Secret No More: UBS to Divulge 4450 U.S. Client Names to Fraud Probers

August 19, 2009— -- The U.S. and Switzerland have signed a historic agreement that will uncover the shroud of Swiss banking secrecy and potentially billions of dollars stored in accounts there by wealthy U.S. account holders who could be dodging U.S. taxes by storing money in offshore accounts.

The Justice Department and IRS reached an agreement with Switzerland to obtain information from UBS AG to identify information on up to 4,450 accounts held by the Swiss banking giant. The IRS will now submit a treaty request to the Swiss government asking for information about targeted UBS accounts.

The agreement comes after a year of legal wrangling between UBS, the Swiss government and high ranking officials at the Justice Department and IRS. After the agreement was signed IRS Commissioner Dan Shulman said, "We'll be receiving an unprecedented amount of information on taxpayers who have evaded their tax obligation by hiding money offshore at UBS."

"This agreement represents a major step forward to pierce the veil of bank secrecy and combat off shore tax evasion." Shulman said.

IRS and U.S. officials believe the accounts could hold up to $18 billion.

The 4,450 names is significantly less than had initially been sought by the IRS and Justice Department. In February, the Justice Department reached a deferred prosecution agreement with UBS where the company agreed to pay $780 million in criminal fines for offering tax haven accounts for U.S. clients. Around that same time, in the litigation in a Miami federal court, the IRS said in court filings they believed there were as many as 52,000 undeclared accounts maintained by UBS.

Senator Carl Levin (D-MI), who serves as chair of the Senate Permanent Subcommittee on Investigations that has investigated UBS and other offshore tax havens, said in a statement Wednesday, "The UBS settlement is at most a modest advance in the effort to end bank secrecy abuses, tax haven bank misconduct, and the tax haven drain on the U.S. treasury. It will take a long time before we know whether this settlement will produce meaningful gains due to treaty procedures which are complex, depend upon the Swiss government to carry out, and open the door to potentially lengthy appeals."

Alleged Tax Evasion

In June 2008, the Justice Department asked a federal judge in Miami to serve an IRS subpoena, seeking records from UBS to identify unknown individuals in John Doe subpoenas to identify assets of U.S. taxpayers in alleged tax evasion and other schemes.Under the agreement, Swiss authorities will direct UBS to notify suspect US account holders that their accounts are part of the IRS request. The U.S. has already received about 250 names of account holders at UBS which were alleged, by Swiss banking and tax authorities, to have violated both U.S. and Swiss banking laws for tax fraud.

In a statement posted on their website, the embassy of Switzerland said, "[The treaty request] states that the United States will refrain from unilateral information-gathering measures that infringe Switzerland's sovereignty and rule of law. In particular, the USA will immediately withdraw the enforcement action relating to the John Doe summons against UBS that remains pending before the competent court in Miami. It also undertakes not to seek any further enforcement of the summons."

The IRS has established a Voluntary Disclosure Program for U.S. account holders to come forward and pay their back taxes, the voluntary program will expire Sept. 23, 2009. The program allows individuals to come forward and avoid criminal prosecution by the Justice Department, but they could be required to pay up to 50 percent of the value of the account for each year the account was held without disclosure to the IRS.

Serge Steiner, a spokesman for UBS, told ABC News, "This agreement has no influence on the secrecy law, and was done all within the established framework."

"With the initial request, if we had agreed to it we would have been in violation of Swiss law. But if we found no solution to it, we would have been in violation with US law. It put UBS in a very difficult position. That is why we are happy that the Swiss and US government found a way to resolve the issue." Steiner said.

Part of the agreement between the two countries also agreed to review other accounts in Swiss banks "If they are based on a pattern of facts and circumstances that are equivalent to those of the UBS AG case," the agreement noted.

Speaking with reporters IRS Commission Shulman said, "This issue is not going away, and people hiding assets and income offshore will find themselves increasingly at risk due to our efforts in this area."

U.S. Investigation into UBS

The U.S. investigation into UBS picked up steam last year when 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.

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, 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.

Tuesday prosecutors asked that Birkenfeld receive a reduced sentence from the Judge overseeing his case, in a court filing prosecutors said, "Birkenfeld has provided substantial assistance in the investigation and prosecution of others who have committed offenses."

