeled American clients, according to people close to the inquiry, a step that would have once been unthinkable to Swiss bankers, whose traditions of secrecy date to the Middle Ages.

Federal investigators believe some of the clients may have used offshore accounts at UBS to hide as much as $20 billion in assets from the Internal Revenue Service. Doing so may have enabled these people to dodge at least $300 million in federal taxes on income from those assets, according to a government official connected with the investigation.

One prominent UBS client, a wealthy property developer in California named Igor Olenicoff, has already pleaded guilty to filing a false 2002 tax return. But as the investigation tears holes in the veil of secrecy surrounding tax havens like Switzerland and Liechtenstein, other names are surfacing, according to the authorities.

New revelations are likely to come Monday, when a former UBS banker is expected to testify in a court in Florida about how he helped Mr. Olenicoff and other clients evade taxes. The former banker, Bradley Birkenfeld, is set to plead guilty to helping Mr. Olenicoff conceal $200 million.

UBS is said cooperating with investigators and that it was against its policy to help Americans evade taxes.

Using offshore accounts is not illegal for United States taxpayers, but hiding income in so-called undeclared accounts is. At issue is whether the UBS clients filed W-9 tax forms with the I.R.S., disclosing securities and assets held offshore, as required by law. Switzerland does not consider tax evasion a crime, and using undeclared accounts is legal there.

The case could turn into an embarrassment for Marcel Rohner, the chief executive of UBS and the former head of its private bank, as well as for Phil Gramm, the former Republican senator from Texas who is now the vice chairman of UBS Securities, the Swiss bank’s investment banking arm. It also comes at a difficult time for UBS, which is reeling from $37 billion in bad investments, many of them linked to risky American mortgages.

The federal investigation, which is part of a broad, international crackdown on tax cheats, suggests that United States authorities are shifting their focus to Liechtenstein and Switzerland from Caribbean havens like the Bahamas and the Cayman Islands. The Senate Permanent Subcommittee on Investigations is scheduled to hold hearings as early as this month on offshore products sold by UBS and by the LGT Group, the bank owned by Liechtenstein’s royal family.

At the center of the UBS investigation is Mr. Birkenfeld, 43, who grew up in the Boston area and went on to live what might seem like a charmed life as a private banker in Switzerland. Through his lawyer, Danny Onorato, Mr. Birkenfeld declined to comment.

Mr. Birkenfeld’s testimony could deal a stinging blow to UBS, the world’s largest money manager for people whom bankers politely call “high net worth individuals.” Since 2006, the bank has opened plush offices in New York and six other United States cities, among them Boston, Chicago and Houston, to cater to people who are worth at least $10 million.

Many UBS customers are worth far more than that. To lure them, UBS bankers canvassed cultural and sports events like Art Basel, the America’s Cup and Boston Symphony Orchestra concerts.

Mr. Birkenfeld took care of important clients for UBS’s private bank catering to United States citizens with offshore accounts, and was central to UBS’s effort to lure them.

Before joining UBS in 2001, he worked at Barclays Bank in Geneva, where brought in Mr. Olenicoff, the billionaire owner of Olen Properties. When Mr. Birkenfeld joined UBS, he brought Mr. Olenicoff along, and later helped him move hundreds of millions of dollars from the Bahamas to Switzerland, according to a financial executive briefed on the matter.

Shortly after Mr. Olenicoff left UBS for LGT, the Liechtenstein bank, in 2005, Mr. Birkenfeld resigned. The banker formally left UBS in March 2006.

Mr. Birkenfeld later claimed in a Swiss legal proceeding that UBS had not paid him a bonus he was owed. A former associate said Mr. Birkenfeld had become angry over what he considered the bank’s wink-and-nod standard regarding tax evasion. UBS typically rewarded private bankers for attracting new clients in the United States, rather than for the fees the bankers generated for UBS from existing customers.

Mr. Birkenfeld also was angered when UBS asked bankers to sign papers saying that they, not the bank, would be responsible if they broke non-Swiss tax laws, according to a European financial executive briefed on the matter.

About a year ago, concerned by a tax investigation into Mr. Olenicoff, Mr. Birkenfeld contacted the Justice Department and California authorities and offered to cooperate with prosecutors in the hope of securing immunity for himself, according to a person close to the case. His deal fell through, however, and Mr. Birkenfeld was charged, along with a financial executive from Liechtenstein, in an indictment unsealed May 13.

