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West Palm Beach (HedgeCo.net) – The Organisation for Economic Cooperation and Development (OECD) added the Cayman Islands to its ‘white list’ of jurisdictions that implement international tax standards for investors such as hedge funds and other alternative investors.
Jeffrey Owens, Director of the OECD’s Centre for Tax Policy and Administration, welcomed the signing of the Cayman Islands’ twelfth Tax Information Exchange Agreement (TIEA) with New Zealand, on 13 August 2009 putting it “alongside other countries that have substantially implemented the internationally agreed tax standard.”
In response, the Cayman Islands Government summarized: “For over four decades the Cayman Islands has steadily earned its place as a world-class international financial services centre. The Cayman Islands Government sees the OECD’s recognition as a natural outcome of the country’s substantial commitment to uphold an equally worldclass international cooperation regime in the exchange of tax information.”
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Marketwatch – The IRS last week reached an agreement with the Swiss government and UBS AG that will result in thousands of Americans who thought they had a secret Swiss bank account having their names and account details turned over to U.S. tax authorities.
Former UBS banker Bradley Birkenfeld was sentenced to 40 months incarceration on Friday after he pleaded guilty to defrauding the United States. Birkenfeld admitted to advising U.S. clients to place cash and valuables in Swiss safety deposit boxes, destroy off-shore banking records and file false U.S. income tax returns, among other frauds.
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.
Reuters – UBS has named Alastair Sclater to the new post of head of its Singapore prime brokerage, as the Swiss bank aims to build that business in Asia’s second-biggest centre for hedge funds.
Singapore, which competes with rival Asian financial centre Hong Kong, has attracted asset managers, private banks and hedge funds in recent years with tax incentives and strict secrecy rules.
The city-state also provides investors the opportunity to manage part of the more than $300 billion in assets held by its sovereign wealth funds GIC and Temasek.
CNN Money – John Costas, who helped make UBS AG into one of the world’s biggest investment banks, wants to build a lasting Wall Street player — and put the 2007 demise of hedge fund Dillon Read Capital Management behind him.
Costas and long-time partner Michael Hutchins have launched The PrinceRidge Group, a boutique broker-dealer that is, for now, focused on trading mortgage and corporate debt.
Over time, though, he intends to expand into a mid-size investment bank, seizing "unprecedented" opportunities created by the shake-up on Wall Street.
Reuters Hong Kong – Credit Suisse on Wednesday said a top UBS AG prime brokerage banker will join the bank as head of prime services for Asia-Pacific, based in Hong Kong.
Since 2007, Matt Pecot was the Americas head of prime brokerage services for UBS, having held a similar Asia-Pacific role with UBS from 2004 and 2007.
Credit Suisse, under less financial pressure than rival UBS, is in a position in Asia and elsewhere to poach top bankers from its peers.
Reuters Zurich – UBS AG is considering selling all or part of its hedge funds business Alternative & Quantitative Investments in a management buyout, a Swiss newspaper reported on Tuesday.
Citing unnamed financial sources, the Neue Zuercher Zeitung said a management buyout offer for A&Q, or parts of it, was on the table, which the newspaper said would fit into the bank’s strategy of focusing the bank and cutting its risks.
AFP – The United States and Switzerland will begin negotiations to amend their bilateral income tax treaty to provide for improved transparency, the US Treasury Department said Monday.
The announcement came following Group of 20 pledges last week to clean up tax havens and fight tax fraud and as bilateral relations have been strained by a massive tax fraud case involving Swiss banking giant UBS.
The negotiations to amend the 1996 treaty are expected to begin April 28 in Berne, Switzerland, the Treasury Department said in a statement.
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
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
Reuters – Hedge fund assets will continue to shrink this year, falling as much as two-thirds from their 2007 peak, but investors will return and assets will rebound when the economy revives, Alex Ehrlich, global head of prime services at Swiss bank UBS, said on Monday.
Last year was the hedge fund industry’s worst ever, as asset values plunged and investors pulled out record amounts of cash. These trends, which forced hundreds of funds to close their doors and some to impose redemption curbs, are likely to continue this year before the industry rebounds, Ehrlich said at the Reuters Private Equity and Hedge Funds Summit in New York.
"All this proves is that the hedge fund industry is cyclical," he said. "But the idea of the death of the hedge fund industry is crazy. The industry will rebound, though it will not rebound to peak levels."
Ehrlich, who runs one of the world’s largest prime brokerages, said that in just the past year hedge fund assets have fallen from roughly $2 trillion to as low as $1 trillion.
Bloomberg – U.S. hedge funds are buying more of the nation’s stocks than they’re selling for the first time since October, while mutual funds and most other investors remain net sellers, according to UBS AG.
In the four weeks ended March 13, net purchases of equities by hedge fund clients of UBS averaged $140 million, according to a March 18 report by David Bianco, the New York-based chief equity strategist at Switzerland’s biggest bank. The inflows into stocks followed 22 straight weeks of outflows.
“Those who are supposedly experts at assessing and managing risk are more confident putting capital to work than they were in October and November,” said Peter Kenny, managing director in institutional sales at Knight Equity Markets LP Jersey City, New Jersey. “That’s an indication that the market has made some constructive moves toward building a base.”
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
