Justice Dept. Takes Aim at UBS, Again

Feb. 19, 2009— -- One day after agreeing to pay $780 million in fines for tax evasion, Swiss banking giant UBS AG again finds itself in the Justice Department's crosshairs, facing a related lawsuit seeking the names and identities of up to 52,000 clients who allegedly sheltered money in the bank's overseas accounts.

Government prosecutors have asked that a federal court enforce an IRS summons seeking the clients' names and identities.

UBS agreed Wednesday to pay fines and enter into a deferred prosecution agreement with the Justice Department, agreeing to identify U.S. customers who engaged in tax fraud.

Under the arrangement, UBS agreed to provide only the names of individuals who have been proven to have engaged in tax fraud. Now, however, the Justice Department is seeking to enforce its earlier request for the full universe of names of U.S. clients who have accounts with UBS in Switzerland.

The suit, filed today in Miami, concerns a treaty dispute between the United States and Switzerland over access to Swiss bank records. The disagreement stems from a June 2008 request by the IRS and Justice Department to serve an IRS "John Doe" subpoena to obtain records from UBS seeking information about all its U.S. clients.

According to documents filed by a senior IRS official, "The United States has learned that UBS maintained as many as 52,000 undeclared accounts for U.S. taxpayers, all of which are subject to the summons. Based on the best information presently available to me, it appears that the Treaty Request may only result in the production of records for, at most, about 300 of those 52,000 accounts."

The declaration by IRS Deputy Commissioner Barry Shott also disclosed that after talks between U.S. officials and the Swiss government, "The Swiss Government had made the final determination to provide the requested records for only twelve accounts."

According to the IRS, the 12 U.S. account holders have also filed lawsuits in Switzerland to prevent the government from releasing their names.

"The Swiss Government has not provided any records sought under the Treaty Request, and it is not clear when, if ever, it will," according to the IRS filing.

UBS Contests the Enforcement

In a statement today, UBS said it "believes it has substantial defenses to the enforcement of the John Doe summons and intends to vigorously contest the enforcement of the summons in the civil proceeding, as is permitted under the terms of the Deferred Prosecution Agreement entered into on 18 February.

"The IRS's John Doe summons seeks information regarding a substantial number of undisclosed accounts maintained by U.S. persons at UBS in Switzerland, whose information is protected from disclosure by Swiss financial privacy laws."

According to the Justice Department's suit against UBS in July 2008, IRS revenue agents served UBS' director and head of compliance with the summons and asked that the bank provide the requested documents in August 2008.

"UBS failed to appear on August 8, 2008," the suit noted. "To date, UBS has failed to comply in full with the summons."