Once again UBS AG, the Swiss bank that was investigated and taken to court by the IRS in 2009, is under investigation. Sources are reporting that the U.S Attorney’s office has evidence bank employees have provided wealthy American expats with tax evasion assistance. Yes, again.
IRS investigates UBS in regards to foreign accounts owned by American expats
This new probe by the IRS is similar to one that ended up with UBS paying almost $800 million dollars to them for the same thing in 2009. At that time, the bank was accused of assisting their wealthy clients with purchasing securities that are illegal in the U.S.
That “service” by the bank was considered aiding these clients what is seen as money laundering and tax evasion steps. With American expats using their Swiss monies for these securities, it allowed them to have anonymous ownership of certificates. By doing so, it is the same as an untraceable cash transaction, which means the IRS doesn’t get any tax monies.
Along with the FBI, American federal prosecutors are looking at evidence that indicates bank employees have been at it again. This probe is aimed at determining if criminal activity has taken place by those at the bank that provided a cover up for their wealthy clients. It is believed by authorities that this has become a widely used practice internally.
With a settlement of almost $800 million being paid by UBS in 2009, bank secrecy was changed forever. One example is a measure passed by the Swiss Parliament. That measure enabled banks to provide American authorities client identities without being in violation of Swiss bank-secrecy laws.
While UBS has recently been served a subpoena related to this new probe, the Justice Department has declined comment. Those familiar with what has going on say that FBI agents and federal prosecutors have arrived in London and will be interviewing possible witnesses.
A UBS spokesman declined comment as well even though it is reported that an attorney has been hired by the bank. According to these sources, the law firm of Wachtell, Lipton, Rosen & Katz has been hired by USB to conduct an internal investigation. John F. Savarese, a partner in the firm, will conduct the investigation, which he has refused to comment. The cost of legal fees for these types of investigations can add up in millions for UBS.
This current investigation is to determine if UBS has in fact sold their American clients investments of bearer securities. This is similar to an old-fashioned form of tax evasion with this type sale considered a ‘financial tool’ which American authorities had ended in 1982. These bearer securities, popular at one time, are thought to provide potential for abuse.
The 1982 law levied several sanctions and tax penalties making it difficult for these types of certificates to be deposited or used at American banks. Up until then, American investors had two ways to obtain these bearer securities.
Known as bearer bonds or coupon bonds, could be issued to American expats by banks as debt certificates. They would often be issued in millions of dollars and then redeemed at specific banks by the American expat. These bear certificates, issued by some banks had an equity share in some companies and weren’t registered with owners of the securities. As such, the transfer of ownership isn’t tracked either.
Currently, bearer bonds can earn a set interest rate that is strictly maintained by way of an electronic account. Because they are transferred easily, bearer securities are considered a risky investment. Being almost anonymous makes cashing them, or stealing them, easy. It also makes them easy to evade taxes too.
Without the ownership being tracked, the holder of these interest-bearing accounts or documents may not report them to the IRS, thus, considered hidden assets. When assets are hidden, taxes aren’t paid on them.
It is unknown when this supposed conduct by UBS employees is said to have started. But it is believed by investigators that these possible misdeeds may have occurred after the banks agreement with the DOJ in 2009.
At that time, the agreement was if UBS didn’t get any more trouble for 18 months, the earlier tax-evasion case and related prosecution were put off. The authorities don’t consider the new issues are in violation of the earlier settlement’s terms according to sources familiar with the case.
It isn’t just the accusation of selling to American clients such investments that have created these current woes for UBS. Nor is it the managing of such investments. Bank employees are being accused of discussing with their American clients ways to hide these investments as well as how to handle any possible legal problems that may come up.
It is because of that, investigators are looking for evidence that would determine the precise nature of those suspected discussions. They are also looking for any evidence of criminal effort was made to hide any previous activity of this nature.
However, not every investigation or prosecution goes anywhere. The Federal government experienced a large loss when UBS banker Raoul Weil, was found not guilty of accused tax evasion. Weil and his subordinates were accused by the feds as using sham structures allowing their American clients to bypass the IRS.
Mr. Weil was indicted on charges of assisting as many as 20,000 American clients hide as much as $20 billion in assets in 2008. He was arrested in 2013 with help of the Interpol in Italy. Other foreign advisors and bankers have been indicted and prosecuted by the IRS as well, alarming advisers around the globe, such as the UBS banker Renzo Gadola.
Gadola received five years’ probation after giving the IRS a list of fellow bankers that had enabled American clients with illegal investments. Investor Christos Bagios, an investor with Credit Suisse and a former UBS employee, has had the IRS investigate him as well. He was accused of assisting American clients to hide up to $500 million from the IRS while at UBS.
More names are being added to the information already collected from FATCA and whistleblowers. FATCA is the most powerful of all disclosure laws and is prevalent and universal American law requiring American owned accounts in foreign banks and financial institutions to be reported to the IRS. Currently, more than 100 Swiss banks participate in disclosing accounts that are undeclared by Americans, resulting in penalties being paid.
Independently, the bank is one of numerous international firms that American and European authorities probe for allegedly participating in manipulating foreign-exchange markets. The bank paid approximately $800 million in November to settle with European agencies as well as one American regulator. The matter is still being investigated by the DOJ and bank hasn’t disputed any of the findings by regulators.
American officials have long been bearing down on offshore activity by wealthy Americans that are evading US taxes. This recent investigation into UBS is just another part of that effort by the IRS. Another example is Credit Suisse Group AG. They pleaded guilty last year to conspiracy charges and agreed to pay over $2 billion.
Among the crackdown by the IRS, many Americans have been convicted of related crimes of hiding money from them as well. Meanwhile, thousands more Americans that hold such accounts have negotiated to pay fines to the IRS to avoid bigger penalties or being sentenced jail time.
American expats should not delay the filing of US expatriate tax returns. The streamlined program is the best option for many American expats if the failure to file and report the foreign accounts was nonwillful.