By CARRICK MOLLENKAMP, GLENN R. SIMPSON and DAVID GAUTHIER-VILLARS
The Justice Department sued UBS AG to obtain access to 52,000 UBS AG accounts belonging to U.S. clients -- some 30,000 more than previously known -- a day after reaching an agreement to settle a criminal investigation that called for the Swiss bank to turn over 250 accounts in a wide-ranging tax evasion probe.
While the court filing in Miami was expected, the increased number of accounts being sought was a surprise to UBS, said a person familiar with the situation.
The Justice Department complaint asks the court to force UBS to turn over the identities of the 52,000 account holders with secret Swiss accounts because U.S. authorities say these holders hid the accounts from the U.S. government in violation of tax laws. If authorities find evidence of wrongdoing on the part of the account holders, they are likely to bring fraud cases against them.
UBS Clients Seek Amnesty on U.S. Taxes (11/24/08)
John A. DiCicco, acting assistant attorney general for the Justice Department's tax division, said the department plans to ferret out the additional names.
"The Department of Justice is committed to do all that it can to aid the [Internal Revenue Service] in locating those who would seek to hide behind secret accounts and in holding them accountable under the federal tax laws," Mr. DiCicco said.
In a statement Thursday, UBS said it has "substantial defenses" to fight the U.S. complaint and that Swiss financial privacy laws prevent the disclosure of the information.
Many of the 250 account holders whose names have already been turned over -- believed to include well-known wealthy individuals with ties to Florida -- likely have already come forward in a bid to make a deal to avoid prosecution, prosecutors say. For those that haven't, it may be too late to seek lenient treatment, as the U.S. now has ammunition to prepare cases against them.
New IRS documents also detail secret transaction codes used to shroud client information -- for example, using the word "swan" to denote a $1 million transaction.
The codes indicate that UBS efforts to facilitate offshore tax evasion by wealthy Americans may have been more extensive than previously known. While the Justice Department said Wednesday that UBS sheltered some $20 billion for American brokerage clients, the new filings indicate that figure does not include an unknown amount in the 30,000 additional suspected cash accounts held by Americans. The number of individuals implicated may be lower because some people may hold multiple accounts.
The lawsuit and rapid-fire developments came as UBS and the Swiss government sought to reassure clients that Zurich and Geneva will remain centers for confidential banking. Last year, a U.S. Senate investigation, which included an inquiry of UBS, reported that tax havens cost taxpayers $100 billion annually. On Wednesday, UBS agreed to turn over the names as part of a $780 million settlement with U.S. prosecutors in what is known as a deferred prosecution agreement.
In a news conference Thursday, Swiss President Hans-Rudolf Merz said, "Banking secrecy, ladies and gentleman, remains intact."
In the past day, UBS handed over the 250 names to Swiss regulator, the Swiss Financial Market Supervisory Authority, or FINMA, which then provided the names to the U.S as part of a long-running tax-evasion investigation. Disclosure of the names came after the U.S. grew frustrated with Swiss efforts to delay turning over the information.
The events mark the latest chapter in moves by governments globally to cap secretive off-shore accounts. But it's also a new and perilous phase for UBS and Switzerland, both of which risk losing a grip on private banking which for decades has been headquartered at downtown Zurich's Paradeplatz Plaza.
UBS now faces the difficult task of convincing clients it can be trusted by clients, even as it now tries to fight an effort to turn over the 52,000 accounts. UBS client bankers used a range of ways to hide U.S. accounts and transactions, according to court documents. In a new disclosure, an IRS official said in a court document that one UBS money manager used an elaborate code: The color orange referred to euros while green stood for dollars. A $250,000 transaction was referred to as a "nut."
The new court filings also revealed that Wednesday's settlement occurred in the midst of an acrimonious standoff between U.S. and Swiss officials that is ongoing. In federal court in Miami on Thursday, the Justice Department asked a federal judge for an order to force UBS to hand over the identities of all of its undisclosed American account holders.
