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Reuters – U.S. tax authorities have advised staff in New York to pursue legal cases against hedge funds and companies that avoided taxes through loans that originated in the United States but are approved offshore. The Internal Revenue Service, in a directive from associate chief counsel for international Steven Musher, advised New York IRS field director Kathy Robbins to …
Law.com – Federal prosecutors Thursday unsealed an indictment charging the chief executive of what used to be one of the world’s largest investment funds with constructing elaborate tax shelters for some of his wealthiest clients. The executive, Jeffrey Greenstein, the former head of the Seattle-based fund Quellos Group, and two lawyers face 18 counts related to tax evasion and fraud for a scheme that netted them $86 million in fees and allowed six clients to avoid paying about $400 million in federal taxes, according to the indictment.
What’s interesting for our purposes is that the indictment details how lawyers from Cravath, Swaine & Moore and Bryan Cave blessed the shelters with letters indicating to the taxpayers that they were legal and would withstand scrutiny from the Internal Revenue Service. (The firms are identified as "C.S.M." and "B.C." in the indictment, but two sources familiar with the matter confirm they are Cravath and Bryan Cave. In addition, a 2006 congressional investigation mentioned the role the two firms played in the Quellos tax shelters, and at least one lawyer, Lewis Steinberg, then of Cravath and currently at Linklaters, testified before a congressional subcommittee.)
New York (HedgeCo.Net) – Wealthy Americans who have been hoarding cash overseas and failing to pay Uncle Sam are getting a break, as the Internal Revenue Service unveils a plan that will greatly reduce their penalties.
The idea comes a month after UBS was charged with helping thousands of American clients hide over $15 billion in secret Swiss bank accounts. The IRS is forcing the bank to disclose the names associated with 52,000 offshore accounts, something that UBS is trying desperately to contest in order to salvage their U.S. clientele base.
Should these individuals come forward prior to this release of names, the IRS is offering a reduced penalty of up to 20 percent for not filing a Report of Foreign Bank and Financial Accounts, also known as an Fbar. However, the clients must be proactive. Should they not come forward and their names eventually be disclosed, they not only face a penalty equal to 50 percent of the balance of each account, but other fines and possible jail time as well.
"This is a chance for people to come clean on their own," IRS Commissioner Doug Shulman explained.
The IRS will still require the individuals to pay any back taxes owed over the last six years as well as any applicable fees. It is estimated that the U.S. loses $100 billion a year in lost tax revenue from offshore activity.
Julie Scuderi Senior Editor for HedgeCo.Net Email: julie@hedgeco.net
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New York (HedgeCo.Net) – Senate Finance Committee Chairman Max Baucus has introduced a new bill aimed at halting offshore tax evasion by U.S. companies.
The new bill is in response to Senator Levin’s “Stop Tax Haven Abuse Act,” which also seeks to crack down on offshore jurisdictions and impose tighter restrictions for hedge funds.
The bill will entail several facets, mainly the requirement to report transfers of capital to offshore locations. Any financial institution that directly or indirectly transfers a minimum of $10,000 to an offshore institution must give a detailed report to the U.S. Treasury with the customer’s name, both the onshore and offshore bank associated with the transaction, the amount, along with the account number and type of account. Right now, this information is required to be filed with the Internal Revenue Service, in something known as an FBAR filing.
Any institution who fails to report these transfers or any person who does not include this information with their tax returns would face fines and penalties. The draft bill may have more burdensome reporting requirements and compliance issues for hedge fund managers that do business offshore, but it differs greatly from the “Stop Tax Haven Abuse Act” introduced on March 2 by Senator Levin (D-MI), which would have harsher consequences and stricter requirements for hedge funds.
Stating that offshore tax havens “are engaged in economic warfare against the United States, and honest, hardworking Americans,” the bill essentially seeks to increase the disclosure of offshore accounts, holdings, transactions and entities while increasing the strength and jurisdiction of the U.S. Treasury. Penalties of up to $1 million per violation are expected to be enforced for failure to report to the SEC.
