UBS Honcho: Swiss Law Trumps U.S. Probe

Swiss bank refuses to give IRS names of up to 52,000 possible tax cheats.

March 4, 2009, 7:33 PM

March 4, 2009— -- A top UBS official told a Senate hearing on tax havens that the Swiss bank, which has been subpoenaed to turn over information on as many as 52,000 U.S. account holders, would not turn over the identities of possible U.S. tax cheats.

"UBS cannot disclose information to the IRS that would put its employees at serious risk of criminal prosecution under Swiss law," said Mark Branson, UBS' chief financial officer of wealth management.

"Because Swiss law prohibits UBS from producing responsive information located in Switzerland ... we believe that UBS has now complied with the summons to the fullest extent possible without subjecting its employees to criminal prosecution in Switzerland." Branson said.

Branson's comments came at a hearing in which senators tried to determine the extent to which U.S. taxpayers have used Swiss banks and other offshore accounts to evade the IRS, and expressed frustration with the Swiss government.

Branson's refusal to hand over the names is the latest entanglement UBS has had with U.S. authorities.

Last month, the Justice Department sued the Swiss banking giant and asked a federal court to enforce an IRS summons seeking the names and identities of as many as 52,000 clients who sheltered money in the bank's overseas accounts.

Today, Branson confirmed there were about 47,000 accounts that UBS had for U.S. clients, but he said the bank will not provide any identifying information.

Sen. Carl Levin, D-Mich., has looked into the prevalence of tax havens and had tough words today for UBS and Swiss officials.

"The Swiss hold out bank secrecy as a national value," Levin said. "In the way Americans prize freedom and democracy, the Swiss claim that bank secrecy is essential to protect the individual privacy and is more important than any law in the United States requiring the payment of taxes."

Levin said UBS sent bankers from overseas to visit as many as 3,800 clients in the United States to manage and establish their accounts.

"Swiss bankers aided and abetted violations of U.S. tax law," Levin said, "by traveling to this country with client code names, encrypted computers, counter surveillance training and all the rest of it to enable U.S. residents to hide assets and money in Swiss accounts."

Last month. UBS agreed to pay $780 million in fines to the United States for tax evasion and entered into a deferred prosecution agreement with the Justice Department. Under that agreement, UBS agreed to identify about 300 U.S. clients, including those who were believed to have engaged in tax fraud.

John DiCicco, acting assistant attorney general for the tax division, told Levin's committee that he believes other foreign banks had engaged in providing U.S. tax shelters to U.S. clients, too. Of UBS and it's competitors, he said, "I don't think they are the only ones."

UBS' Branson told today's hearing that diplomacy and multi-lateral legal agreements between the United States and Switzerland were the remedy to the United States request.

"The Swiss government, instead of condemning UBS's misconduct, is trying to thwart our efforts to get the names of all of the bank's U.S. clients with hidden Swiss accounts," Levin said.

Levin asked Branson if the company would ever agree to proceed with the U.S. request for the names and became irritated at times.

"Your answers are needlessly evasive," Levin said. "You agreed you participated in a fraud."

"Discussions between the governments is the way to proceed," Branson again said.

Earlier this week, Swiss government officials held meetings at the Justice Department with officials in the deputy attorney general's office on the tax haven issue. Attorney General Eric Holder is recused from the UBS case because he represented them while he was in private practice.