Swiss Bank UBS agrees to reveal U.S. secret accountholders

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So much for the veil of secrecy surrounding money hidden in Swiss bank accounts. We've been hearing about those clandestine arrangements for decades, where wealthy Americans could stash their cash away from the prying eyes of the Internal Revenue Service. It was almost romantic.  But after a protracted fight between U.S. authorities and the Swiss banking giant, UBS, the veil is about to be pierced.   UBS agreed on Wednesday to turn over identifying information on 4,450 accounts which the IRS believes hold undeclared assets belonging to Americans.  Those accounts were believed to hold about $18 billion at one time, though some may have been closed since the battle began.

The Wall Street Journal says this was an out-of-court, politically sensitive settlement which will not include a monetary fine against UBS. Earlier this year, however, the bank did agree to pay $780 million related to a tax crime investigation.

The complaint originated when the Securities and Exchange Commission alleged that UBS was enabling United States clients to hide assets and therefore to evade taxes owed on billions of dollars.

As part of the agreement reached on Wednesday, UBS must disgorge $200 million to settle the SEC charges.   In addition, UBS must also disgorge another $180 million, plus $400 million in tax payments in connection with a related criminal investigation.

UBS maintains approximately 52,000 accounts for U.S. customers. Originally the IRS sought to have all of those accounts disclosed, but the agency now believes that the 4,450 accounts that will be revealed are the most suspicious among them. The IRS is encouraging other accountholders  to come forward voluntarily.  

"I believe this agreement gives us what we wanted  - access to information about those UBS accountholders most likely to have been involved in offshore tax evasion", IRS Commissioner Douglas Shulman told reporters.

Though UBS has agreed to provide the names, the process is expected to take several months. During that time, accountholders whose names will be released to the IRS will be notified in advance, giving them the opportunity to ask Switzerland's Federal Administrative Court to revoke the release. Shulman told reporters that the release of names will comply with Swiss banking laws and will be according to the tax treaty between the United States and Switzerland. Shulman added, if any names are withheld, the IRS does reserve the right to take up the fight again.

In addition to this agreement, the IRS expects that several other agreements will provide hundreds more names, bringing the total closer to 6,000. Authorities in the United States are working to build criminal tax-evasion cases against more than 150 Americans with UBS accounts.

"Wealthy Americans who have hidden their money offshore will find themselves in a jam", said Shulman. "You can expect us to continue to be aggressive with institutions that are helping Americans avoid taxes."

The IRS added that it does not expect any other Swiss banks to be the target of similar investigations.


The Swiss Response

This agreement lifts the threat of criminal prosecution against UBS, according to Swiss Justice Minister Eveline Wider-Schlumpf at a news conference in the Swiss capital of Bern. Had the criminal prosecution gone forward, the bank may not have survived, and Switzerland's economy might have been crippled. "There was no alternative to this solution", she added.

TheSwiss Bankers Association also supported the agreement.

"The out-of-court agreement avoids a prolonged legal battle that would have had an uncertain outcome and UBS can now continue with its consolidation process in an atmosphere free of this legal uncertainty", the association said.

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."

Even so, in the wake of the landmark tax agreement, late in the day on Wednesday the Swiss government announced that it would sell its stake in UBS.


The Naysayers

In the last few months, the agreement talks hit a bump that slowed down progress, causing the New York Times to report that the Department of Justice was considering backing down from its demands.  In response, a DOJ representative took the Times to task, stating",There is no basis for the report in The New York Times.... While the department is always willing to consider settlement in any case, the suggestion that the department is planning to drop this suit is simply untrue."

As it turns out, persistence pays off.  The turmoil in the U.S. economy  may have emboldened  authorities to go after tax cheaters here and abroad.  Earlier this year, acting Assistant Attorney General John DiCicco said:

 "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 civil and legal duty to pay taxes."  

Meanwhile, the IRS is encouraging UBS account holders to voluntarily come forward and file amended returns reporting the income that has been hidden overseas, pay the back taxes, interest, and a negotiated penalty in exchange for potentially avoiding a prison sentence for tax evasion.

"Now is the time for all taxpayers, and those who ought to be taxpayers … to come forward in order to hopefully preserve their future freedom", said Charles Rettig, a lawyer with Hochman, Salkin, Rettig, Toscher & Perez in Beverly Hills, according to a report in USA Today. His law firm represents more than 100 clients who either have or are in the process of disclosing their holdings to the IRS. "Those who ignore this window of opportunity may well find themselves in prison for tax evasion."

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