As the authorities focused on UBS last January, the bank abruptly shut its three Swiss offices that had sold undeclared offshore banking services to United States clients. Those offices catered to thousands of wealthy Americans, some of whom may now have their tax secrets put on public display.

[Sapphire Capital]

Ex-UBS banker pleads guilty in tax case

By Joanna Chung in New York

Published: June 20 2008 03:00 | Last updated: June 20 2008 03:00

A former UBS private banker yesterday pleaded guilty to charges that he conspired to help a US billionaire evade income taxes after agreeing to "co-operate fully" with prosecutors in the case.

"He's going to tell the government everything he knows about what was going on at UBS," said Danny Onorato, attorney for Bradley Birkenfeld.

Mr Birkenfeld, a US citizen living in Switzerland, said that he and others, including managers and bankers at the Swiss bank, enabled wealthy US clients to conceal their ownership of the assets held offshore by helping them create "nominee and sham entities", according to a court document accompanying his plea.

These entities were usually set up in tax haven jurisdictions, including Switzerland and Liechtenstein, a strategy responding to "the risk [of] losing the approximately $20bn of assets under management in the United States . . . which earned the bank approximately $200m per year in revenues," the document said.

Mr Birkenfeld said he and others also prepared false and misleading US tax forms and also advised US clients to place cash and valuables in Swiss safety deposit boxes and to purchase jewels, artwork and luxury items using the funds in their Swiss bank account while overseas, prosecutors said.

Mr Birkenfeld, who could face a maximum sentence of five years, turned whistleblower after an acrimonious parting with UBS in 2006.

According to the plea agreement filed in court, Mr Birkenfeld agreed to "co-operate fully" with the US government by providing truthful and complete testimony, producing documents, records and other evidence, and appearing at court proceedings in return for a recommendation of a lower prison sentence than the maximum.

UBS said yesterday it was treating these investigations with the "utmost seriousness" and would "appropriately and responsibly address and correct any issues raised in the investigations, including taking appropriate disciplinary action".

It added: "UBS will continue to work with US governmental authorities in an effort to achieve a satisfactory resolution of these matters."

Mr Birkenfeld was indicted in May, along with Mario Staggl, a Liechtenstein national, for his role in helping Igor Olenicoff, a real estate developer, evade paying taxes by helping to conceal $200m of assets. Mr Staggl is still at large. Mr Olenicoff has previously pleaded guilty to filing a false tax return.

source: www.ft.com/cms/s/0/b1a1a67c-3e62-11dd-b16d-0000779fd2ac.html

also seee the AFP posted comment:
Fraction' of American clients affected by US tax probe, UBS says

The Associated Press
Friday, June 20, 2008

GENEVA: Swiss bank UBS AG said Friday that it will disclose any instances in which rich American clients may have broken U.S. tax reporting rules by channeling assets through offshore shell companies.

The disclosure comes after the Zurich-based bank said it was cooperating with a U.S. investigation into whether its employees helped clients evade taxes from 2000 to 2007.

The investigation centers on 20,000 UBS clients in the United States who are required to fill out a supplementary tax form giving foreign banks their American tax identification number if they hold any U.S. securities in their accounts abroad.

"A fraction" of those customers are being investigated for possibly breaching the rules by using offshore companies to hold U.S. assets without filling in the supplementary form, known as W-9, UBS spokesman Serge Steiner said.

UBS said in a statement that it is working with Swiss and U.S. authorities to "promptly provide information concerning instances in which the establishment and operation of such offshore entities and their UBS securities accounts appears to have been part of a scheme to defraud U.S. tax authorities."

"UBS is treating these investigations with the utmost seriousness and will appropriately and responsibly address and correct any issues raised in the investigations, including taking appropriate disciplinary action," it added.

UBS disclosed in May that the U.S. Justice Department is investigating whether the bank was helping clients evade taxes from 2000 to 2007. The bank said at the time it was cooperating with the investigation and a separate probe into whether its bankers failed to meet registration rules set by the U.S. Securities and Exchange Commission.

Swiss law prevents banks from divulging the names and details of their clients except in cases of outright tax fraud. Tax evasion or non-reporting is not considered sufficient grounds for the Swiss government to aid another government's investigation.

