banking secrecy
Time Magazine, February 13, 2010
At a critical point in the intense U.S.-Swiss negotiations that took place this past summer to get the names of U.S. taxpayers who were part of a massive tax evasion program, things suddenly took a nasty turn.
The U.S. Justice Department, frustrated for decades by Swiss efforts to foil any tampering with its bank secrecy traditions, was pressing its advantage: a giant tax evasion program run by Swiss bank behemoth UBS was exposed in great detail by a company whistleblower, and Uncle Sam was demanding to know the names of all 52,000 U.S. account holders involved.
The Justice Department subpoenaed bank documents, and could have threatened to have a U.S. court slap a contempt citation and a scorching daily fine on UBS until it turned the documents over.
That's when the Swiss Government drew a bright red line: It announced that it would seize UBS documents so that the bank would not be able to hand them over to the U.S.
After intense high-level negotiations the two governments agreed that UBS would provide the names of 4,450 Americans with the largest undisclosed Swiss bank accounts. But no sooner was the ink dry on that deal than the Swiss courts ruled that no such disclosures could be made under Swiss law.
There is no clear solution to the impasse, and the first U.S. Government response, from the Internal Revenue Service, suggests that Washington is not even interested in discussing the issue. "The United States has an agreement with the Swiss government to produce information on U.S. account holders at UBS," said a terse IRS statement. "We expect the Swiss government to continue to honor the terms of the agreement."
But assertions made in a new legal filing suggest that this impasse could have been avoided if U.S. investigators had taken up an offer by the UBS whistleblower, Bradley Birkenfeld, to help roll up the entire secretive UBS operation, by providing the cell phone numbers of fellow bankers and even offering to wear a wire to gather incriminating evidence in Switzerland.
That is the assertion of lawyers representing Birkenfeld, in a complaint filed in late January to an ethics unit of the Department of Justice known as the Office of Professional Responsibility. According to Birkenfeld's attorneys, the Department of Justice "willfully/negligently failed to conduct an investigation that would have permitted the U.S. government to obtain the identities of U.S. clients who maintained illegal offshore accounts with UBS."
The offer to wear a wire is an unusual one but not without precedent. According the Wall Street Journal, former hedge fund manager David Slaine agreed to wear a wire as part of a plea agreement related to insider trading charges. He reportedly wore the wire for more than one year, acting on the instruction of the U.S. Attorney's office, and produced evidence that is now part of U.S. charges against 21 individuals, including hedge fund Galleon Group founder, Raj Rajaratnam, who has pleaded not guilty.
But Birkenfeld's offer went nowhere, according to a complaint filed by Stephen Kohn and Dean Zorbe, two experienced whistleblower lawyers who now represent Birkenfeld in a civil case to win a reward under an IRS whistleblower program begun in 2006. "That's Hollywood; you watch too many movies," he was allegedly told.
Former U.S. prosecutors say there could be many reasons for prosecutors to have passed on Birkenfeld's offer. Wearing a wire in Switzerland, for instance, would legally have required the U.S. to get permission of the Swiss authorities - an unlikely prospect - although one experienced former U.S. attorney who asked to remain anonymous noted that he and others he knew had done that in other countries without seeking permission.
"These guys are not cowboys," says a former U.S. prosecutor who worked most of his career in state field offices, where prosecutors are known to typically be more aggressive than those working at the Justice's main D.C. office. "Birkenfeld would have been better off walking in to a U.S. Attorney General field office or even a local IRS office."
The more likely reason this may have occurred, some sources said, is the same reason the DOJ balked at granting Birkenfeld immunity in exchange for his cooperation: he apparently violated the cardinal rule of not being completely truthful with investigators about his own role in the tax evasion scheme.
More specifically, Justice officials have said he was not forthcoming about his role servicing Igor Olenicoff, the Russian-born, California-based real estate billionaire whom Birkenfeld brought to UBS from Barclays, where Birkenfeld worked before - a charge his lawyers deny. (In 2008, Olenicoff pleaded guilty, paid $52 million in taxes and interest and was sentenced to two years probation and 120 hours of community service. In 2009, Birkenfeld pleaded guilty to one conspiracy count related to tax evasion and in January 2010 began serving a 40-month sentence.)
But why Justice officials did not make use of Birkenfeld's information, to tap other UBS bankers cell phones in order to identify their key U.S. clients, is more murky.