Previously, the Justice Department and the IRS said they believed UBS had 17,000 to 20,000 US clients with assets of approximately $20 billion. But Thursday, an IRS investigator said in a sworn court declaration that he had discovered an internal document from 2004 stating that the bank had some 52,000 secret American account holders with assets of around $15 billion.
The Thursday court filing capped a frenzied 24 hours that surprised many in Switzerland who had thought that a Swiss tax administration would have time to review the 250 account names before any would be turned over to the Internal Revenue Service in the U.S. UBS handed over the account information to the Swiss regulator, FINMA, which then dispatched accounts to the U.S.
"It's amazing," said William M. Sharp, a Florida tax attorney in Geneva this week to work on UBS-related client tax matters. "All of my Swiss banker and lawyer friends have conveyed the same message: That is, one of disbelief and confusion."
But court filings and comments by Swiss President Hans-Rudolf Merz on Thursday indicate that UBS and the Swiss government were racing to stave off a deadline of this week when the U.S. intended to bring legal action against the bank.
On Wednesday and Thursday, UBS and Swiss regulators took pains to explain that the 250 names were a special case because suspected fraud was involved. Swiss authorities, seeking to calm nervous Swiss bank clients, draw a narrow distinction between tax fraud -- which allows the lifting of bank secrecy rules -- and cases of tax evasion, which don't.
The sudden inflation in the number of names now sought after by U.S. authorities could put Switzerland in an embarrassing position, notably if the 52,000 accounts only involve tax evasion. Much is at stake: The Swiss financial industry generates more than 10% of Switzerland's economic output and employs about 5% of the work force.
The Swiss regulator said U.S. authorities had intensified pressure in recent weeks because they felt the Swiss judicial system was moving too slowly. "They [the U.S.] had lost patience," said Tobias Lux, a FINMA spokesman.
The new court filings show that the IRS appeared to be growing frustrated with an inability to gain access to the UBS names. The IRS believed that a treaty between the U.S. and Switzerland might lead to the production of only 300 accounts.
The Justice Department sued UBS AG to obtain access to 52,000 UBS AG accounts belonging to U.S. clients -- some 30,000 more than previously known -- a day after reaching an agreement to settle a criminal investigation that called for the Swiss bank to turn over 250 accounts in a wide-ranging tax evasion probe.
While the court filing in Miami was expected, the increased number of accounts being sought was a surprise to UBS, said a person familiar with the situation.
The Justice Department complaint asks the court to force UBS to turn over the identities of the 52,000 account holders with secret Swiss accounts because U.S. authorities say these holders hid the accounts from the U.S. government in violation of tax laws. If authorities find evidence of wrongdoing on the part of the account holders, they are likely to bring fraud cases against them.
UBS Clients Seek Amnesty on U.S. Taxes (11/24/08)
John A. DiCicco, acting assistant attorney general for the Justice Department's tax division, said the department plans to ferret out the additional names.
"The Department of Justice is committed to do all that it can to aid the [Internal Revenue Service] in locating those who would seek to hide behind secret accounts and in holding them accountable under the federal tax laws," Mr. DiCicco said.
In a statement Thursday, UBS said it has "substantial defenses" to fight the U.S. complaint and that Swiss financial privacy laws prevent the disclosure of the information.
Many of the 250 account holders whose names have already been turned over -- believed to include well-known wealthy individuals with ties to Florida -- likely have already come forward in a bid to make a deal to avoid prosecution, prosecutors say. For those that haven't, it may be too late to seek lenient treatment, as the U.S. now has ammunition to prepare cases against them.
New IRS documents also detail secret transaction codes used to shroud client information -- for example, using the word "swan" to denote a $1 million transaction.
The codes indicate that UBS efforts to facilitate offshore tax evasion by wealthy Americans may have been more extensive than previously known. While the Justice Department said Wednesday that UBS sheltered some $20 billion for American brokerage clients, the new filings indicate that figure does not include an unknown amount in the 30,000 additional suspected cash accounts held by Americans. The number of individuals implicated may be lower because some people may hold multiple accounts.