There have been several other guilty pleas already stemming from the DOJ-IRS investigation into UBS. Steven Michael Rubinstein, a Florida accountant, pleaded guilty in June for evading taxes with UBS by allegedly moving currency to purchase securities and property through his UBS accounts. Last April, Florida yacht broker Robert Moran also pleaded guilty to hiding $3 million in assets in UBS accounts that he failed to disclose to the IRS.

Last Week, John McCarthy a California businessman, also agreed to plead guilty to charges that he diverted money from offshore accounts and his business ventures to his UBS account.

UBS is expected to being providing Swiss authorities with other U.S. account holders in the next several weeks.

Maeva Bambuck contributed to this report.

Click Here for the Blotter Homepage.

In June 2008, the Justice Department asked a federal judge in Miami to serve an IRS subpoena, seeking records from UBS to identify unknown individuals in John Doe subpoenas to identify assets of U.S. taxpayers in alleged tax evasion and other schemes.Under the agreement, Swiss authorities will direct UBS to notify suspect US account holders that their accounts are part of the IRS request. The U.S. has already received about 250 names of account holders at UBS which were alleged, by Swiss banking and tax authorities, to have violated both U.S. and Swiss banking laws for tax fraud.

In a statement posted on their website, the embassy of Switzerland said, "[The treaty request] states that the United States will refrain from unilateral information-gathering measures that infringe Switzerland's sovereignty and rule of law. In particular, the USA will immediately withdraw the enforcement action relating to the John Doe summons against UBS that remains pending before the competent court in Miami. It also undertakes not to seek any further enforcement of the summons."

The IRS has established a Voluntary Disclosure Program for U.S. account holders to come forward and pay their back taxes, the voluntary program will expire Sept. 23, 2009. The program allows individuals to come forward and avoid criminal prosecution by the Justice Department, but they could be required to pay up to 50 percent of the value of the account for each year the account was held without disclosure to the IRS.

Serge Steiner, a spokesman for UBS, told ABC News, "This agreement has no influence on the secrecy law, and was done all within the established framework."

"With the initial request, if we had agreed to it we would have been in violation of Swiss law. But if we found no solution to it, we would have been in violation with US law. It put UBS in a very difficult position. That is why we are happy that the Swiss and US government found a way to resolve the issue." Steiner said.

Part of the agreement between the two countries also agreed to review other accounts in Swiss banks "If they are based on a pattern of facts and circumstances that are equivalent to those of the UBS AG case," the agreement noted.

Speaking with reporters IRS Commission Shulman said, "This issue is not going away, and people hiding assets and income offshore will find themselves increasingly at risk due to our efforts in this area."

U.S. Investigation into UBS

The U.S. investigation into UBS picked up steam last year when 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.

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, 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.

Tuesday prosecutors asked that Birkenfeld receive a reduced sentence from the Judge overseeing his case, in a court filing prosecutors said, "Birkenfeld has provided substantial assistance in the investigation and prosecution of others who have committed offenses."

There have been several other guilty pleas already stemming from the DOJ-IRS investigation into UBS. Steven Michael Rubinstein, a Florida accountant, pleaded guilty in June for evading taxes with UBS by allegedly moving currency to purchase securities and property through his UBS accounts. Last April, Florida yacht broker Robert Moran also pleaded guilty to hiding $3 million in assets in UBS accounts that he failed to disclose to the IRS.

Last Week, John McCarthy a California businessman, also agreed to plead guilty to charges that he diverted money from offshore accounts and his business ventures to his UBS account.

UBS is expected to being providing Swiss authorities with other U.S. account holders in the next several weeks.

Maeva Bambuck contributed to this report.

Click Here for the Blotter Homepage.

Tuesday prosecutors asked that Birkenfeld receive a reduced sentence from the Judge overseeing his case, in a court filing prosecutors said, "Birkenfeld has provided substantial assistance in the investigation and prosecution of others who have committed offenses."

There have been several other guilty pleas already stemming from the DOJ-IRS investigation into UBS. Steven Michael Rubinstein, a Florida accountant, pleaded guilty in June for evading taxes with UBS by allegedly moving currency to purchase securities and property through his UBS accounts. Last April, Florida yacht broker Robert Moran also pleaded guilty to hiding $3 million in assets in UBS accounts that he failed to disclose to the IRS.

Last Week, John McCarthy a California businessman, also agreed to plead guilty to charges that he diverted money from offshore accounts and his business ventures to his UBS account.

UBS is expected to being providing Swiss authorities with other U.S. account holders in the next several weeks.

Maeva Bambuck contributed to this report.

Click Here for the Blotter Homepage.