UBS Account Criteria Release May Unveil Model for IRS Crusade

UBS Account Criteria Release May Unveil Model for IRS Crusade

Nov. 16 (Bloomberg) -- Switzerland will release the criteria used to turn over details of an estimated 4,450 UBS AG accounts to the Internal Revenue Service tomorrow, revealing the U.S. model for chasing tax evaders in other banks and jurisdictions.

There may be as many as a dozen criteria, said William Sharp, a lawyer at Sharp & Associates in Tampa, Florida, based on the profiles of clients who were notified their account details may be turned over. They probably include accounts with more than 1 million Swiss francs ($988,000) and those set up through structures such as foreign trusts or foundations, he said.

“It’s already the template on which the IRS is pursuing banks in other countries,” Sharp said. “It will serve as a big wake up call for any taxpayer found in one of those disjunctive positions.”

Switzerland agreed in August to pass on data on some UBS accounts to the U.S. to settle a lawsuit related to suspected tax evasion. Swiss authorities withheld details of how the accounts were selected for 90 days so the information didn’t interfere with the IRS’s voluntary disclosure program. The Justice Ministry has scheduled a news conference at 11:15 a.m. tomorrow in Bern to discuss the UBS settlement.

“The current administration has made it clear that offshore and undisclosed accounts are high on the agenda,” said Greg Dean, a lawyer at U.S. Tax and Financial Service Ltd. in Geneva. “Pressure will continue on Switzerland and other jurisdictions as well.”

‘Hold Mail’

Red flags at UBS may have included accounts opened with non- U.S. passports, customers who were visited in the U.S. by UBS bankers, and accounts annotated “hold mail,” indicating clients who didn’t want to receive possibly incriminating correspondence, according to interviews with lawyers whose clients were notified that their account details may be turned over to the IRS.

Switzerland and the U.S. probably used a point system under which the most important criteria, such as a having $50 million in an account, were enough to trigger disclosure by themselves while it required several less important measures to do so, the lawyers said.

“There’s an element of pure numbers and then analysis of the kind of action and elaborate structures used to avoid paying tax,” Dean said.

Dominique Scheiwiller, a spokeswoman at UBS in Zurich, declined to comment, referring questions to the Swiss government.

Switzerland agreed to turn over the details of accounts related to “tax fraud and the like,” according to the Aug. 19 UBS settlement. UBS will give account information to a Swiss government task force, which will decide what it can relay to the IRS without violating Swiss law. The entire process is expected to take about a year.

Voluntary Disclosure

Under the IRS’s voluntary disclosure program, taxpayers must pay any tax owed, plus interest and a 20 percent penalty on the highest balance during the preceding six years. In return, they avoid possible criminal prosecution that could result in as much as 10 years in prison and $500,000 in penalties.

About 7,500 Americans with undeclared assets overseas disclosed those holdings to the IRS by the Oct. 15 deadline, according to the U.S. Justice Department.

The IRS may hope the publication of the Swiss criteria will persuade more people to disclose their accounts as the U.S. is joined in its search for undeclared money by authorities in the U.K., France and Italy, said Stephanie Jarrett, a partner at Baker & McKenzie in Geneva.

“There are quite a lot of governments out there on the prowl,” Jarrett said. “The U.S. and other countries are looking to fill their coffers, and they will try to find money wherever they can.”

‘Number of Ostriches’

The revenue services of the U.K., Australia and other countries have asked for information on UBS’s cross-border wealth management businesses, the bank said in its third-quarter earnings report on Nov. 3. Zurich-based UBS said it’s cooperating with these requests “within the limits of financial privacy obligations under Swiss law.”

The U.S. sued UBS on Feb. 19 to force disclosure of additional client details. That came a day after the bank agreed to provide the names of 250 account holders and pay $780 million to avoid prosecution for helping wealthy Americans evade taxes.

Since the February settlement, prosecutors have won guilty pleas from six UBS clients who described a web of bankers, lawyers and advisers who helped conceal income and assets. All six hid money in shell companies outside Switzerland.

As the IRS analyzes information from voluntary disclosures and opens new offices from Beijing to Panama City, banks will pour over the UBS criteria tomorrow, the lawyers said.

“Some Swiss banks have woken up, but there are still a number of ostriches around and they may not be there in five years,” she said. “Things are going to move very quickly, and UBS may emerge stronger because it has been forced to adjust so rapidly to the new regime.”

bloomberg