By David Voreacos and Carlyn Kolker
Aug. 7 (Bloomberg) -- UBS AG clients are waiting to assess the effect of a settlement that could come today in a U.S. Justice Department lawsuit seeking the names of Americans suspected of evading taxes through 52,000 secret Swiss accounts.
A Justice Department attorney told a judge in Miami on July 31 that the U.S. and Swiss governments agreed in principle and hoped to outline final terms today. Tax lawyers said they expect UBS to disclose thousands of accounts after giving the Internal Revenue Service data on 250 clients on Feb. 18. UBS agreed then to pay $780 million to defer prosecution for aiding tax evasion.
Since then, three UBS clients have pleaded guilty in the U.S. to hiding their bank assets from the IRS. Thousands avoided prosecution by voluntarily disclosing their accounts to the IRS under a program that ends Sept. 23, tax lawyers said. The pace of future disclosures could hinge on the accord, according to lawyers for clients of UBS, the largest Swiss bank by assets.
“There is a substantial likelihood that the agreement will involve the handing over of many, many names of UBS clients,” said lawyer William Sharp of Sharp & Associates in Tampa, Florida. “People have a lot of concern that they could be turned in and be in deeper legal trouble than they already are.”
Lawyers will report by telephone today to U.S. District Judge Alan Gold in Miami. The IRS has said any accord must involve a “significant” number of accounts.
In the past month, Switzerland negotiated on behalf of the bank, arguing that the U.S. demands would force UBS bankers to violate Swiss criminal laws protecting account secrecy. The Swiss also threatened that they would seize the data sought by the IRS if Gold ordered disclosures violating Swiss privacy law.
More Criminal Charges
More criminal charges against UBS clients are coming, according to three tax lawyers who have spoken with Justice Department prosecutors.
“I am informed that there will be several indictments coming” in the Eastern District of New York, said tax attorney Robert Fink of Kostelanetz & Fink. His New York law firm represented about 200 clients who voluntarily disclosed UBS accounts to the IRS. The pending criminal cases involve accounts set up in the names of other entities, he said.
“The bank knew that the ultimate beneficiary was a U.S. citizen,” Fink said. “All these things were done with the bank’s knowledge, almost invariably at the bank’s suggestion.”
On July 31, U.S. Secretary of State Hillary Clinton met with Swiss Foreign Minister Micheline Calmy-Rey in Washington. Clinton said “our government worked very hard” on the accord, and Calmy-Rey said she was “very pleased” with it.
Sham Companies
The U.S. sued UBS for the account data on Feb. 19, a day after the bank admitted its Swiss private bankers helped wealthy Americans evade U.S. taxes from 2000 to 2007. It admitted setting up sham offshore companies in havens like the British Virgin Islands, Hong Kong and Panama.
Aside from UBS’s admissions of wrongdoing, one banker pleaded guilty and cooperated with prosecutors. Another was indicted and declared a fugitive, and a third who ran the now- shuttered cross-border business was held by the U.S. as a material witness for several months last year.
After closing its cross-border business, which operated without U.S. Securities and Exchange Commission approval, UBS urged those clients to leave or move their assets to an SEC- registered bank business in the U.S. or Switzerland.
UBS, based in Zurich, has sent letters to U.S. clients urging them to ask a tax lawyer whether they should sign up for the IRS voluntary disclosure program. It also has asked clients for permission to turn over their account data to the IRS.
Waiver Form
“We herewith instruct and authorize you to disclose to the IRS, on my/our behalf, any and all Account Records in your possession” sought by the IRS, according to a waiver form obtained by Bloomberg News that was sent July 31 to a client. “With this instruction, I/we hereby waive protections provided under bank secrecy laws of Switzerland.”
Under the IRS voluntary disclosure program, taxpayers must pay taxes, interest and a 20 percent penalty on the highest balance of the preceding six years. Clients should not wait to disclose their accounts, even if UBS doesn’t disclose their data, said attorney George Clarke at Miller & Chevalier in Washington.
“Just because the Swiss don’t turn over those names doesn’t mean the government won’t try to get those names from some other source,” Clarke said. “As long as you are violating U.S. law, and there is an incentive for someone to rat you out, you should come forward to the U.S. government.”
Offshore account holders who don’t report to the IRS run a “tremendous risk,” said attorney Charles Falk.
“The IRS and Congress have decided to get tough about this stuff and they are making a very concerted effort to stop it,” said Falk, who practices in Mendham, New Jersey. “Anybody who has an offshore account who sees what’s happening and does not come forward is playing Russian roulette with the tax laws.”
The case is U.S. v. UBS AG, 09-cv-20423, U.S. District Court, Southern District of Florida (Miami).
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.
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