Last week U.S. authorities sent a request for legal assistance to their Swiss counterparts to lift the anonymity of certain clients.

Meanwhile, a spokesman for the Justice Ministry in Bern confirmed media reports that a Swiss government delegation is to meet with U.S. federal authorities in the United States on Friday to discuss the case against UBS.

The U.S. investigation has already affected the Swiss bank's operations in the United States, where it manages some US$710 billion (€458.6 billion) for rich American clients.

Last November UBS told some private banking clients they would in future have to travel to Switzerland if they want to speak with their advisers. Swiss media have reported that UBS was concerned its employees could face arrest if they travel to the United States. The bank has declined to comment on the reports, but acknowledged that a senior UBS manager was detained in the U.S. last month as a material witness in a case being heard in Florida.

The case concerns a former UBS executive, Bradley Birkenfeld, who pleaded guilty before a federal court in Fort Lauderdale on Thursday to helping clients hide hundreds of millions of dollars and evade U.S. taxes.

The case against Birkenfeld is seen as key to the Justice Department and SEC investigations.

Documents released in that case said that at one point Birkenfeld purchased diamonds using one client's Swiss bank account and smuggled the diamonds into the United States in a toothpaste tube.

UBS declined to comment on the case, but spokesman Steiner said the bank's policy categorically forbids employees from carrying cash or valuables for clients.

Shares in UBS closed 2.85 percent lower at 23.18 Swiss francs (US$22.44; €14.38) in Zurich

[Sapphire Capital]

By Elena Logutenkova

July 1 (Bloomberg) -- UBS AG, the biggest wealth manager, fell to the lowest level in almost a decade in Swiss trading after U.S. prosecutors sought the authority to force the bank to reveal names of American clients with secret accounts.

UBS dropped 1.14 Swiss francs, or 5.3 percent, to 20.30 francs. The shares fell as low as 19.81 francs, not far from the all-time low of 19.03 francs on Oct. 2, 1998, three months after the bank was formed through the merger of Swiss Bank Corp. and Union Bank of Switzerland.

Prosecutors yesterday asked a Miami federal judge to let the Internal Revenue Service issue a summons to Zurich-based UBS for client information as part of an investigation into whether the Swiss bank helped affluent customers evade American taxes. The U.S. probe is intensifying at the same time the bank is reeling from record losses on subprime-infected assets.

``God knows what damage the tax probe will cause, and morale within the bank must be at a record low,'' said Rolf Biland, who oversees about $4.1 billion as Zurich-based chief investment officer at VZ Vermoegenszentrum.

The bank will probably post a loss for the second quarter after writedowns on real estate securities, analysts including Stalmann have forecast. The bank may report markdowns of about 5 billion francs ($4.9 billion) for the second quarter, according to the median estimate of six analysts, following more than $38 billion of writedowns in the previous three quarters.

`Core Franchise'

UBS led a decline in financial shares across Europe, with asset managers among the worst hit. Julius Baer Holding AG, Switzerland's biggest independent wealth manager, dropped as much as 8.3 percent, while Schroders Plc sank as much as 7.3 percent in London trading. The 59-company Bloomberg Europe Banks and Financial Services Index declined 3.7 percent.

UBS Chairman Peter Kurer, who replaced Marcel Ospel in April, told shareholders at the annual meeting that month he will lead a strategic review of all of the bank's businesses to make them better complement the wealth management unit, which he called UBS's ``core franchise.''

The bank said today that it plans to inform shareholders about results of the review at an extraordinary shareholders meeting on Oct. 2. The meeting was called to elect four new board members, as Kurer seeks to increase the level of financial expertise on the board after criticism from shareholders including former UBS President Luqman Arnold.

Shareholders' Meeting

Arnold's Olivant Advisers Ltd., which holds a 2.5 percent stake in the bank, said in a statement today that it welcomed the changes in corporate governance at UBS.

UBS shares sank 69 percent in the past year, cutting the bank's market value to 58.7 billion francs.

``They are addressing the problems but the market would like to see things move more swiftly,'' said Biland.

The Miami judge is likely to grant the so-called ``John Doe'' summons, said Jack Blum, a partner at Baker & Hostetler LLP and an expert on offshore banking. UBS may have little choice but to comply, he said, because the Swiss government appears to be cooperating. The summons would be the first by the U.S. against a foreign bank.

