The IRS is making serious noise about its attempts to combat offshore tax evasion. What could be a better pulpit than its high profile UBS matter?
Just a short while after details on the UBS settlement were released, the IRS announced the indictments of a former UBS bank executive and a Swiss attorney. Hansruedi Schumacher, an exec at UBS, and Matthias Rickenbach, a Zurich lawyer with Rickenbach & Partner, were charged on Thursday with orchestrating tax evasion schemes targeted to wealthy Americans.
The indictments are largely ceremonial for the time being since both men remain in Switzerland – good for them since the Swiss will not extradite them to the US. However, if Schumacher or Rickenbach travel to a less extradition-resistant country, they could be taken into custody. Another UBS exec, Raoul Weil, who remains in Switzerland is already considered a fugitive by the Justice Department.
Expect more drama as the September 23 deadline for voluntary compliance nears…
Raoul Weil, the UBS bank chair and CEO of global wealth management, has been indicted on charges relating to tax evasion. He is accused of helping US taxpayers hide nearly $20 billion (yes, with a b) in assets from the IRS. After the indictment was made public, Weil, not surprisingly, agreed to step down from his position at the bank.
In his capacity at UBS, Weil had worked with 20,000 U.S. clients. Weil and his management team allegedly referred to the UBS cross-border business as “toxic waste” because they knew that it is not in compliance with US law. The bank has since ceased operations in the $200 million cross-border business.
That feels like an admission that something was wrong.
But does that mean anything will actually happen to Weil? Perhaps not.
The charges that Weil faces are punishable in prison. However, Weil, a Swiss citizen, would have to be extradited to the US to face the charges. Switzerland does not extradite its citizens to the United States and Weil is not likely to voluntarily submit to trial in the US. Throughout the investigation, Weil has maintained his innocence.
Weil is accused of promising clients that their names would not be revealed to the IRS despite the fact that foreign banks have agreed to disclose lists of their American clients. A January 2003 letter to US clients from UBS claims that the bank had been avoiding disclosure since 1939 and would not bow to pressure from the US. The IRS, however, is betting on public pressure to end the practice of overseas banking in order to hide assets. A spokesman has said,
Every American who pays his or her taxes should be offended that a select few use anonymous offshore accounts to avoid paying their fair share.
Even more damaging is that the US has been successful in identifying those hoping to conceal assets. The feds claim that they now know the identities of 17,000 – about 85% – of US account holders at UBS.
Much of the allegations has been confirmed by Bradley Birkenfield, another former UBS chair, who is now cooperating with authorities. Birkenfeld has acknowledged advising clients how to conceal their UBS bank accounts.
UBS has indicated that it will work with the US authorities during the investigation. They’d better. There are rumors that the feds may name the bank directly in an additional indictment if top executives like Weil do not cooperate. This could mean more bad news for bank, which is already suffering as a result of the subprime crisis. Bad decisions all around.
