- The Washington Times - Thursday, September 24, 2009


UBS AG’s $780 million settlement with U.S. authorities to avoid prosecution for helping Americans cheat on their taxes has opened a Pandora’s box for banks worldwide.

A U.S. tax program is encouraging UBS clients to avoid criminal inquiries by declaring offshore accounts before Oct. 15, and that’s prompting a flood of disclosures by customers of Zurich-based Credit Suisse Group and Julius Baer, LGT Group in Liechtenstein, HSBC in London and Bank Leumi in Israel, tax attorneys said.

That may give the Internal Revenue Service ammunition to target other overseas wealth managers as it seeks to crack down on tax evasion. UBS, the largest Swiss bank, avoided prosecution in February when it admitted helping Americans dodge taxes, paid a $780 million penalty and disclosed secret data on 250 clients. In August, UBS agreed to reveal another 4,450 clients to settle a U.S. lawsuit seeking more data.

“It is very possible that the IRS will be able to get strangleholds over the other banks because they’ll have specific information which will permit them to bring specific allegations of wrongdoing before the U.S. courts,” said Robert Fink, an attorney at Kostelanetz & Fink in New York. “This thing may spread like wildfire.”

The disclosure program and the U.S. lawsuit settled by UBS are helping the U.S. squelch offshore tax evasion by pursuing financial institutions and intermediaries including law firms, IRS Commissioner Doug Shulman said last month.

Mr. Fink, whose firm handled more than 250 disclosures, said his clients told the IRS about accounts at a dozen Swiss banks, as well as banks in Germany, Britain, Italy, Belgium, Singapore and Hong Kong. Lawrence Horn, an attorney at Sills Cummis & Gross in Newark, N.J., said his clients declared accounts at Bank Hapoalim Ltd. in Israel, as well as banks in the Bahamas, Granada and the Cayman Islands.

After UBS customers, account holders at Credit Suisse are the largest group of people coming forward to the IRS, said Mr. Fink and Scott Michel, a lawyer at Caplin & Drysdale in Washington.

“We strongly believe we have the right compliance standards in place and adhere to all applicable laws,” said David Walker, a Credit Suisse spokesman.

“Clients coming forward to disclose their taxes does not imply any wrongdoing by the bank,” Julius Baer said. “The bank always acts in line with stipulated legal regulations.”

Thousands of Americans must decide by Oct. 15 whether to disclose accounts to the IRS and possibly face back taxes, fines and penalties, or keep their assets undeclared and risk criminal prosecution.

“The question is whether the U.S. government is going to make the same effort to get the names of account holders at Credit Suisse, Julius Baer and LGT that it did at UBS, and if not, why not?” Mr. Horn said.

Taxpayers making voluntary disclosures and third parties are “providing us with useful information” every day, said Frank Keith, an IRS spokesman.

“This includes how undisclosed offshore accounts came to be set up and the identities of those who assisted in these efforts to circumvent U.S. tax laws,” he said.

Taxpayers must reveal names of bankers, financial advisers and others who helped hide assets from the IRS, Mr. Michel said. He said he expects the IRS to create a database to find patterns.

Coming forward voluntarily usually allows a taxpayer to avoid criminal charges, although all applications for leniency will be screened by criminal investigators, the IRS said in March.

“I have a pretty clear idea that they’ll set their sights on the next level of Swiss banks,” said attorney Robert McKenzie of Arnstein & Lehr in Chicago, which represents 65 clients making disclosures.

Switzerland, which manages an estimated 27 percent of the world’s privately held offshore wealth, agreed in March to cooperate with foreign authorities on tax-evasion probes to avoid being blacklisted as a tax haven by the Organization for Economic Cooperation and Development.

The IRS deadline has set off a rush of disclosures. More than 3,000 people have made disclosures since the IRS announced the partial amnesty program in March, according to a government official familiar with the program. Fewer than 90 people made disclosures in all of 2008, the official said.

“I feel like I work in a bakery where I ask people to take numbers,” Mr. Fink said. “I have never seen such a deluge. I was thinking of getting folding chairs in our reception area.”

Lawyers are urging clients with undeclared accounts to come forward before the Oct. 15 deadline, which the IRS extended from an initial deadline of Sept. 23 to allow accountants and tax lawyers more time to handle an influx of cases.

“You’ve got to be crazy not to come forward,” said lawyer Charles Falk, who practices in Mendham, N.J. “If you are found out, they’re going to prosecute you and take all your money and make your life miserable. For your own sanity, you’d be well advised to come forward.”

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