UBS Is Closing Down Accounts; U.S. Clients at Risk of Exposure

Swiss banking giant UBS, under investigation by the U.S. government for allegedly helping Americans hide money from the Internal Revenue Service, is closing thousands of accounts, putting clients at greater risk of being exposed, tax lawyers say.

UBS clients have been receiving calls and letters telling them that their Swiss accounts will soon be liquidated. Those who have concealed funds from the IRS have two basic choices: They can take new and potentially difficult steps to hide the money, heightening their risk of being caught and punished severely, or they can come clean, lawyers say.

The backdrop for UBS’s action is that the U.S. government has been pressing UBS and the Swiss government to disclose the names of thousands of Americans with undeclared accounts, while the Swiss have vowed to uphold Swiss legal protections for bank clients.

However, as a practical matter, whether or not the Swiss formally give up the names, UBS’s decision to close the accounts undermines Switzerland’s legendary code of bank secrecy, lawyers said.

“I think the bank’s actions here are likely to compel clients to come out into the open,” said Scott D. Michel, an attorney with the law firm Caplin & Drysdale. “It is a step in the direction of the erosion of bank secrecy,” he said.

UBS’s action forces affected clients “to play some hand,” and “therein lies the great trap,” said lawyer William M. Sharp Sr. of Sharp & Associates.

UBS, which is Switzerland’s largest bank, hinted at the possible consequences in a recent letter to an American depositor.

“[W]e are unfortunately not longer able to provide you with our banking services and are herewith providing you notice to terminate your current banking relationship . . . 45 days from the date of this letter,” read one piece of correspondence from UBS in Zurich to an overseas representative of the client.

“Depending on your individual circumstances, UBS further recommends that you consult with your U.S. tax advisor or tax preparer to file, if necessary, amended U.S. tax returns pursuant to the IRS’s Voluntary Disclosure Program,” UBS wrote.

The letter was read to The Washington Post by a person who spoke on condition of anonymity because of the sensitive nature of the matter.

The letter said that if UBS didn’t receive instructions from the client, it could liquidate the client’s assets and either send a check for the balance or hold a check for the client to claim.

Other UBS clients haven’t been as lucky. They have received phone calls from UBS informing them that if they want their money they must pick up their checks at UBS in Switzerland, a lawyer for the clients said, speaking on condition of anonymity to discuss sensitive matters.

Retrieving the checks from Switzerland could entail such pitfalls as going through customs, the lawyer said. In insisting that clients go to such lengths, UBS might be trying to avoid mail or wire fraud, the lawyer said.

UBS spokesman Mark Arena declined to comment on such details.

Arena said UBS is closing all Swiss-based accounts owned by private clients domiciled in the United States. A Senate report earlier this year estimated there were about 20,000 of those with about $18 billion on deposit.

If the clients want to stay with UBS, they must move their money to one of the bank’s units that is regulated by the United States and transparent to the IRS, Arena said.

“Clearly, if the depositors have to move their money, no matter what they do with it they’re going to leave tracks, and tracks are not consistent with bank secrecy,” said lawyer Edward M. Robbins Jr. of the firm Hochman, Salkin, Rettig, Toscher & Perez. “If you were to park it in another secret account . . . that would not look good in a criminal tax prosecution,” Robbins said. “On the other hand, if you bring all the money back to the U.S., you’ll set off all sorts of bells and alarms in the banking system,” Robbins said.

UBS has been under pressure from the U.S. government since June, when a former UBS banker named Bradley Birkenfeld pleaded guilty to helping an American real estate developer hide $200 million of assets and evade $7.2 million of taxes. Birkenfeld has been cooperating with U.S authorities in a widening investigation that led to the federal indictment of one of UBS’s top executives.

The indictment by a grand jury in Florida, which was unsealed this week, accused executive Raoul Weil of conspiring with a host of others at the bank to market Swiss bank secrecy to American clients and help them dodge taxes. A lawyer for Weil denied the charges and said he would seek vindication. Meanwhile, UBS has given U.S. authorities the names of about 70 clients who wired money from UBS accounts in the United States to UBS accounts in Switzerland.

UBS announced in July that it was getting out of the business of offering Swiss accounts to American clients.

Some clients feel hung out to dry. “They’re not happy,” said lawyer Bryan C. Skarlatos of the firm Kostelanetz & Fink. “They feel like UBS is taking steps to protect itself.”

U.S. lawyers say they have generally been advising clients with tax violations to consider seeking leniency through voluntary disclosures to the IRS. For clients who used secret accounts to hide the proceeds of crimes, however, solving the problem won’t be that simple, lawyers said.

By David S. Hilzenrath
Washington Post Staff Writer
Saturday, November 15, 2008; D01

Source: The Washington Post