We covered the whistleblower Heinrich Kieber, 42, who stole confidential information on tax evaders from the Liechtenstein bank LGT Trust Ltd. which is owned by the Leichtenstein Royal Family - Monday, March 03, 2008 Whistleblower sells Leichtenstein tax dodging details of the German and US business elites to the Bundesnachrichtendienst and Uncle Sam
Faced with a federal investigation into its private banking practices, the Swiss banking giant UBS said on Thursday that it would stop offering offshore banking services to clients in the United States.
Mark Branson, CFO of the UBS global wealth management group, told a US Senate subcommittee that the company apologised (doesn't everyone these days ?) would provide banking or securities services to United States residents only through companies licensed in the UK. he said they would help the Federal Government identify American citizens engaging in tax fraud.
The Senate permanent subcommittee on investigations released a report on Wednesday saying that UBS’s offshore practices helped American citizens hide an estimated $18 billion in 19,000 accounts from the Internal Revenue Service.
Clients in the United States will still be able to access UBS’s services through wealth management units that are regulated by the Securities and Exchange Commission. Swiss based advisers will not be allowed to come to the United States to meet with American clients - they probably will be jailed if they do!
The committee also heard anonymised taped testimony from Heinrich Kieber blowing the whistle who is on a witness protection program - see pic.
The subcommittee’s report said that both LGT and UBS helped Americans avoid taxes by setting up convoluted foreign-owned offshore accounts whose assets did not have to be reported to the I.R.S. That practice by LGT, UBS and other offshore companies costs the Treasury Department US$100 billion annually in lost taxes. Which is a lot of unpaid tax.
The report (which is truly eye opening and reads like a novel) commences ...
"Each year, the United States loses an estimated $100 billion in tax revenues due tooffshore tax abuses. Offshore tax havens today hold trillions of dollars in assets provided by citizens of other countries, including the United States. The extent to which those assets represent funds hidden from tax authorities by taxpayers from the United States and other countries outside of the tax havens is of critical importance"
Both LGT and UBS have what are known as qualified intermediary agreements with the I.R.S., which were established in 2001 to allow the revenue service to collect taxes with the help of foreign banks.
Such agreements have never mandated reporting accounts held by non-American citizens or companies, a loophole that Senator Norm Coleman, Republican of Minnesota and the ranking subcommittee member, said that LGT and UBS had expertly exploited.
But Mr. Levin and Mr. Coleman indicated that they would most likely seek legislative solutions.
The first major tax investigations have focused on Bradley C. Birkenfeld, an American and a former top UBS executive, who pleaded guilty in June to a single fraud charge of helping an American citizen conceal $200 million in assets from the I.R.S. he resigned from Union Chartyer and faces 5 years jail. He has now (June 20th) agreed to cooperate with prosecutors in their investigation of UBS practices, which may reveal the names of scores of wealthy American clients.
In a seven-page statement to the court, Mr. Birkenfeld, a 43-year-old American, said UBS bankers used a variety of ruses to court American clients and help them dodge taxes.
The document reads like a how-to of high-end tax evasion.UBS advised bankers traveling to the United States to tell airport customs officials that the visit was for pleasure, not business, Mr. Birkenfeld said. The bank urged clients to destroy banking records to conceal their offshore accounts.Some American clients were told to stash watches, jewelry and artwork that they had bought with money hidden offshore in safe deposit boxes in Switzerland.
UBS also encouraged them to use Swiss credit cards so the Internal Revenue Service could not track their purchases, Mr. Birkenfeld said.The list went on.
Mr. Birkenfeld said that at times he served as a personal courier for his clients, spiriting checks out of the United States and depositing them in accounts in Denmark, Switzerland and Liechtenstein, away from the prying eyes of the I.R.S. At one point, he wrote, he even smuggled diamonds for a customer in a tube of toothpaste.Mr. Birkenfeld was a Geneva-based director of wealthy American clients with undeclared offshore accounts with UBS from 2002 to 2006.
Over all, that business oversaw $20 billion in assets and brought in revenue of $200 million a year, according to court papers.
He told Judge William J. Zloch that he knew he was breaking the law but did so because of the “incentives” UBS offered him, meaning large bonuses. Judge Zloch asked if he had not been troubled by his actions.“It did concern me, your honor,” Mr. Birkenfeld said.
.“Our position is that Mr. Birkenfeld was working at UBS where people knew exactly what was going on,” Mr Birkenfelds's lawyer Mr. Onorato said after the hearing. “He’s going to tell the government everything he knows. He is going to cooperate with the government fully,” he said, adding that Mr. Birkenfeld “had numerous U.S. clients.”Mr. Birkenfeld’s statement said he had provided evidence that “managers and bankers at the firm, including Birkenfeld,” assisted American clients in concealing their ownership of assets held offshore. His boss was Martin Liechti.
Agence France Press report that the US Department of Justice said Birkenfeld pleaded guilty to conspiring with co-defendant Mario Staggl to hide about $US200m (₤101m), attracting US$US7.2m in US taxes, through an elaborate system of fraud.
In May, Federal authorities detained Martin Liechti, a Swiss citizen and senior UBS official, in Miami in connection with the investigation. Mr. Liechti appeared before the subcommittee Thursday, but declined to testify, citing his Fifth Amendment rights.
LGT have not testified before the subcommittee. A senior official from the company did meet with subcommittee staff members last Friday.
This week, the company sent a letter to the subcommittee refusing to testify, saying it had complied with its qualified intermediary agreement. The letter also said that company representatives would be severely limited in what they could say because of the principality’s strict disclosure laws.
Mr. Kieber, now in a witness protection program, is accused of breaking those laws.
Anonymised with a pixelated video deposition , Mr. Kieber told the subcommittee that LGT had used sophisticated methods to avoid detection by American tax authorities. LGT customers were advised to use only public phones to contact the bank, and the company mailed correspondence from nearby Austria or Switzerland, he said.
Michael Robinson, a spokesman for LGT, said in an e-mail statement to a reporter that the documents Mr. Kieber supplied dated “back to a time when the regulatory environment was completely different.”
Shannon Marsh of Fort Lauderdale, Fla., (the subcommittee report, states that Mr. Marsh hid millions of dollars in 4 foundations in Liechtenstein, )and William Wu of Forest Hills in Queens - who orchestrated a fake sale of his house to his own offshore company.
Steven Greenfield of New York refused to appear after being subpoenaed. Peter S. Lowy of Beverly Hills, Calif., will testify before the committee next Friday.
Lawyers advising clients who are afraid their off-shore accounts will be discovered can't offer much comfort. Their clients have only a few alternatives:
• Make a voluntary disclosure to the IRS, pay the tax, interest and penalties and plead for mercy (note that this approach is not viable for people with "illegal source" income, such as money from securities fraud, drugs, robbery, money laundering ;
• Quietly file amended tax returns, pay the tax, interest and penalties and hope overworked government prosecutors won't follow up; Ho.Ho.Ho.
• Do nothing and hope their names won't turn up — a very poor strategy as the odds of being discovered are high and they could be hit with stiff penalties and criminal sanctions.
• Leave the US for good.
If you have an offshore account with unreported income, you should definitely be worried.
Pack your Louis Vuitton, jump on the jet and vamoos....