Judge: Feds Can Access Americans' Swiss Accounts

July 1, 2008— -- A federal judge in Miami has approved a request from the Justice Department and the IRS seeking access to information about American holders of secret Swiss bank accounts.

The accounts at UBS AG hold an estimated $20 billion that has allegedly been hidden to avoid paying U.S. taxes.

"The order clears the way for the IRS to take the next steps against wealthy individuals who don't pay their taxes," IRS commissioner Doug Shulman said in a statement. "People should take notice that the secrecy surrounding these accounts is rapidly fading."

The joint Justice Department-IRS request, filed Monday at the federal court in Miami, sought 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 judge's order allows federal investigators to obtain U.S. taxpayer bank data from Dec. 2002 through Dec. 31, 2007, but Shulman indicated that this latest step in the investigation might only be the beginning.

"The John Doe effort may help determine future actions in other areas," his statement added. "We will be taking additional steps to ferret out offshore tax avoidance beyond today's announcement involving UBS."

UBS spokesman Kris Kagel said Tuesday that the bank is aware of the judge's order and that the bank is cooperating with federal investigators.

"UBS looks forward to working with the IRS to address the summons. As we have noted, 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," his statement said.

The federal government's request came just 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 [in creating] 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."

During a June 19, 2008, hearing, 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.

According to court documents filed by the Justice Department Monday, "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 U.S. 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 through an offshore account. Since the account was listed as a foreign entity, UBS did not report the transfer of funds to the IRS.