The Justice Department has asked a federal judge to serve an IRS subpoena, seeking records from Swiss banking giant UBS AG, that might implicate U.S. taxpayers in alleged tax evasion and other schemes.
The request comes 10 days after former UBS banker Bradley Birkenfeld pleaded guilty to conspiracy to assist his U.S. clients to avoid paying federal income and other taxes to the IRS.
Court records submitted as part of his guilty plea indicate Birkenfeld organized numerous schemes to assist his clients, including buying jewels, artwork and luxury items with funds from the Swiss accounts, while overseas, and using Swiss bank credit cards, claiming the records could not be traced by U.S. authorities.
In one case, court documents noted, "At the request of a U.S client, defendant Birkenfeld purchased diamonds using the U.S. client's Swiss bank account funds, and smuggled the diamonds into the United States in a toothpaste tube."
Birkenfeld, who worked for UBS and offered wealth management and tax services to wealthy American clients, left the Swiss banking conglomerate in 2006 to set up a separate corporation to establish offshore accounts and move the UBS funds he managed.
Birkenfeld pleaded guilty to helping Igor Olenicoff evade paying $7.2 million in taxes, and helped him conceal $200 million in assets.
Olenicoff, a successful real estate investor, was once ranked as Forbes magazine's 286th richest man in the United States. He pleaded guilty to tax evasion charges in December, and agreed to pay $52 million in back taxes and cooperate with investigators as part of his plea.
Court records in the case note that Birkenfeld "assisted wealthy United States taxpayers create offshore nominee and sham entities to act as foreign beneficial owners of the offshore accounts. Doing so enabled United States taxpayers to avoid filing W-9 forms identifying them, which consequently meant that UBS would not report the United States taxpayers' identities or their income to the IRS."
The Justice Department's request also seeks permission for the IRS to authorize "John Doe" summonses against UBS seeking information from the bank. "John Doe" summonses and subpoenas are typically used when the identities of potential suspects are not known.
The summons would allow the IRS to obtain U.S. taxpayer bank data from December 2002 through Dec. 31, 2007.
UBS spokeswoman Rohini Pragasam acknowledged in a statement today that the bank is aware of the Justice Department's request.
"As previously stated, UBS takes this matter very seriously and is working diligently with both Swiss and U.S. government authorities, consistent with Swiss law and the legal frameworks for intergovernmental cooperation and assistance," her statement said.
"We are working cooperatively with both the Swiss government and UBS to obtain this information. However, we are prepared to seek enforcement if that process is not successful," said John A. DiCicco, deputy assistant attorney general for the Justice Department's tax division.
During his hearing on June 19, 2008, during which he pleaded guilty, Birkenfeld said he conjectured that UBS had an estimated $20 billion of undeclared assets that were associated with U.S. taxpayers.
The Justice Department has presented the order to a federal judge in Miami and is waiting for it to be signed.
According to court documents filed by the Justice Department today, "The Internal Revenue Service has learned that UBS has assisted certain United States taxpayers to conceal their beneficial ownership of offshore accounts in order to avoid detection by the Internal Revenue Service. UBS segregates United States taxpayers with accounts in Switzerland into two categories: those who provide their taxpayer identification numbers to UBS on forms W-9 to enable UBS to report their income to the Internal Revenue Service, and those who choose to remain undeclared."
In Olenicoff's case, Birkenfeld organized the transfer of $60 million and a 147-foot yacht though an offshore account. Since the account was listed as a foreign entity, UBS did not report the transfer of funds to the IRS.