``The bank is in a very difficult position,'' Blum said. ``If I were advising clients, I'd tell them to come clean; the people who come clean early will probably be allowed to get off with paying the tax, the interest and the penalties. Others could very easily face criminal prosecution.''

Birkenfeld Case

A partial amnesty in 2003 followed an investigation into debit and credit cards linked to offshore accounts that included the issuance of John Doe summonses to Visa International Inc. and American Express Co. The amnesty yielded $170 million in taxes, interest and penalties from 1,300 people.

John DiCicco, deputy assistant attorney general in the Justice Department's tax division, said in a statement that the U.S. has been ``working cooperatively'' with UBS and the Swiss government to obtain the account information.

``However, we are prepared to seek enforcement if that process is not successful,'' DiCicco said.

UBS spokeswoman Rohini Pragasam in New York said the bank ``takes this matter very seriously and is working diligently with both Swiss and U.S. government authorities.''

The IRS uses ``John Doe'' summonses when it is investigating possible tax fraud by people whose identities are unknown. The summons would direct UBS to produce records identifying U.S. taxpayers who had accounts with the bank in Switzerland between 2002 and 2007, and who had their accounts hidden from the IRS.

Bradley Birkenfeld, a former UBS banker, pleaded guilty June 20 that he and his colleagues helped wealthy Americans hide money by telling them to put cash and jewelry in Swiss safety deposit boxes, buy artwork and jewels using offshore accounts and set up accounts in the names of others.

In court filings yesterday, Internal Revenue Service agent Daniel Reeves said that in an Oct. 12 interview, Birkenfeld said he was one of 40 to 50 UBS private bankers who made quarterly trips to the United States to manage customers.

[Sapphire Capital]

May 31 (Bloomberg) -- Real estate billionaire Igor Olenicoff used several offshore banks to hide money from U.S. tax authorities, according to his guilty plea and court records linking him to an indicted former private banker at UBS AG.

Olenicoff, chief executive officer and founder of Newport Beach, California-based Olen Properties Corp., lied to U.S. tax authorities about offshore accounts with Barclays Bank in the Bahamas, Salomon Smith Barney in London, UBS in Switzerland, and Neue Bank in Liechtenstein, according to papers filed with his Dec. 12 guilty plea in federal court in Santa Ana, California.

Olenicoff admitted failing to disclose offshore assets on his 2002 tax return and lying about overseas holdings from 1998 to 2004. He began moving money overseas at least 16 years ago, according to his plea agreement. Olenicoff said he was acting on the advice of bankers and accountants who told him to continue the practice.

``To make a long story short, it was bad advice; me not thinking about it,'' Olenicoff told U.S. District Judge Cormac Carney, according to a transcript of his April 14 sentencing. ``I'm sorry. The intent was never to defraud the federal government.'' Olenicoff was sentenced to two years of probation.

Former UBS banker Bradley Birkenfeld, a U.S. citizen, and Mario Staggl, a resident of Liechtenstein, were indicted April 10 on charges of helping Olenicoff evade taxes on $200 million in assets. Birkenfeld and Staggl helped him hide assets in accounts in Switzerland and Liechtenstein, U.S. prosecutors alleged. Birkenfeld agreed to plead guilty June 9 in federal court in Fort Lauderdale, Florida, according to court records.

Wealthy Residents

The Birkenfeld indictment, along with Olenicoff's plea documents and court statements, may help illuminate how wealthy U.S. residents move money around the world to avoid paying taxes. Zurich-based UBS, the world's biggest money manager for wealthy individuals, has said it's cooperating with the U.S. Justice Department investigation.

Olenicoff, who lives in Laguna Beach, California, was ranked 236 on the Forbes Magazine list of the 400 wealthiest Americans this year with a net worth of $1.7 billion. He agreed to pay $52 million in back taxes, penalties and interest. In addition to probation, Carney fined Olenicoff $3,500 and sentenced him to 120 hours of community service.

In his plea agreement, Olenicoff admitted that he moved money using the names of several corporate entities, including Sovereign Bancorp Ltd., National Depository Corp., Guardian Guarantee Co. and Swiss Finance Corp.

Moved $61 Million

Olenicoff said he moved $61 million in 1992 to a Bank of Montreal account in Canada, transferred $40 million from Salomon Smith Barney to Barclays in 1998, and shifted $118 million from Salomon Smith Barney to Barclays in 2001. He also admitted moving $89 million from Barclays to UBS in 2001.

