2000 memo to UBS on tax issue is a topic at hearing Wednesday

— -- The 2000 memo focuses on legal advice UBS got from Chicago-based Baker & McKenzie as the bank grappled with how it could keep the clients without violating federal laws that require disclosure of the investments for tax purposes.

The memo comes to light amid a legal battle in which U.S. authorities are seeking identities of thousands of UBS' American clients suspected of evading billions of dollars in federal taxes.

According to the memo, the law firm advised that UBS "cannot recommend" placing ownership of the investments under the names of specially created offshore companies or using other tactics as an "alternative" to IRS disclosure.

"This could be viewed as actively helping our clients to evade U.S. tax, which is a U.S. criminal offense," the memo stated. "What we can do is suggest that clients seek external professional advice and offer them a choice of approved service providers if they request it."

The intermediaries offered UBS' American clients advice about avoiding disclosure, federal authorities have alleged in the legal struggle with UBS.

"You have a U.S. law firm working with a Swiss bank to simply get totally around or giving a plan they thought would totally get around the U.S. regulations," said Jack Blum, an offshore tax law expert. "I think it raises serious questions."

Baker & McKenzie declined to comment, saying, "consistent with our professional duty, it is our firm's practice not to identify our clients, or to discuss matters involving our clients."

The memo is one focus of discussion at today's scheduled hearing by the Senate Permanent Subcommittee on Investigations, a panel that has extensively examined suspected offshore tax evasion involving U.S. clients of foreign banks.

Subcommittee Chairman Carl Levin, D-Mich., said the hearing would also focus on UBS' battle against a February lawsuit in which U.S. authorities demanded the identities of U.S. owners for as many as 52,000 of the bank's accounts.