Banking giant UBS has agreed to pay US$780 million and turn over once-secret Swiss banking records to settle allegations it conspired to defraud the US government of taxes owed by thousands of American clients.
As part of the deal struck in a federal court in Fort Lauderdale, Florida, UBS has made the unprecedented step of agreeing to turn over to the US government immediately account information for US customers of the bank’s cross-border business.
In doing so, US authorities have struck a big crack in Switzerland’s vaunted bank secrecy laws.
UBS will pay US$780 million in fines, penalties, interest and restitution for conspiring to create sham accounts to hide from the US government the assets of US clients.
The financial hit on UBS is more than double a penalty imposed by federal authorities just last month against Lloyds TSB Bank PLC, for helping its clients skirt US sanctions against Sudan, Iran and Libya.
“We accept full responsibility for these improper activities,” Peter Kurer, chairman of Swiss-based UBS AG, said in a statement.
He said the bank was determined to abide by the terms of the deal with US criminal and securities officials.
“Client confidentiality, to which UBS remains committed, was never designed to protect fraudulent acts or the identity of those clients, who, with the active assistance of bank personnel, misused the confidentiality protections,” Kurer said on Wednesday.
Approximately 17,000 American clients concealed their UBS accounts from the Internal Revenue Service (IRS), hiding assets of roughly US$20 billion in total, US officials said.
US officials said that when the 2000 acquisition of a US company brought UBS a host of new American clients, the bank set about to evade new reporting requirements for those clients. To do so, UBS executives helped US taxpayers open new accounts in the names of sham entities.
Prosecutors contend that UBS executives used encrypted software and other countersurveillance techniques to prevent anyone from detecting that they were actively marketing such Swiss bank secrecy, and tax evasion, to American taxpayers. The clients, in turn, filed false tax returns that omitted the income they earned in their Swiss accounts, the court papers show.
US officials said they had pulled aside a veil of secrecy that hid a corrupt international banking practice.
“This was not a mere compliance oversight, but rather a knowing crime motivated by greed and disrespect for the law,” said Alexander Acosta, US attorney for southern Florida.
IRS Commissioner Doug Shulman warned US taxpayers hiding money overseas that it was time to come clean with the agency.
“People who have hidden unreported income offshore need to get right with their government. They should come forward and take advantage of our voluntary disclosure process,” Shulman said.
Democratic Senator Carl Levin has estimated that abusive tax shelters and hidden offshore accounts cost the US government nearly US$100 billion a year in lost tax revenue.