US hunt continues for 4,450 UBS account holders

A complicated picture emerged as Swiss and American governments this week released further details of a deal to settle suspected cases of tax evasion by US citizens with UBS accounts.

In an agreement reached between the two governments on August 19, Washington was given the right to apply for details of accounts held by about 4,450 wealthy American clients believed to have used offshore services of Switzerland’s largest bank to hide income from taxation by Uncle Sam.

US authorities said on Tuesday that 14,700 taxpayers have stepped forward under an amnesty programme to disclose previously undeclared foreign accounts at UBS and other banks.

Many of them – an estimated 9,000 by one account – are clients of the Zurich-based bank.

But Douglas Shulman, commissioner of the US Internal Revenue Service (IRS), said at a press conference in Washington that this does not relieve UBS of the obligation to disclose details of accounts held by 4,450 Americans.

The bank has coughed up 500 names so far after an investigation uncovering tax evasion cases, sparked by whistle-blowing UBS banker Bradley Birkenfeld, forced it to pay the US government 780 million dollars to avoid prosecution.

Under an agreement in February the bank admitted to wrongdoing in enabling tax evasion through offshore banking services, involving the creation of sham corporations and similar falsifications.

Subsequently, the American government sought further details of 52,000 Americans with UBS accounts initially suspected of cheating on their taxes through a “John Doe summons.”

Shulman said the summons would be withdrawn if information about 10,000 accounts at the Swiss bank comes from the voluntary disclosure programme by January 1, 2010. But he said this is in addition to the 4,450 other names sought.

“We are talking about billions of dollars coming into the US Treasury,” Shulman said, according to a report from the New York Times.

On the same day, meanwhile, Bern issued a more nuanced version of its deal with the US, promising that the Swiss government would vet all names before deciding whether to pass them on to Washington and also that individuals would have the legal right to appeal such decisions.

It released details of an annex to the agreement – which had been kept secret for 90 days so as not to interfere with the IRS amnesty programme - showing that it covers accounts with as little as 250,000 francs in cases where “tax fraud or the like” are proven.

The phrase about tax fraud refers to hiding assets, the filing of false or incorrect tax returns or constructing a “scheme of lies” to evade payment to the IRS.

The Swiss government said it may also be asked by American authorities to obtain information on “continued and serious tax offences.”

Under the annex to the agreement this refers to accounts that generated revenues of more than 100,000 francs on average annually for a period of at least three years.

In cases where there is reasonable suspicion of such activity, Bern said the US can request information from the Swiss government, following existing mechanisms in the double taxation agreement between the two countries, about two classes of Americans with UBS accounts.

These include US residents with accounts in excess of one million francs between 2001 and 2008. American citizens living elsewhere with offshore UBS accounts during the same period are also subject to the information request.

Under US law, American citizens are required to file income tax information with the IRS no matter where they live in the world.

Bern noted the Swiss Federal Tax Administration (SFTA) has until August 31, 2010 to evaluate the 4,450 account requests through a process involving the accounting firm PricewaterhouseCoopers, which is employing 30 people to vet all dossiers according to government instructions.

The process of screening the 4,450 names, which also involves 40 government lawyers and tax specialists, will cost 40 million francs, federal officials said.

However, the government said all individuals involved will have the right upon request to look at the files, to be provided by UBS. The SFTA will decide whether assistance on each file is to be given to the US, with those affected given the 30 days to lodge an appeal with the Federal Administrative Tribunal.

While reports have suggested the UBS case has imperilled Swiss banking laws, Bern has maintained all along that these - assuring banker-client confidentiality - remain intact.

The government maintains that such confidential arrangements can only be violated in cases where fraudulent activity is suspected.

US Senator Carl Levin of Michigan, the Democratic party chairman of a panel that exposed UBS’s tax evasion activities, said he was disappointed over the criteria used by the Swiss  for turning over names of Americans with UBS accounts.

“The tortured wording and the many limitations” in the criteria show the Swiss government is “trying to preserve as much bank secrecy as it can for the future, while pushing to conceal the names of tens of thousands of suspected US tax cheats,” Bloomberg News reported Levin saying.

So far, the US justice department has convicted only six people for tax evasion cases linked to UBS, although more prosecutions are expected.

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