In a stunning blow to the long-held secrecy of Swiss bank accounts, Swiss banking giant UBS AG has agreed to pay a $780-million (U.S.) fine and reveal the identity of roughly 20,000 American clients as part of a settlement with U.S. justice officials.
The unprecedented agreement ends years of investigation by U.S. officials over allegations the bank courted thousands of American clients between 2000 and 2007 and helped them set up offshore accounts to avoid paying taxes. Two UBS managers in the U.S. have been indicted over the allegations and one has pleaded guilty.
Under the deal, which was approved by a federal judge in Florida, the bank must also exit the cross-border business in the U.S., change many of its banking policies, appoint new executives to oversee its tax compliance, and hire an auditor approved by U.S. officials to ensure compliance with the agreement. In return, U.S. officials will not prosecute the bank on charges of conspiring to defraud the United States.
"The veil of secrecy has been pulled aside and we will continue to aggressively pursue those who shirk their federal tax obligations or assist others in doing so," said John A. DiCicco, the acting head of the Justice Department's tax division.
UBS chairman Peter Kurer said in a statement that the company regretted its compliance failures and accepted "full responsibility for these improper activities."
"Client confidentiality, to which UBS remains committed, was never designed to protect fraudulent acts or the identity of those clients, who, with the active assistance of bank personnel, misused the confidentiality protections," Mr. Kurer said.
In court filings unsealed yesterday, prosecutors alleged the bank's conduct began in 2000 shortly after it bought brokerage firm Paine Webber. At the time, UBS allegedly agreed to comply with regulations that required it to withhold income tax from U.S. clients who set up offshore accounts. However, prosecutors allege UBS helped U.S. clients set up nominee accounts, or "sham accounts," and moved the money around in order to evade tax reporting rules. According to the court filings, UBS had 60 managers in charge of the business and ran it out of several locations in Switzerland.
Prosecutors allege UBS officials aggressively marketed the service, making 3,800 trips to the U.S. in 2004 alone. UBS employees used encrypted laptops and other "counter-surveillance techniques" to conceal the identity of their clients. According to an agreed statement of facts filed in court, UBS had 20,000 U.S. clients with roughly $20-billion in total assets. Roughly 17,000 concealed their identity "and the existence of their UBS account from [the Internal Revenue Service]"
"Many of these clients willfully failed to pay tax to the IRS on income earned on their UBS accounts."
With files from Dow Jones Newswires
Paul Waldie