Just as Birkenfeld's cooperation was absolutely vital to the Government's case against UBS, his lawyers believe his assistance could have led to all the names the U.S. Government is still waiting for almost three years later. As in the earlier dispute, the U.S. still has options - including reigniting its now-suspended litigation. Washington also has trumps cards, including the nuclear option of having the Federal Reserve yank UBS' license to operate in the U.S.
But that would be economic war. The U.S. market represents 40% of UBS' business, and UBS accounts for about 20% of the economy of Switzerland, which is a de facto ally of the U.S., helpful in numerous places around the globe.
At the end of the day, none of the options facing the U.S. in its bid to bring tax cheats to justice appear promising. Which makes that lost opportunity with Birkenfeld, if true, something of a black eye for the U.S. Justice Department.
Offshore centers seek to solve bank secrecy riddle
Reuters, February 14, 2010
ZURICH - European offshore centers are seeking ways to ward off relentless foreign pressure on bank secrecy that is threatening their role as financial hubs, but appeared after talks in Luxembourg to lack a concrete strategy.
Swiss Finance Minister Hans-Rudolf Merz met ministers from Luxembourg and Austria, the only two European Union states that still retain bank secrecy, and the prime minister of formerly black-listed tax haven Liechtenstein during closed-door talks in the heavily-guarded castle of Senningen.
They were joined for the first time by German Finance Minister Wolfgang Schaeuble, whose determination to hunt down tax cheats even by purchasing stolen data has rattled the multi-trillion dollar offshore banking industry.
"The meeting was definitely a step in the right direction," a person familiar with the talks told Reuters. "But there were no concrete political results," the person said as ministers sat for a dinner of salmon and beef after hours-long discussions.
A spokesman for Luxembourg minister Luc Frieden, who hosted the meeting, declined to comment on the talks.
A Swiss finance ministry spokeswoman said the atmosphere had been friendly despite recent tensions between Switzerland and Germany over Berlin's decision to pursue a stolen CD-rom containing data of Swiss bank clients.
European offshore centers agreed last March to relax their strict bank secrecy laws and help foreign tax authorities to hunt down tax evaders to avoid appearing on an international black list drafted by the Organization for Economic Cooperation and Development that was backed by the G20.
Switzerland, the main target of an international crackdown against tax dodgers, suffered at the same time a major blow as it emerged that its banking flagship UBS (UBSN.VX)(UBS.N) had helped rich Americans to hide money in secret Swiss accounts.
But despite their concessions, offshore centers continue to face pressure to open up and allow cash-strapped nations to replenish their tax coffers after the financial crisis.
NO WAY BACK
Switzerland, which manages an estimated $1.8 trillion of foreign wealth and is the main target of attacks by countries such as the United States and Germany, will hold a government meeting on February 24 to discuss its future strategy.
Its largest wealth manager UBS has put at 140 billion Swiss francs ($131 billion) its estimated share of potentially untaxed money held by clients from major EU countries. Credit Suisse (CSGN.VX) said this was around 100 billion francs for the bank.
The Swiss banking lobby has suggested expanding an anonymous withholding tax system on clients' earnings to guard privacy while addressing foreign countries' tax-collecting needs.
But Swiss media said Sunday the government, divided until a few days ago on how to fend off foreign pressures, may seek to secure a sufficiently long transition period so to allow tax cheats to come clean or leave the country.
This strategy is in line with the approach so far followed by Liechtenstein, an opaque principality that made a U-turn last year to avoid the collapse of tis financial services industry.
Switzerland agreed in March to drop an artificial distinction between serious tax fraud and minor tax evasion offences, thus weakening its centuries-long secrecy laws.
But senior Swiss officials have expressed concern that Switzerland could lose access to the vast EU financial market place if it does not align to best tax cooperation practices.
While 62 percent of Swiss oppose the abolition of bank secrecy, a poll carried out by two Swiss newspapers showed on Sunday, the mood in the country is changing.
According to the poll, 67 percent of Swiss favor helping foreign countries chase tax evaders in Switzerland and 55 percent would do away with the distinction between tax evasion and tax fraud still in force for Swiss residents.
Meanwhile Luxembourg, whose banking secrecy laws have help it become Europe's biggest funds center, is in the line of fire at EU level because the embracing of so-called OECD tax standards by Switzerland and by other offshore centers forces it to share tax data with other EU nations given previous EU agreements.
The same would be true for Austria, also an EU member.
"There has to be a negotiated solution to this issue and you only get that if you start talking with all the interested parties," the person familiar with the talks said.