Foreign corporations that are managed and controlled in the United States will be treated as a domestic corporation and will therefore be responsible for paying U.S. taxes. It is estimated that 80 percent of the country’s largest companies have subsidiaries in tax havens. Levin also seeks to close the tax loophole associated with offshore dividends.
Hedge funds will be required to establish anti-money laundering programs as well as use due diligence to evaluate investors supplying offshore funds. The bill also creates a tighter cohesion between the Treasury and the U.S. Securities and Exchange Commission.
The Levin Bill seeks to end the estimated $100 billion in lost tax revenue each year from offshore tax abuse.
Julie Scuderi Senior Editor for HedgeCo.Net Email: julie@hedgeco.net
HedgeCo.Net is a premier hedge fund database and community for qualified and accredited investors only. Membership on www.hedgeco.net is FREE and EASY. We also offer FREE LISTINGS for Hedge Funds! Be sure to check out our sister sites. www.hedgefundlounge.com, www.hedgefundtools.com, and www.hedgefundemployment.com
Breitbart.com – Banking giant UBS Wednesday defied pressure to name about 50,000 Americans holding secret bank accounts in Switzerland as the nation’s financial culture came under a withering fire.
US senators accused bankers at crisis-wracked UBS of helping wealthy Americans to flout US tax law through a variety of underhand methods down to encrypted laptops and lies to US customs officers.
But while acknowledging wrongdoing under a deal last month between UBS and US prosecutors, a top executive with Switzerland’s biggest bank said it could provide no more than 250-300 names of US account holders already handed over.
Mark Branson, the Zurich-based chief financial officer of UBS Global Wealth Management and Swiss Bank, said the group was already shutting down US-owned securities accounts and paying a 780-million-dollar fine to the US government.
"We believe that UBS has now complied with the summons to the fullest extent possible without submitting its employees to criminal prosecution in Switzerland," he told a hearing of the Senate investigations subcommittee.
Grilled by the panel’s Democratic chairman, Carl Levin, Branson said up to 48,000 accounts were held in Switzerland by US clients but that Swiss law precluded UBS from divulging any more names.
But Levin, accusing the British-born banker of being "needlessly evasive," said UBS had made a "declaration of war… against honest, hard-working taxpayers" through its illegal practices in the United States.
Broadening the fight to take in the Swiss government’s jealous protection of its banking secrecy law, the senator said: "We’re determined to fight back and end the abuses inflicted on us by those tax havens."
Under its settlement with the US Justice Department, UBS last month admitted to tax fraud by inviting rich US clients to open accounts in Switzerland and so evade declaring their income to the Internal Revenue Service.
Under its interpretation of the two nations’ tax treaty, UBS said it could only cough up the identities of 250 to 300 US account holders.
New York (HedgeCo.Net) – UBS may have until July 13 to “vigorously contest” the demands of the Internal Revenue Service to disclose the names associated with 52,000 offshore bank accounts, but the vice that the troubled Swiss bank is finding themselves in is getting tighter by the day. Tales of tax evasion, secrecy, greed, and diamonds smuggled in toothpaste tubes have garnered international interest, casting a blinding light of transparency on a bank that has helped thousands of wealthy Americans hide almost $15 billion from the U.S. government in recent years.
The wrath of the U.S. justice system doesn’t just stop at the bank. The wealthy individuals behind those targeted accounts are in danger of facing penalties, back taxes, even prison terms for their role in shielding their assets. And the UBS employees who catered to their client’s demands while showing them step by step how to hide their money and evade U.S. taxes? They will no doubt face prosecution, a fate that UBS is well aware of. And while UBS may uphold that their employees were acting in good faith, plenty of facts show otherwise.
“In my opinion, [the UBS employees] not only knew what they were doing was wrong, they were participating in the kind of international activities that you would only see in James Bond movies,” says Ken Rubinstein, Partner at New York City law firm Rubinstein & Rubinstein.
According to a complaint filed by the SEC, these UBS employees often traveled to the United States with encrypted laptops after having received training on how to avoid detection by U.S. authorities. These advisors then whisked their clients away to exclusive events such as art shows, yacht outings and sporting events, all funded by UBS.
