By Elena Logutenkova
Aug. 19 (Bloomberg) — UBS AG, Switzerland’s largest bank, may give information on 4,450 accounts as part of an agreement between the Swiss and U.S. governments to settle a lawsuit that sought data on American clients suspected of evading taxes.
Switzerland pledged to process a new administrative assistance request from the U.S. seeking details of those accounts within a year, the Swiss government said in a statement today. UBS fell as much as 3.2 percent in Swiss trading.
The settlement resolves a six-month legal tussle that put unprecedented pressure on the bulwark of Swiss banking secrecy. Under the agreement, UBS agreed to give the necessary account data to the Swiss authorities dealing with the U.S. request.
UBS, the world’s second-biggest manager of money for the rich, admitted in February to participating “in a scheme to defraud the U.S.” and agreed to pay $780 million and disclose the names of more than 250 clients who allegedly hid assets from the Internal Revenue Service. A day later, the IRS sued the Zurich-based bank for information on as many as 52,000 clients.
Switzerland argued that any further disclosure would require the bank to violate the Swiss banking confidentiality law. The Swiss also threatened to seize the data sought by the IRS if U.S. District Judge Alan Gold ordered disclosures violating Swiss privacy law.
“We short-circuited a protracted summons and litigation process by culling the accounts to the 4,450 that were of the greatest interest to us,” IRS Commissioner Douglas Shulman said in a statement.
‘Tip of Iceberg’
Since February, four UBS clients have agreed to plead guilty to failing to report their offshore bank accounts. Thousands of clients avoided prosecution by voluntarily disclosing their accounts to the IRS under a program that ends Sept. 23, tax lawyers said.
“UBS is the tip of the iceberg,” Asher Rubinstein, a partner at law firm Rubinstein & Rubinstein, said in a Bloomberg TV interview before the final settlement was announced. “UBS was easy for the IRS to go after because the facts were just so egregiously against UBS. The writing is on the wall and you won’t be able to hide money from the IRS for much longer.”
UBS, the European bank with the biggest writedowns and losses from the global credit crisis, suffered client withdrawals of 156.3 billion francs from its wealth management units since March 2008. Chief Executive Officer Oswald Gruebel said on Aug. 4 that a reversal in outflows will probably lag behind a financial improvement at the bank.
Government Stake
Gruebel has cut 7,500 jobs, sold a Brazilian unit, replaced three executive board members and raised 3.8 billion francs in capital from investors since joining UBS in February to help restore the bank’s profitability and reputation. His predecessor Marcel Rohner, who once headed wealth management at UBS, reported a 21.3 billion-franc net loss for 2008, the biggest ever in Swiss corporate history, and relied on help from the Swiss government to keep the bank afloat.
The Swiss government, which invested 6 billion francs in UBS mandatory convertible notes to help the bank split off toxic assets, may dispose of its holding in the days following the settlement of the U.S. lawsuit, two people familiar with the matter said earlier this week.
UBS lost its ranking as the world’s biggest manager of money for the wealthy after Bank of America Corp. bought Merrill Lynch & Co., Scorpio Partnership said in July. At the end of June, UBS oversaw 961 billion francs at its wealth management and Swiss bank unit, and 695 billion francs at the Americas division, which includes the former Paine Webber Inc., the company reported.
Diamonds in Toothpaste
A former UBS banker, Bradley Birkenfeld, pleaded guilty to helping wealthy Americans evade taxes and has cooperated with prosecutors. He is scheduled to be sentenced on Aug. 21 in federal court in Fort Lauderdale, Florida.
Birkenfeld was a banker for California billionaire Igor Olenicoff, who pleaded guilty in December 2007 to filing a false tax return that failed to declare accounts at UBS, where he once had $200 million in assets. Olenicoff got two years probation and paid $52 million in back taxes, interest and penalties.
In April 2008, Birkenfeld was indicted with Liechtenstein investment adviser Mario Staggl for allegedly helping Olenicoff and others evade taxes. Staggl is a fugitive. At his guilty plea, Birkenfeld said UBS earned $200 million a year by managing $20 billion in assets and setting up sham entities for clients in tax havens like Panama and the British Virgin Islands.
Birkenfeld said as many as 60 UBS private bankers had trolled for clients at UBS-sponsored art shows, yachting regattas and golf and tennis tournaments. He said he toted customer checks to deposit in European banks and bought diamonds for one client, smuggling them to the U.S. in a toothpaste tube.
Another UBS banker, Raoul Weil, was indicted and declared a fugitive, and a third who ran the now-shuttered cross-border business, Martin Liechti, was held by the U.S. as a material witness for several months last year.
The case is U.S. v. UBS AG, 09-cv-20423, U.S. District Court, Southern District of Florida (Miami)
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