Prosecutors alleged in the indictment of Birkenfeld and Staggl that they helped wealthy U.S. clients evade income taxes by ``claiming that Swiss and Liechtenstein bank secrecy was impenetrable.'' Prosecutors said the two men helped Olenicoff evade taxes on $200 million in assets.

Birkenfeld and Staggl helped Olenicoff set up nominee accounts in Liechtenstein and recommended that he transfer ownership of a 147-foot yacht to a holding company in Gibraltar.

At his sentencing hearing, Olenicoff said he began moving money offshore after he started out in business as ``a young man with virtually no assets.''

Founded in 1973

Olen Properties was founded in 1973 and owns commercial and residential properties in Florida, Las Vegas, Arizona and California, according to the company Web site.

Lloyds Bank of California, which was later purchased by Sanwa Bank, extended a $44 million line of credit, Olenicoff said. The bank later suggested that he create a company in the Cayman Islands to receive stock from his real-estate business, Olenicoff told the judge.

``This goes back many, many years ago when I clearly got some bad advice and pressure from a lender, to be specific, who needed security and wanted the ownership of the company to be offshore,'' Olenicoff said at the hearing.

A real-estate specific accounting firm later advised him to keep his stock holdings offshore, Olenicoff said.

``That was the bad advice,'' he said. The accountants advised him to ``keep your stock offshore because if you bring it back, there is a lot of gain in the stock that has grown up in five years and make that your estate plan.''

Olenicoff Lawyer is Edward Robbins.

The judge praised Olenicoff's ``intelligence, his amazing talent'' and his ``wonderful work'' on behalf of disabled children in Eastern Europe.

``When I find out that people of your stature and standing, you know, lie on your tax returns, it frustrates me; saddens me,'' Carney said.

Simon Eaton, a spokesman at Barclays, didn't immediately return a message seeking comment. Alexander Samuelson, a spokesman for Citigroup Inc., the parent of Salomon Smith Barney, declined to comment. A representative of Mitsubishi UFJ Financial Group Inc., which took over Sanwa Bank Ltd., couldn't be reached for comment in a call made after business hours.

The case is U.S. v. Olenicoff, 07-cr-00227, U.S. District Court, Central District of California (Santa Ana).

To contact the reporters on this story: Carlyn Kolker in New York at [e-mail]; David Voreacos in Newark, New Jersey, at [e-mail].

[Sapphire Capital]

July 11, 2008 - 10:00 PM
Foreign ministry presses for UBS cooperation
A senior foreign ministry official has urged authorities in the United States to refrain from taking unilateral action against the embattled Swiss banking giant UBS.
Michael Ambühl, the state secretary for foreign affairs, made the comments following a meeting with his US counterpart, William J. Burns, in Washington.

"I have reaffirmed the offer of the Swiss government to cooperate with US authorities under the existing legal bases," Ambühl told reporters on Friday. "I have at the same time emphasised that we expect that, in order to receive information from Switzerland, no unilateral measures will be taken against UBS so long as there is cooperation."

Ambühl and Burns also discussed a Swiss company's controversial 25-year gas deal with Iran. Burns reaffirmed US criticism and concern over the arrangement but admitted that it did not violate United Nations sanctions, Ambühl said.

The meeting was part of regular consultations between the two countries that have been in place since May 2006, the foreign ministry said.

During his visit to Washington, Ambühl also met officials from the congressional foreign affairs committee and political advisors for the two presidential candidates.

[Sapphire Capital]

NEW YORK, July 16 (Reuters) - A U.S. Senate subcommittee is scheduled to hold hearings on Thursday on a practice by UBS and other foreign banks that it says have helped wealthy Americans shield billions of dollars from taxes.

The hearings follow a six-month probe by the Senate Permanent Subcommittee on Investigations into practices by Switzerland's UBS and LGT Bank in Liechtenstein. LGT is owned by Hans-Adams II, Liechtenstein's prince.

Since 2001, UBS has an estimated $18 billion in assets from 19,000 accounts in Switzerland for U.S. clients, which have not been disclosed to the U.S. Internal Revenue Service (IRS), which collects taxes for the U.S. government, the subcommittee said in a written statement late Wednesday.

The IRS has identified at least 100 U.S. taxpayers with accounts at LGT, the subcommittee said.

