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Home Developments with the UBS Tax Evasion Probe

As we are learning, not all clients of Swiss banks are uber-wealthy billionaires. In the recent UBS tax evasion story, middle class Americans have surfaced as having secret bank accounts in UBS. As the Feds unravel the tax dodgers with demands to UBS for names, social security numbers, and contacts, they are revealing a clash of civil law between banking cultures.

In Switzerland, banking secrecy has been the way for years. UBS claims they cannot disclose information to the IRS that would put its employees at serious risk of criminal prosecution under Swiss law. The saga began when a UBS banker in the U.S. was served with a John Doe Summons to reveal the names of clients who had accounts in Switzerland. The summons demanded that UBS turn over the names of Americans who had accounts in Switzerland with UBS.

The immediate response from the Swiss was to protect the rights to banking secrecy. What followed subsequently from recovered documents was that citizens of other countries may have also evaded their tax obligations. It became a slippery slope of tax dodging. The British, Germans and French soon joined and cried foul, demanding UBS reveal their nationals who may have pulled the same stunt.

The clash of banking systems can be traced to a 2001 agreement with the IRS requiring UBS and other European banks to have its U.S. customers identify their accounts and beneficiaries. The banks did not actually volunteer to sign the agreement, they signed it to avoid a 31 percent tax on income or gross sales proceeds from U.S. securities held on behalf of clients.

We have a sort of clash of the Titans. If the IRS wins the contest over the list of names, Swiss banking will soon be Swiss cheese. Andorra, Liechtenstein and Belgium agreed to loosen banking secrecy rules in March. Gordon Brown is preparing to unveil a blacklist of harmful tax havens and has said, “The old tax havens have no place in the world.” The Swiss became more cooperative at the G20 when they were threatened to become the newest addition to the Stop Tax Haven Abuse Act and to the new black list of the G20.

But the Swiss are not going quietly. Swiss President Hans-Rudolf Merz has declared his country’s banking secrecy “remains intact.” Under Swiss financial laws, UBS has indicated that it will fight the IRS and will not disclose the 52,000 requested names, thereby, not honoring the John Doe Summons to disclose U.S. secret account holders. A July 13th hearing has been scheduled by U.S. District Court Judge Alan Gold in Miami.

In the meantime, Germany and France have announced some types of amnesty for tax evaders and it appears that U.S. citizens will have a similar opportunity if they jump on the bandwagon. If Americans who have Swiss accounts come forward, they may be able to receive criminal amnesty, if they pay the tax owed. As of this writing the current date to come forward “for UBS hidden account holders” is April 30th, 2009.

As reported by the Wall Street Journal, the Commissioner of the IRS, Douglas Shulman, stated in a DOJ report that even those with $300,000 to $500,000 in UBS are in serious trouble of criminal prosecution, “Anyone in this situation needs to immediately come in through our voluntary disclosure process before it’s too late. It’s better to come clean now instead of waiting and facing a heavier price later. Combating offshore tax evasion has been and will continue to be one of the IRS’s top priorities.”

So wow, that’s all good. Show up and confess, pay off some back taxes, and you are home free. Not so fast! I immediately put the brakes on for anyone who has money in UBS. Though it is a good idea to “come clean”, there is a sensible way to do it. First off, you have to find the expert of experts, someone with experience in International Tax Law and/or has experience representing clients to the IRS. Just a statement by an official is not enough to protect a person from criminal penalty.

Under the deferred prosecution agreement February 18, UBS agreed to pay $780 million and turnover 250 accounts, but refused to turn over the other suspected 52,000 accounts. The Justice Department offered no amnesty for UBS officials, as in the first case of executive Raoul Weil, who is under indictment in Miami and has been declared a fugitive by the Justice Department.

There is a recent indictment of an American citizen being prosecuted. Steven Michael Rubinstein, an accountant and yacht salesman in Boca Raton, Fla., was charged on April 2nd for hiding taxable income in accounts at Swiss bank UBS. According to the DOJ, Rubenstein filed a false income tax return in April 2008 and failed to disclose any UBS accounts.

It is probably too late for Mr. Rubenstein to come clean, and evidence is beginning to reveal the incredible secrecy and deceit on the part of UBS and their clients.

Between 2001 and 2008, Rubenstein used elaborate techniques to hide his UBS accounts owned by a British Virgin Islands corporation. The Feds have communications by phone, email and in person in numerous South Florida restaurants (both sources purposely out of their offices). UBS covered transactions of currency exchanges and even real estate purchased in Boca Raton. Rubinstein is also accused of depositing and selling more than $2 million worth of South African Krugerrands through his unreported UBS accounts. Rubinstein reportedly holds both South African and U.S. passports. He is being held without bond as a flight risk.

Rubenstein is number one of one hundred investigations underway by the DOJ. The scam on the part of UBS is turning out to be uncomplimentary. They used coded laptops, code language and phone cards. They even maintained a 24-hour hotline in case any clients ran into trouble with authorities. They always met clients outside the office, purposely using off the beat locations. The accounts use fake identities and clients signed a statement: “I would like to avoid disclosure of my identity to the U.S. Internal Revenue Service.”

It remains to be seen what will happen with the amnesty offer, but I do understand that representation in the event of tax evasion is a very serious decision. However, just as important is planning, tax compliant and legally compliant Asset Protection and Estate Planning, even if you practice this one asset at a time!