At a critical point in the intense U.S.-Swiss negotiations that took place this past summer to get the names of U.S. taxpayers who were part of a massive tax evasion program, things suddenly took a nasty turn.
The U.S. Justice Department, frustrated for decades by Swiss efforts to foil any tampering with its bank secrecy traditions, was pressing its advantage: a giant tax evasion program run by Swiss bank behemoth UBS was exposed in great detail by a company whistleblower, and Uncle Sam was demanding to know the names of all 52,000 U.S. account holders involved.
The Justice Department subpoenaed bank documents, and could have threatened to have a U.S. court slap a contempt citation and a scorching daily fine on UBS until it turned the documents over.
That's when the Swiss Government drew a bright red line: It announced that it would seize UBS documents so that the bank would not be able to hand them over to the U.S.
After intense high-level negotiations the two governments agreed that UBS would provide the names of 4,450 Americans with the largest undisclosed Swiss bank accounts. But no sooner was the ink dry on that deal than the Swiss courts ruled that no such disclosures could be made under Swiss law.
There is no clear solution to the impasse, and the first U.S. Government response, from the Internal Revenue Service, suggests that Washington is not even interested in discussing the issue. "The United States has an agreement with the Swiss government to produce information on U.S. account holders at UBS," said a terse IRS statement. "We expect the Swiss government to continue to honor the terms of the agreement."
But assertions made in a new legal filing suggest that this impasse could have been avoided if U.S. investigators had taken up an offer by the UBS whistleblower, Bradley Birkenfeld, to help roll up the entire secretive UBS operation, by providing the cell phone numbers of fellow bankers and even offering to wear a wire to gather incriminating evidence in Switzerland.
That is the assertion of lawyers representing Birkenfeld, in a complaint filed in late January to an ethics unit of the Department of Justice known as the Office of Professional Responsibility. According to Birkenfeld's attorneys, the Department of Justice "willfully/negligently failed to conduct an investigation that would have permitted the U.S. government to obtain the identities of U.S. clients who maintained illegal offshore accounts with UBS."
The offer to wear a wire is an unusual one but not without precedent. According the Wall Street Journal, former hedge fund manager David Slaine agreed to wear a wire as part of a plea agreement related to insider trading charges. He reportedly wore the wire for more than one year, acting on the instruction of the U.S. Attorney's office, and produced evidence that is now part of U.S. charges against 21 individuals, including hedge fund Galleon Group founder, Raj Rajaratnam, who has pleaded not guilty.
But Birkenfeld's offer went nowhere, according to a complaint filed by Stephen Kohn and Dean Zorbe, two experienced whistleblower lawyers who now represent Birkenfeld in a civil case to win a reward under an IRS whistleblower program begun in 2006. "That's Hollywood; you watch too many movies," he was allegedly told.
Former U.S. prosecutors say there could be many reasons for prosecutors to have passed on Birkenfeld's offer. Wearing a wire in Switzerland, for instance, would legally have required the U.S. to get permission of the Swiss authorities - an unlikely prospect - although one experienced former U.S. attorney who asked to remain anonymous noted that he and others he knew had done that in other countries without seeking permission.
"These guys are not cowboys," says a former U.S. prosecutor who worked most of his career in state field offices, where prosecutors are known to typically be more aggressive than those working at the Justice's main D.C. office. "Birkenfeld would have been better off walking in to a U.S. Attorney General field office or even a local IRS office."
The more likely reason this may have occurred, some sources said, is the same reason the DOJ balked at granting Birkenfeld immunity in exchange for his cooperation: he apparently violated the cardinal rule of not being completely truthful with investigators about his own role in the tax evasion scheme.
More specifically, Justice officials have said he was not forthcoming about his role servicing Igor Olenicoff, the Russian-born, California-based real estate billionaire whom Birkenfeld brought to UBS from Barclays, where Birkenfeld worked before - a charge his lawyers deny. (In 2008, Olenicoff pleaded guilty, paid $52 million in taxes and interest and was sentenced to two years probation and 120 hours of community service. In 2009, Birkenfeld pleaded guilty to one conspiracy count related to tax evasion and in January 2010 began serving a 40-month sentence.)
But why Justice officials did not make use of Birkenfeld's information, to tap other UBS bankers cell phones in order to identify their key U.S. clients, is more murky.