UBS declined to comment on specific items in the report, but said Mark Branson, chief financial office of UBS's Global Wealth Management and Business Banking since 2008, would appear before the subcommittee, chaired by Sen. Carl Levin.

"UBS also intends to address and correct in a responsible manner any misconduct identified in the course of the ongoing investigations by U.S. authorities," UBS said in the statement.

Offshore tax evasion costs the U.S. an estimated $100 billion a year, according to the subcommittee report.

The report urged Congress to pass laws that would allow for strong penalties on banks that help U.S. taxpayers avoid paying taxes. It also urged authorities to close more loopholes in tax regulations and strengthen reporting requirements.

The issue of banks helping foreigners conceal income became an international issue last year when German prosecutors began probing hundreds of prominent people who may have hidden their wealth in Liechtenstein.

In May, two former UBS European bankers, Bradley Birkenfeld and Mario Staggl, were indicted and accused of helping an American billionaire real estate developer hide $200 million in assets from U.S. tax authorities.

On June 19, Birkenfeld pleaded guilty in federal court in Florida to conspiring to defraud the IRS by assisting UBS clients in avoiding U.S. reporting requirements on income in Swiss bank accounts.

According to Birkenfeld's court statement, UBS employees assisted wealthy U.S. clients in concealing their ownership of assets held offshore by creating sham entities and then filing IRS forms falsely claiming the entities owned the accounts.

Birkenfeld said in court that UBS had about $20 billion of assets under management in "undeclared" accounts for U.S. taxpayers.

According to the subcommittee's report, from at least 2000 and 2007 LGT and UBS used banking practices that could help and resulted in tax evasion by U.S. clients, advising them on complex offshore structures where they could hide assets, the subcommittee said.

UBS said it has been working diligently with American and Swiss government authorities to "provide relevant information to US investigators," it said.

UBS also said that it has been informed that the Senate's subcommittee has called Martin Liechti, head of UBS' Wealth Management Americas International business, to appear at the hearing.

Among those who have accounts is Frank Lowy, who survived the Holocaust and founded Australia-based Westfield Group (WDC.AX: Quote, Profile, Research, Stock Buzz), the world's largest shopping mall owner.

Although Frank Lowy is an Australian citizen, one of his three sons, Peter Lowy, chief executive of Westfield America, holds U.S. citizenship and has been called to testify.

Lowy was asked to testify in Thursday's hearings but will be out of the country, said his attorney Robert Bennett, a partner in law firm Skadden Arps, Slate, Meagher & Flom.

"He will voluntarily be appearing on July 25 at 10 a.m.," Bennett told Reuters, adding that his client did nothing wrong.

According to the subcommittee report, Frank Lowy was an LGT client in 1996 when he formed a new Liechtenstein foundation at the bank to benefit himself and his family and shield them from Australian tax authorities. The subcommittee said LGT helped the family set up a corporation to which the proceeds were routed but would eventually benefit the Lowy family.

Responding to the report, Frank Lowy denied establishing a U.S. corporation or took other steps to hide ownership of assets from Australian tax authorities for the purpose of avoiding their tax obligations.

He also said that under the Australian tax system the use of Liechtenstein structures to hold assets is not illegal or improper.

"Neither Frank Lowy nor any member of his family ever received any distributions or benefited in any way from the structure," Lowy said in a statement. "The report fails to mention the fact that all of the funds held in the structure in the Liechtenstein Bank were distributed for charitable purposes in Israel some years ago."

[Sapphire Capital]

WASHINGTON (AP) — July 17, 2008

European bankers and some of their U.S. clients faced grilling by senators Thursday about offshore tax abuses that investigators believe are costing American taxpayers about $100 billion a year.

The questioning follows the release of a report by a Senate panel accusing the banks of helping commit massive tax evasion and urging establishment of tougher laws to combat offshore tax havens around the world.

The 109-page report by the Senate Homeland Security and Governmental Affairs' investigations subcommittee took aim specifically at Switzerland's UBS AG, among the world's largest wealth managers, and Liechtenstein's LGT group, owned by the principality's royal family.

Representatives from UBS were testifying, along with some of LGT's U.S. clients. LGT declined to send a representative.

"While LGT declined to testify for the subcommittee, it has cooperated by sending a senior official of the bank for a lengthy interview," Michael Robinson, a spokesman for the bank said in a statement. Robinson added that the bank had produced all requested documents and answered all questions permitted under Liechtenstein's laws.

