UBS Tax Net Snares Clients of Credit Suisse, Julius Baer, LGT
By Carlyn Kolker and David Voreacos
Sept. 18 (Bloomberg) -- UBS AG’s $780 million settlement with U.S. authorities to avoid prosecution for helping Americans cheat on their taxes has opened a Pandora’s box for banks worldwide.
A U.S. tax program encouraging UBS clients to avoid criminal inquiries by declaring offshore accounts before Sept. 23 is prompting a flood of disclosures by customers of Zurich-based Credit Suisse Group AG and Julius Baer Holding AG, LGT Group in Liechtenstein, London-based HSBC Holding Plc, and Bank Leumi Le-Israel Ltd., tax attorneys said.
That may give the Internal Revenue Service ammunition to target other overseas wealth managers as it seeks to crack down on tax evasion. UBS, the largest Swiss bank, avoided prosecution on Feb. 18 when it admitted helping Americans dodge taxes, paid a $780 million penalty, and disclosed secret data on 250 clients. In August, UBS agreed to reveal another 4,450 clients to settle a U.S. lawsuit seeking more data.
“It is very possible that the IRS will be able to get strangleholds over the other banks because they’ll have specific information which will permit them to bring specific allegations of wrongdoing before the U.S. courts,” said Robert Fink, an attorney at Kostelanetz & Fink in New York. “This thing may spread like wildfire.”
The disclosure program and the U.S. lawsuit settled by UBS are helping the U.S. crack down on offshore tax evasion by pursuing financial institutions and intermediaries including law firms, IRS Commissioner Doug Shulman said Aug. 19. The U.S. loses $100 billion a year through offshore tax evasion, estimated U.S. Senator Carl Levin, a Michigan Democrat.
Bahamas, Granada
Fink, whose firm handled more than 250 disclosures, said his clients told the IRS about accounts at a dozen Swiss banks, as well as banks in Germany, England, Italy, Belgium, Singapore and Hong Kong. Lawrence Horn, an attorney at Sills Cummis & Gross in Newark, New Jersey, said his clients declared accounts at Bank Hapoalim Ltd. in Israel, as well as banks in the Bahamas, Granada and the Cayman Islands.
After UBS customers, account holders at Zurich-based Credit Suisse are the largest group of people coming forward to the IRS, said Fink and Scott Michel, a lawyer at Caplin & Drysdale in Washington.
“We strongly believe we have the right compliance standards in place and adhere to all applicable laws,” David Walker, a Credit Suisse spokesman, said in an e-mail.
Karina Byrne, a UBS spokeswoman, didn’t immediately return a call seeking comment.
Representatives of LGT Group, Bank Hapoalim and Julius Baer couldn’t immediately be reached for comment after regular business hours yesterday.
Juanita Gutierrez, a spokeswoman for HSBC, and Chaim Fromowitz, a spokesman for Bank Leumi USA, declined to comment.
Prosecution Risk
Thousands of Americans must decide by Sept. 23 whether to disclose accounts to the IRS and possibly face back taxes, fines and penalties, or keep their assets undeclared and risk criminal prosecution. The Justice Department so far has prosecuted two UBS bankers, five of its U.S. clients, a Liechtenstein adviser, a Swiss lawyer, and a manager at Zurich-based Neue Zuercher Bank.
“The question is whether the U.S. government is going to make the same effort to get the names of account holders at Credit Suisse, Julius Baer and LGT that it did at UBS, and if not, why not?” Horn said.
Taxpayers making voluntary disclosures and third parties are “providing us with useful information” every day, said Frank Keith, an IRS spokesman, in a written statement.
Offshore Accounts
“This includes how undisclosed offshore accounts came to be set up and the identities of those who assisted in these efforts to circumvent U.S. tax laws,” Keith said.
Taxpayers must reveal names of bankers, financial advisers and others who helped hide assets from the IRS, Michel said. He said he expects the IRS to create a database to find patterns.
Coming forward voluntarily usually allows a taxpayer to avoid criminal charges, although all applications for leniency will be screened by criminal investigators, the IRS said in March.
“I have a pretty clear idea that they’ll set their sights on the next level of Swiss banks,” said attorney Robert McKenzie of Arnstein & Lehr in Chicago, which represents 65 clients making disclosures.
Switzerland, which manages an estimated 27 percent of the world’s privately held offshore wealth, agreed in March to cooperate with foreign authorities on tax-evasion probes to avoid being blacklisted as a tax haven by the Organization for Economic Cooperation and Development.
Disclosure Rush
The IRS deadline has set off a rush of disclosures, with tax attorneys estimating that more than 3,000 U.S. taxpayers have filed paperwork with the IRS since the program was announced in March. The IRS hasn’t said how many people have applied to file voluntary disclosures.
“I feel like I work in a bakery where I ask people to take numbers,” Fink said. “I have never seen such a deluge. I was thinking of getting folding chairs in our reception area.”
Some potential clients have been skittish about revealing their identities to him, with one wearing “massive sunglasses and a red wig which was so artificial that it must have been bought in a five-and-dime store,” Fink said.
Fink said most of his clients have offshore assets of $1 million to $5 million, with four exceeding $100 million.
McKenzie said some of his clients inherited accounts set up by parents or grandparents in other countries. They include political refugees who fled Vietnam and Iran as well as descendants of Holocaust survivors, he said.
Cash Hoard
“There was a mentality among direct descendants of Holocaust survivors that you should have a cash hoard somewhere else in case the United States becomes the next fascist enterprise,” he said.
While lawyers suggest the IRS should extend the Sept. 23 deadline, they urge clients with undeclared accounts to come forward.
“You’ve got to be crazy not to come forward,” said lawyer Charles Falk, who practices in Mendham, New Jersey. “If you are found out, they’re going to prosecute you and take all your money and make your life miserable. For your own sanity, you’d be well advised to come forward.”
To contact the reporters on this story: Carlyn Kolker in New York at ckolker@bloomberg.net; David Voreacos in Newark, New Jersey, at dvoreacos@bloomberg.net.
Last Updated: September 18, 2009 00:01 EDT