The lawsuit and rapid-fire developments came as UBS and the Swiss government sought to reassure clients that Zurich and Geneva will remain centers for confidential banking. Last year, a U.S. Senate investigation, which included an inquiry of UBS, reported that tax havens cost taxpayers $100 billion annually. On Wednesday, UBS agreed to turn over the names as part of a $780 million settlement with U.S. prosecutors in what is known as a deferred prosecution agreement.
In a news conference Thursday, Swiss President Hans-Rudolf Merz said, "Banking secrecy, ladies and gentleman, remains intact."
In the past day, UBS handed over the 250 names to Swiss regulator, the Swiss Financial Market Supervisory Authority, or FINMA, which then provided the names to the U.S as part of a long-running tax-evasion investigation. Disclosure of the names came after the U.S. grew frustrated with Swiss efforts to delay turning over the information.
The events mark the latest chapter in moves by governments globally to cap secretive off-shore accounts. But it's also a new and perilous phase for UBS and Switzerland, both of which risk losing a grip on private banking which for decades has been headquartered at downtown Zurich's Paradeplatz Plaza.
UBS now faces the difficult task of convincing clients it can be trusted by clients, even as it now tries to fight an effort to turn over the 52,000 accounts. UBS client bankers used a range of ways to hide U.S. accounts and transactions, according to court documents. In a new disclosure, an IRS official said in a court document that one UBS money manager used an elaborate code: The color orange referred to euros while green stood for dollars. A $250,000 transaction was referred to as a "nut."
The new court filings also revealed that Wednesday's settlement occurred in the midst of an acrimonious standoff between U.S. and Swiss officials that is ongoing. In federal court in Miami on Thursday, the Justice Department asked a federal judge for an order to force UBS to hand over the identities of all of its undisclosed American account holders.
Previously, the Justice Department and the IRS said they believed UBS had 17,000 to 20,000 US clients with assets of approximately $20 billion. But Thursday, an IRS investigator said in a sworn court declaration that he had discovered an internal document from 2004 stating that the bank had some 52,000 secret American account holders with assets of around $15 billion.
The Thursday court filing capped a frenzied 24 hours that surprised many in Switzerland who had thought that a Swiss tax administration would have time to review the 250 account names before any would be turned over to the Internal Revenue Service in the U.S. UBS handed over the account information to the Swiss regulator, FINMA, which then dispatched accounts to the U.S.
"It's amazing," said William M. Sharp, a Florida tax attorney in Geneva this week to work on UBS-related client tax matters. "All of my Swiss banker and lawyer friends have conveyed the same message: That is, one of disbelief and confusion."
But court filings and comments by Swiss President Hans-Rudolf Merz on Thursday indicate that UBS and the Swiss government were racing to stave off a deadline of this week when the U.S. intended to bring legal action against the bank.
On Wednesday and Thursday, UBS and Swiss regulators took pains to explain that the 250 names were a special case because suspected fraud was involved. Swiss authorities, seeking to calm nervous Swiss bank clients, draw a narrow distinction between tax fraud -- which allows the lifting of bank secrecy rules -- and cases of tax evasion, which don't.
The sudden inflation in the number of names now sought after by U.S. authorities could put Switzerland in an embarrassing position, notably if the 52,000 accounts only involve tax evasion. Much is at stake: The Swiss financial industry generates more than 10% of Switzerland's economic output and employs about 5% of the work force.
The Swiss regulator said U.S. authorities had intensified pressure in recent weeks because they felt the Swiss judicial system was moving too slowly. "They [the U.S.] had lost patience," said Tobias Lux, a FINMA spokesman.
The new court filings show that the IRS appeared to be growing frustrated with an inability to gain access to the UBS names. The IRS believed that a treaty between the U.S. and Switzerland might lead to the production of only 300 accounts.