Both LGT and UBS came under withering criticism from the lawmakers.

"Tax havens are engaged in economic warfare against the United States and honest, hardworking American taxpayers," said Sen. Carl Levin, D-Mich., the chairman of the subcommittee. "Today we will look at two banks that relied on secrecy and deception to hide, not just the tax avoidance schemes of their clients, but the actions they themselves took to facilitate U.S. tax evasion."

A federal judge ruled this month that the Internal Revenue Service could serve legal papers to UBS in an expanding probe of U.S. taxpayers who may have used overseas accounts to hide assets and avoid taxes. UBS has said it is cooperating with Swiss and American investigations and will disclose records involving U.S. clients who might have broken tax laws. It also has banned its Swiss bankers from traveling to the United States.

Investigations linked to LGT have been launched in a number of countries since German authorities obtained in February a CD-ROM of some 1,400 alleged tax cheats with accounts at the bank. Germany has since passed the file to other countries, including the United States.

U.S. taxpayers are required to report all their foreign financial accounts if the total value exceeds $10,000 at any point during the tax year. Failure to report the accounts can result in penalties of up to 50 percent of the amount in the accounts.

The subcommittee report said "UBS Swiss bankers targeted U.S. clients, traveled across the country in search of wealthy individuals and aggressively marketed their services to U.S. taxpayers who might otherwise never have opened Swiss accounts."

It said the bank's practices resulted in billions of dollars of U.S. taxpayer money in undeclared accounts that were not disclosed to the IRS. The report said UBS has estimated that it has 1,000 declared accounts in Switzerland for U.S. clients against 19,000 undeclared, with a combined value of $17.9 billion.

While UBS did not technically violate U.S. reporting requirements under the 2001 "qualified intermediary program," it actively assisted clients in structuring their Swiss accounts to avoid disclosure responsibilities with the IRS and thus aided tax evasion, the report said.

In Liechtenstein, the report said the royal family's LGT Group contributed to a "culture of secrecy and deception" that enabled clients to "evade U.S. taxes, dodge creditors, and ignore court orders."

[Sapphire Capital]

uly 17 (Bloomberg) -- UBS AG, the world's largest wealth manager, will stop offering offshore-banking services to U.S. clients through non-U.S. branches, said Mark Branson, chief financial officer of UBS's global wealth-management unit.

``We have decided to exit entirely the business in question,'' Branson said. ``UBS will no longer provide offshore banking or securities services to U.S. residents through our bank branches. Such services will only be provided to residents of this country through companies licensed in the United States.''

Branson disclosed the move during testimony to a U.S. Senate subcommittee that's investigating tax compliance by banks in so- called tax havens. UBS is cooperating with tax-evasion probes by U.S. prosecutors and regulators.

``One of the things that current management is trying to do is maintain the reputation of the core Swiss business and that has been undermined by recent developments'' in the U.S. tax probe, said Derek Chambers, an equity analyst at Standard & Poor's in London, who rates the stock ``hold.'' The decision to close the U.S. business is ``fairly drastic,'' he said.

Switzerland-based UBS bankers, who weren't licensed to conduct business or solicit clients in the U.S., frequently traveled to the U.S. to woo wealthy Americans interested in secret Swiss accounts and trusts or shell companies in tax havens such as the British Virgin Islands, the Senate Permanent Subcommittee on Investigations said in a report released in Washington late yesterday.

Moving Accounts

UBS in November stopped opening Switzerland-based accounts for U.S. clients, though it continued to serve some existing clients. The bank will now ask its U.S. clients to transfer assets to accounts UBS entities that are regulated by the Securities and Exchange Commission, spokesman Serge Steiner said.

UBS shares rose 0.31 Swiss francs to 20.14.

Switzerland's largest bank hid as much as $17.9 billion for 19,000 Americans who didn't declare assets to the Internal Revenue Service, according to the subcommittee's 114-page report. ``UBS has opened thousands of accounts in Switzerland that are beneficially owned by U.S. clients, hold billions of dollars in assets, and have not been reported to U.S. tax authorities.''

$200 Million Revenue

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 client evade U.S. taxes.

