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New York Times – The United States is building criminal cases against more than 150 American clients of UBS as part of a crackdown on tax evasion now made easier by a deal over access to secret account information.
U.S. prosecutors gave their first official confirmation of the initial number of criminal investigations in a filing on Tuesday with a federal court in Fort Lauderdale, Florida. The number of criminal probes is widely expected to mushroom soon, Reuters reported.
In the same court document, the prosecutors requested a sharply reduced prison sentence for ex-UBS banker Bradley Birkenfeld, a key informant in the ongoing U.S. prosecutions of wealthy American clients of UBS.
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.)
Seattle Times – Federal prosecutors are expected to unseal indictments Thursday in a massive tax-evasion investigation involving the Seattle investment firm Quellos Group, accusing its officers of operating offshore tax shelters used to hide hundreds of millions of dollars from the government, according to lawyers familiar with the case.
Quellos has been under investigation for at least two years and in 2006 earned its own chapter in a report titled "Tax Haven Abuses: The Enablers, the Tools and the Secrecy" published by the U.S. Senate Permanent Subcommittee on Investigations.
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
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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) – A federal judge has set a July 13 hearing for UBS, in which they may be forced to disclose names associated with 52,000 secret Swiss bank accounts holding more than $14.8 billion in assets. UBS continues to assert that by providing these names, they are compromising overseas privacy laws as well as the reputation of the bank.
”Such violations would expose these employees to substantial prison terms, as well as fines, penalties and other sanctions,” UBS said in a court filing last week. “There is simply no reason to have, nor equity in having, such an expedited process here.”
UBS is feeling the heat from a surge of international pressure to crack down on secret tax havens sought by the wealthy. Estimating the U.S. loses $100 billion a year from offshore tax abuse, President Obama is at the forefront of the campaign to get tough on tax evasion.
While his Stop Tax Haven Abuse Act was aimed at secret financial centers in the Caribbean, Switzerland has long been regarded as a popular place to stash assets without the watchful eye of Uncle Sam to worry about. Switzerland does not believe that tax evasion is a crime.
UBS has already agreed to pay the U.S. $780 million in damages, with $200 million of that going to settle charges brought on by the Securities and Exchange Commission. They have also agreed to exit the U.S. cross-border banking business and close the existing offshore accounts of their American clients.
Offshore banking has also been cast in a bad light thanks to the recent Antigua-based scandal masterminded by Texas financier Robert Allen Stanford. Stanford’s companies, including Stanford International Bank, are estimated to make up about 10% of the country’s economy with billions in deposits coming from all over the world.
In 1999, the U.S. blacklisted Antigua, accusing the country of lax regulation and subpar anti-money laundering laws. The sanctions were lifted in 2001. Still, deposits in the region continued to soar, and the country insists that their regulatory system is strong. Antigua is currently conducting their own investigation in the Stanford matters.
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
