UBS says it will drop some services for U.S. clients

— -- A major Swiss bank said Thursday that it would stop offering offshore banking services to U.S. clients through its non-regulated Switzerland branches after a Senate investigation disclosed evidence the services helped Americans evade federal income taxes on billions of dollars in assets.

Mark Branson, chief financial officer of global wealth management for UBS, made the announcement at a hearing by the Senate Permanent Subcommittee on Investigations, which found that UBS bankers used encrypted computers, code words and other tactics to help wealthy U.S. clients hide assets.

Outlining steps that could trigger shock waves in the offshore banking industry, Branson said UBS had "decided to exit entirely the business in question."

UBS will now only provide offshore banking services to U.S. clients "through companies licensed in the United States," a change that in theory would make it easier for the IRS to examine the transactions. The bank said it would ask clients in the U.S. to transfer to one of its three U.S.-regulated units.

Branson added that Swiss-based UBS wealth management specialists "will not be permitted to travel to the United States for the purpose of meeting with U.S. clients." The change addressed evidence the bankers used encrypted computers and codes to avoid reporting requirements during client trips to the U.S.

Also, Branson said UBS is working with the U.S. Department of Justice, IRS and Securities and Exchange Commission "to identify the names of U.S. clients who may have engaged in tax fraud."

Although Swiss banks have long been renowned for client secrecy, Branson said, "such privacy protections do not apply" in cases of alleged tax fraud.

U.S. investigators recently served UBS with a court summons for the information, bank spokeswoman Karina Byrne said. Senate evidence showed about 19,000 U.S. clients hold billions of dollars in assets in UBS accounts not reported to the IRS. Byrne said it was unclear how many of those clients might be targets.

Subcommittee Chairman Carl Levin, D-Mich., hailed the UBS changes, saying, "We can't reach all the banks. We obviously have reached yours. That represents progress."

The UBS announcement highlighted a hearing at which the Senate panel outlined investigation results that showed practices by UBS and LGT, the chief bank in the tiny European principality of Liechtenstein, "can facilitate and have resulted in tax evasion by U.S. clients."

The hearing included a videotaped interview with Heinrich Kieber, a former LGT employee, who has provided tax authorities in the U.S. and other countries with evidence that LGT bankers helped clients use shell companies and fake transactions that made it very difficult for tax investigators "to follow the trail."

The hearing also featured cases of LGT clients from the U.S. who used secret offshore accounts. Two came under subpoena but declined to testify.

Liechtenstein's government said it has started an investigation of the Senate findings. Prime Minister Otmar Hasler said in a statement the principality wants to avoid any perception it helps "circumvent" clients' tax obligations.