``UBS genuinely regrets any compliance failures that may have occurred,'' Branson testified. ``We will take responsibility for them. We will not seek to minimize them. On behalf of UBS, I am apologizing, and committing to you that we will take the actions necessary to make sure this does not happen again.''

Subcommittee Chairman Carl Levin, a Michigan Democrat, welcomed the bank's move.

``You've taken responsibility for your actions, you've changed your business and your business practices,'' Levin said. ``We can't reach all the banks. We have reached yours. That represents progress.''

UBS earned almost 7 billion francs ($6.9 billion) from its wealth-management units in 2007, when the bank reported an overall pretax loss of 3.74 billion francs. The bank managed 1.84 trillion francs in assets for affluent clients at the end of March, including 709 billion francs for U.S. domestic clients.

Avoiding Taxes

Investors have traditionally parked money in offshore accounts for two primary reasons: to protect money from a politically unstable domestic market or to avoid taxes, S&P's Chambers said. ``The third attraction would be investment expertise, but I'm not sure how compelling that is'' for U.S. residents, he said.

Relationships with clients who don't want to transfer to a U.S.-regulated unit will be terminated ``in an orderly fashion'' within the next 24 months, UBS's Steiner said. He declined to say how many customers are affected by the bank's decision.

[Browning]

January 9, 2009
Pressured by I.R.S., UBS Is Closing Secret Accounts
By LYNNLEY BROWNING

Under pressure from federal authorities, the Swiss bank UBS is closing the hidden offshore accounts of its well-heeled American clients, potentially allowing their secrets to spill into the open.

In a step that would have once been unthinkable in the rarefied world of Swiss banking, UBS will shut about 19,000 accounts that prosecutors suspect have gone undeclared to the Internal Revenue Service.

UBS will transfer the assets to other banks or other divisions within UBS, or will mail checks directly to the account holders, creating paper trails for federal prosecutors who are examining whether UBS clients used such accounts to evade taxes.

The clients now face stark choices: they can cash their checks, and thereby alert the authorities to any potential wrongdoing, or not cash them, effectively losing their money.

Or they can transfer the money to new banks, a procedure which, in the case of foreign banks, requires depositors of more than $10,000 to report the new account to the Treasury Department.

“You can either take that check and throw it in the woods, or deposit it somewhere and get busted,” said a UBS client, who asked not to be named because of the investigations into UBS and its clients. “There’s nowhere to hide.”

Americans can use offshore accounts, provided they disclose them and pay taxes on their holdings. UBS, the world’s largest private bank, said in July that it would stop offering to American clients offshore private banking services that are not declared to the I.R.S. Prosecutors contend that UBS helped wealthy Americans hide about $18 billion, thereby evading taxes of $300 million each year.

UBS clients who open new accounts at other foreign banks must disclose those accounts’ assets to the Treasury Department.

But because prosecutors claim that some UBS clients failed to make adequate disclosures in the past or lied on their tax returns about holding offshore accounts, the authorities may view the new disclosures as criminal evidence, not just of tax evasion but also of money laundering, a more serious offense.

Some tax lawyers, citing recent conversations with the Justice Department, argue that UBS clients who transfer their assets to new accounts at United States banks could also be seen as engaged in money laundering.

“Any movement of money from UBS somewhere else can be a violation of U.S. money laundering laws,” said Bruce Zagaris, a tax lawyer who represents several UBS clients.

UBS is struggling to maintain its centuries-old tradition of Swiss banking secrecy amid mounting legal pressure from the Justice Department to turn over client records.

It began handing over some records last summer, causing consternation in the Swiss banking community. The checks and transfers will create paper trails because they move through bank clearing systems.

Karina Byrne, a UBS spokeswoman, declined to comment on Thursday on whether UBS would turn over facsimiles of documents recording transfers. “UBS is progressing with the closings in an orderly fashion,” she said.

Some American clients who have approached the I.R.S. about disclosing hidden UBS accounts have discovered that the bank has temporarily delayed closing their accounts by up to three months.

The delay could help the clients because the I.R.S. is more likely to become suspicious if offshore money is moved just as account holders come forward.

William M. Sharp Sr., a tax lawyer who represents several UBS clients, said, “UBS has been very supportive of their American clients who have chosen to undergo disclosure.”

Still, he added that “our view is that if the account is closed and funds are moved to another institution, here or abroad, it could make the case tougher for the clients before the I.R.S., because it could be new violations of money-laundering controls.”