Just as Birkenfeld's cooperation was absolutely vital to the Government's case against UBS, his lawyers believe his assistance could have led to all the names the U.S. Government is still waiting for almost three years later. As in the earlier dispute, the U.S. still has options - including reigniting its now-suspended litigation. Washington also has trumps cards, including the nuclear option of having the Federal Reserve yank UBS' license to operate in the U.S.
But that would be economic war. The U.S. market represents 40% of UBS' business, and UBS accounts for about 20% of the economy of Switzerland, which is a de facto ally of the U.S., helpful in numerous places around the globe.
At the end of the day, none of the options facing the U.S. in its bid to bring tax cheats to justice appear promising. Which makes that lost opportunity with Birkenfeld, if true, something of a black eye for the U.S. Justice Department.
Offshore centers seek to solve bank secrecy riddle
Reuters, February 14, 2010
ZURICH - European offshore centers are seeking ways to ward off relentless foreign pressure on bank secrecy that is threatening their role as financial hubs, but appeared after talks in Luxembourg to lack a concrete strategy.
Swiss Finance Minister Hans-Rudolf Merz met ministers from Luxembourg and Austria, the only two European Union states that still retain bank secrecy, and the prime minister of formerly black-listed tax haven Liechtenstein during closed-door talks in the heavily-guarded castle of Senningen.
They were joined for the first time by German Finance Minister Wolfgang Schaeuble, whose determination to hunt down tax cheats even by purchasing stolen data has rattled the multi-trillion dollar offshore banking industry.
"The meeting was definitely a step in the right direction," a person familiar with the talks told Reuters. "But there were no concrete political results," the person said as ministers sat for a dinner of salmon and beef after hours-long discussions.
A spokesman for Luxembourg minister Luc Frieden, who hosted the meeting, declined to comment on the talks.
A Swiss finance ministry spokeswoman said the atmosphere had been friendly despite recent tensions between Switzerland and Germany over Berlin's decision to pursue a stolen CD-rom containing data of Swiss bank clients.
European offshore centers agreed last March to relax their strict bank secrecy laws and help foreign tax authorities to hunt down tax evaders to avoid appearing on an international black list drafted by the Organization for Economic Cooperation and Development that was backed by the G20.
Switzerland, the main target of an international crackdown against tax dodgers, suffered at the same time a major blow as it emerged that its banking flagship UBS (UBSN.VX)(UBS.N) had helped rich Americans to hide money in secret Swiss accounts.
But despite their concessions, offshore centers continue to face pressure to open up and allow cash-strapped nations to replenish their tax coffers after the financial crisis.
NO WAY BACK
Switzerland, which manages an estimated $1.8 trillion of foreign wealth and is the main target of attacks by countries such as the United States and Germany, will hold a government meeting on February 24 to discuss its future strategy.
Its largest wealth manager UBS has put at 140 billion Swiss francs ($131 billion) its estimated share of potentially untaxed money held by clients from major EU countries. Credit Suisse (CSGN.VX) said this was around 100 billion francs for the bank.
The Swiss banking lobby has suggested expanding an anonymous withholding tax system on clients' earnings to guard privacy while addressing foreign countries' tax-collecting needs.
But Swiss media said Sunday the government, divided until a few days ago on how to fend off foreign pressures, may seek to secure a sufficiently long transition period so to allow tax cheats to come clean or leave the country.
This strategy is in line with the approach so far followed by Liechtenstein, an opaque principality that made a U-turn last year to avoid the collapse of tis financial services industry.
Switzerland agreed in March to drop an artificial distinction between serious tax fraud and minor tax evasion offences, thus weakening its centuries-long secrecy laws.
But senior Swiss officials have expressed concern that Switzerland could lose access to the vast EU financial market place if it does not align to best tax cooperation practices.
While 62 percent of Swiss oppose the abolition of bank secrecy, a poll carried out by two Swiss newspapers showed on Sunday, the mood in the country is changing.
According to the poll, 67 percent of Swiss favor helping foreign countries chase tax evaders in Switzerland and 55 percent would do away with the distinction between tax evasion and tax fraud still in force for Swiss residents.
Meanwhile Luxembourg, whose banking secrecy laws have help it become Europe's biggest funds center, is in the line of fire at EU level because the embracing of so-called OECD tax standards by Switzerland and by other offshore centers forces it to share tax data with other EU nations given previous EU agreements.
The same would be true for Austria, also an EU member.
"There has to be a negotiated solution to this issue and you only get that if you start talking with all the interested parties," the person familiar with the talks said.
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