UBS To Divulge 4,450 Account Names, More Expected
WASHINGTON — The U.S. pulled back the veil on Switzerland's famed tradition of banking secrecy Wednesday, winning an agreement for banking giant UBS AG to disclose the names of 4,450 American clients suspected of hiding assets in Swiss accounts.
The news is expected to prod thousands more UBS clients in America to voluntarily disclose their financial details to the Internal Revenue Service, lest they be pursued later.
The accounts held $18 billion at one time, though many have since been closed, said IRS Commissioner Doug Shulman.
"This agreement sends an unmistakable message to people hiding income and assets offshore," Shulman said. "The IRS will vigorously pursue tax cheats around the world, no matter how remote or secret the location."
The Swiss, known worldwide for keeping bank accounts secret, said UBS had no real choice in turning over the names.
Justice Minister Eveline Widmer-Schlumpf told a news conference in Bern that the deal lifts the threat of criminal prosecution against UBS, which not only would have endangered the bank's existence but would have dealt a severe blow to the Alpine nation's economy.
"There was no alternative to this solution," she said.
The agreement is part of the Obama administration's stepped-up efforts to go after wealthy tax dodgers hiding assets in offshore accounts, an initiative that promises to yield many more prosecutions, Shulman said.
UBS has an estimated 52,000 accounts held by U.S. customers. The IRS chief said the 4,450 accounts being identified were the ones most suspected of containing undeclared assets. Many of the rest are held by people who have complied with the law and paid their taxes, Shulman said.
Tax experts said the agreement should terrify Americans who had been able to hide assets in offshore accounts for generations with little fear of being caught.
"This is critically important because the Swiss caved," said Tom Cardamone, managing director of Global Financial Integrity, a Washington-based group that advocates tougher policies against international money laundering. "They agreed to give up names, so in that context, this is a real body blow to Swiss banking secrecy."
UBS shares closed 0.9 percent lower at 16.74 Swiss francs ($15.74) on the Zurich exchange.
Earlier this year, UBS admitted assisting U.S. citizens in evading taxes as part of a deferred prosecution agreement with the Justice Department. UBS agreed to disclose the names of about 250 American clients and pay a $780 million penalty. The IRS subsequently filed its case seeking the names of additional U.S. taxpayers believed to be hiding assets.
The two sides told a federal judge last week they had reached a tentative agreement, but the details were not released until Wednesday.
The agreement includes several measures favorable to the Swiss – and giving the clients a chance to get right with the IRS.
Instead of releasing the names directly to U.S. authorities, UBS will turn them over to the Swiss Federal Tax Administration. Account holders will then be able to appeal their release to the IRS before Switzerland's Federal Administrative Court.
However, U.S. authorities will be notified of the appeals, giving them access to information about account holders. It is expected to take several months for the first names reach the IRS, and court proceedings could prolong the process.
Tax advisers at several U.S. firms said they are seeing many more customers with undeclared assets seeking information about their legal options.
The IRS long has had a policy that certain tax evaders who come forward before they are contacted by the agency usually can avoid jail time as long as they agree to pay back taxes, interest and hefty penalties.
In March, the IRS began a six-month amnesty program that sweetened the offer with reduced penalties for people with undeclared assets. Shulman said the response has been unprecedented, though he declined to say how many people have applied.
"What this does is creates an overwhelming incentive for virtually everyone of those account holders to come forward," said Peter Zeidenberg, a litigation partner at the law firm DLA Piper in Washington. "If there had been a steady stream, there is now going to be an absolute flood."
Shulman said the Swiss government has assured U.S. authorities that the release of the names conforms with both Swiss banking laws and the tax treaty signed by both countries. Shulman said the IRS reserves the right to resume its legal fight if any of the names are withheld.
"This issue is not going away," he said.
The Swiss Bankers Association issued a statement in support of the agreement, saying, "UBS can now continue with its consolidation process in an atmosphere free of this legal uncertainty."
UBS Chairman Kaspar Villiger said, "I am confident that the agreement will allow the bank to continue moving forward to rebuild its reputation through solid performance and client service."
The case – and other U.S. efforts to go after international tax dodgers – already has a lot of wealthy Americans with offshore accounts nervously running to their tax advisers – and the IRS.
It is not illegal for Americans to have overseas accounts, but they must pay U.S. taxes on the money. Also, there are special reporting requirements for accounts of more than $10,000.
Robert McKenzie, a Chicago-based lawyer who represents dozens of American clients of Swiss banks, said some will still try to avoid the taxman.
"Some will say 'Let's wait and see if I get a letter,'" said McKenzie. However, he said, waiting too long "is really playing a game with the devil."
Sen. Carl Levin, D-Mich., sounded less impressed than the IRS by the agreement.
"The UBS settlement is at most a modest advance in the effort to end bank secrecy abuses," said Levin, who has investigated tax havens as chairman of the Senate's Permanent Subcommittee on Investigations. "It will take a long time before we know whether this settlement will produce meaningful gains."
Shulman said UBS customers are free to take advantage of the disclosure program as long as they come forward before the amnesty program expires Sept. 23 – and before the IRS receives their name from UBS.
"The letter they receive from the bank will not disqualify them from coming forward to the IRS under our voluntary disclosure program," Shulman said. "But once the Swiss government sends us the name, all bets are off."
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Associated Press writers Devlin Barrett in Washington and Frank Jordans in Geneva contributed to this report.
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STEPHEN OHLEMACHER | 08/19/09 08:12 PM |