UBS Agrees to Pay $780 Million & Identify Customers in IRS Tax Fraud Case

Off-shore tax evasion and international tax avoidance schemes are priorities of the IRS and the IRS Whistleblower program, which rewards tax whistleblowers. Our whistleblower lawyer blog has followed the ongoing investigation of UBS for its activities, which took a major turn today.

Today, the government announced that UBS AG, Switzerland’s largest bank, has admitted to helping U.S. taxpayers hide accounts from the IRS. UBS has agreed to identify its customers and to pay $780 million, as part of a “deferred prosecution agreement” on charges of conspiring to defraud the United States by impeding the IRS.

Based on an order by the Swiss Financial Markets Supervisory Authority (FINMA), UBS agreed “to immediately provide the United States government with the identities of, and account information for, certain United States customers of UBS’s cross-border business.” UBS also agreed to stop providing banking services to U.S. clients with undeclared accounts.

In 2000, after UBS purchased the brokerage firm Paine Webber, UBS entered into an agreement with the IRS to report income and other identifying information for its U.S. clients who held United States securities in a UBS account, according to the government. The government alleged that UBS was required to withhold income taxes from U.S. clients.

To evade those new reporting requirements, the government alleged that employees and managers within the cross-border business, with the knowledge of certain UBS executives, helped U.S. taxpayers open new UBS accounts in the names of nominees and/or sham entities. Assets of the individual’s accounts were then moved to the new accounts, and the U.S. taxpayer would not be identified as a beneficiary, according to the government.

UBS managers and employees also reportedly used encrypted laptops and other counter-surveillance techniques to help prevent the detection of their marketing efforts and the identities and offshore assets of their U.S. clients. Clients of the cross-border business allegedly filed false tax returns omitting the income earned on their Swiss bank accounts, and failed to disclose the existence of those accounts to the IRS.

The government has been active in this investigation. Last November, UBS executive Raoul Weil was charged with conspiring to defraud the United States for his alleged role in overseeing the cross-border business. He was recently declared a fugitive.

In June 2008, former UBS private banker Bradley Birkenfeld pleaded guilty to conspiring to defraud the United States for similar conduct. Birkenfeld is to be sentenced on May 1, 2009.

Also, in June 2008, the IRS was authorized to serve a “John Doe” summons on UBS for records identifying U.S. taxpayers with Swiss accounts at UBS who are concealing their accounts from the IRS.

We commend the Tax Division attorneys and IRS special agents who worked this case.

As our IRS Whistleblower clients believe, there is no justification for honest taxpayers to “look the other way” and allow dishonest persons to avoid paying their fair share of the country’s tax burden–because the honest citizens only end up paying more.