Helping to kick-start the investigation was former UBS employee Bradley Birkenfeld, who pled guilty last year to charges of conspiracy and admitted to helping hide $200 million worth of client assets with the goal of avoiding taxes. Birkenfeld even disclosed he purchased diamonds for an American client – and smuggled them out of the country via a toothpaste tube.
The Defense
While the U.S. asserts they are entitled to these coveted names, UBS knows that the disclosure would no doubt end in their demise.
"Swiss law strictly prohibits UBS and its employees from disclosing to the IRS the account information located in Switzerland that the IRS seeks,” UBS lawyers have said recently.
However, this “Swiss law” defense that UBS is spouting will not hold up in court, says Rubinstein, referring to the Mutual Legal Assistance Treaty that has been in place with Switzerland since 1977.
The Mutual Legal Assistance Treaty is an agreement that the United States has with countries all over the world, which enables the U.S. government to obtain information in foreign countries should there be any suspicions of tax fraud or shady activity.
These treaties give the United States power to summon witnesses, obtain documents and other real evidence, issue search warrants and to serve process. A treaty will trump any internal laws of a specific country, therefore making the bank’s claim to Swiss secrecy rights obsolete.
The U.S. has also asserted that Switzerland was fully aware that what they were doing was illegal, despite any references to Swiss law, another fact that Rubinstein agrees with.
“UBS made a conscious decision that they could make more money by being international investment bankers, primarily focused in the US, than they could by being the traditional Swiss private bank to wealthy individuals,” he explains. “They understood that the minute they held that presence in the U.S., they would be compromising the secrecy that a Swiss private bank normally has.”
What’s at Stake
“Secrecy laws are not designed to protect criminals and allow them to hide their money,” Rubinstein explains. “They are designed to provide the individual privacy and protection from other individuals and companies, not from the government.”
It is because of this fact that secrecy laws will continue to be upheld in foreign countries, though not for the purpose of avoiding taxes. The treaties were enacted so the U.S. could easily probe into any suspicions regarding possible fraud.
To this date, there are only a handful of countries that do not have a treaty with the United States; mainly Cuba and Monaco.
UBS knows that if they’re forced to disclose those names, they can say goodbye to their U.S. clientele. If a judge rules against them, and they refuse to give up the information, they can be held in contempt of court, with the possibility that all of their U.S. assets would be frozen; a scenario that would essentially bankrupt the company.
UBS has already conceded to pay $780 million to the U.S. government in connection with criminal charges and has agreed to exit the cross-border business. Shares of UBS closed yesterday at $8.34, after hitting an all-time low last month of $8.08, down 76 percent from last year’s peak.
Julie Scuderi Senior Editor for HedgeCo.Net Email: julie@hedgeco.net
HedgeCo.Net is a premier hedge fund database and community for qualified and accredited investors only. Membership on www.hedgeco.net is FREE and EASY. We also offer FREE LISTINGS for Hedge Funds! Be sure to check out our sister sites. www.hedgefundlounge.com, www.hedgefundtools.com, and www.hedgefundemployment.com
New York (HedgeCo.Net) – U.S. authorities have officially declared Raoul Weil, formerly of UBS, a fugitive.
The one-time prominent business man and former chairman of UBS’s global wealth management unit, failed to surrender to police after being charged with aiding wealthy individuals in hiding their assets from the Internal Revenue Service.
According to the original complaint, Weil, who was based in Switzerland, headed a team of bankers that aimed to help 17,000 Americans hide about $20 billion via Swiss bank accounts, in hopes of avoiding U.S. taxes.
At that time, Weil worked in UBS’s cross-border private banking business. He stepped down from the bank when the charges were made public.
The order came yesterday in a Ft. Lauderdale courtroom, where Judge James Cohn officially removed Weil, 49, from the court’s pending case list and placed him on the clerk’s fugitive list.
If convicted, Weil faces up to five years in prison and $250,000 in fines.
Julie Scuderi Senior Editor for HedgeCo.Net Email: julie@hedgeco.net
