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UBS’s privileged clients are running scared.

Under pressure from the authorities, UBS is considering whether to divulge the names of up to 20,000 of its well-heeled American clients, according to people close to the inquiry, a step that would have once been unthinkable to Swiss bankers, whose traditions of secrecy date to the Middle Ages.

Federal investigators believe some of the clients may have used offshore accounts at UBS to hide as much as $20 billion in assets from the Internal Revenue Service. Doing so may have enabled these people to dodge at least $300 million in federal taxes on income from those assets, according to a government official connected with the investigation.

One prominent UBS client, a wealthy property developer in California named Igor Olenicoff, has already pleaded guilty to filing a false 2002 tax return. But as the investigation tears holes in the veil of secrecy surrounding tax havens like Switzerland and Liechtenstein, other names are surfacing, according to the authorities.

New revelations are likely to come Monday, when a former UBS banker is expected to testify in a court in Florida about how he helped Mr. Olenicoff and other clients evade taxes. The former banker, Bradley Birkenfeld, is set to plead guilty to helping Mr. Olenicoff conceal $200 million.

UBS is said cooperating with investigators and that it was against its policy to help Americans evade taxes.

Using offshore accounts is not illegal for United States taxpayers, but hiding income in so-called undeclared accounts is. At issue is whether the UBS clients filed W-9 tax forms with the I.R.S., disclosing securities and assets held offshore, as required by law. Switzerland does not consider tax evasion a crime, and using undeclared accounts is legal there.

The case could turn into an embarrassment for Marcel Rohner, the chief executive of UBS and the former head of its private bank, as well as for Phil Gramm, the former Republican senator from Texas who is now the vice chairman of UBS Securities, the Swiss bank’s investment banking arm. It also comes at a difficult time for UBS, which is reeling from $37 billion in bad investments, many of them linked to risky American mortgages.

The federal investigation, which is part of a broad, international crackdown on tax cheats, suggests that United States authorities are shifting their focus to Liechtenstein and Switzerland from Caribbean havens like the Bahamas and the Cayman Islands. The Senate Permanent Subcommittee on Investigations is scheduled to hold hearings as early as this month on offshore products sold by UBS and by the LGT Group, the bank owned by Liechtenstein’s royal family.

At the center of the UBS investigation is Mr. Birkenfeld, 43, who grew up in the Boston area and went on to live what might seem like a charmed life as a private banker in Switzerland. Through his lawyer, Danny Onorato, Mr. Birkenfeld declined to comment.

Mr. Birkenfeld’s testimony could deal a stinging blow to UBS, the world’s largest money manager for people whom bankers politely call “high net worth individuals.” Since 2006, the bank has opened plush offices in New York and six other United States cities, among them Boston, Chicago and Houston, to cater to people who are worth at least $10 million.

Many UBS customers are worth far more than that. To lure them, UBS bankers canvassed cultural and sports events like Art Basel, the America’s Cup and Boston Symphony Orchestra concerts.

Mr. Birkenfeld took care of important clients for UBS’s private bank catering to United States citizens with offshore accounts, and was central to UBS’s effort to lure them.

Before joining UBS in 2001, he worked at Barclays Bank in Geneva, where brought in Mr. Olenicoff, the billionaire owner of Olen Properties. When Mr. Birkenfeld joined UBS, he brought Mr. Olenicoff along, and later helped him move hundreds of millions of dollars from the Bahamas to Switzerland, according to a financial executive briefed on the matter.

Shortly after Mr. Olenicoff left UBS for LGT, the Liechtenstein bank, in 2005, Mr. Birkenfeld resigned. The banker formally left UBS in March 2006.

Mr. Birkenfeld later claimed in a Swiss legal proceeding that UBS had not paid him a bonus he was owed. A former associate said Mr. Birkenfeld had become angry over what he considered the bank’s wink-and-nod standard regarding tax evasion. UBS typically rewarded private bankers for attracting new clients in the United States, rather than for the fees the bankers generated for UBS from existing customers.

Mr. Birkenfeld also was angered when UBS asked bankers to sign papers saying that they, not the bank, would be responsible if they broke non-Swiss tax laws, according to a European financial executive briefed on the matter.

About a year ago, concerned by a tax investigation into Mr. Olenicoff, Mr. Birkenfeld contacted the Justice Department and California authorities and offered to cooperate with prosecutors in the hope of securing immunity for himself, according to a person close to the case. His deal fell through, however, and Mr. Birkenfeld was charged, along with a financial executive from Liechtenstein, in an indictment unsealed May 13.

As the authorities focused on UBS last January, the bank abruptly shut its three Swiss offices that had sold undeclared offshore banking services to United States clients. Those offices catered to thousands of wealthy Americans, some of whom may now have their tax secrets put on public display.

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Ex-UBS banker pleads guilty in tax case

By Joanna Chung in New York

Published: June 20 2008 03:00 | Last updated: June 20 2008 03:00

A former UBS private banker yesterday pleaded guilty to charges that he conspired to help a US billionaire evade income taxes after agreeing to "co-operate fully" with prosecutors in the case.

"He's going to tell the government everything he knows about what was going on at UBS," said Danny Onorato, attorney for Bradley Birkenfeld.

Mr Birkenfeld, a US citizen living in Switzerland, said that he and others, including managers and bankers at the Swiss bank, enabled wealthy US clients to conceal their ownership of the assets held offshore by helping them create "nominee and sham entities", according to a court document accompanying his plea.

These entities were usually set up in tax haven jurisdictions, including Switzerland and Liechtenstein, a strategy responding to "the risk [of] losing the approximately $20bn of assets under management in the United States . . . which earned the bank approximately $200m per year in revenues," the document said.

Mr Birkenfeld said he and others also prepared false and misleading US tax forms and also advised US clients to place cash and valuables in Swiss safety deposit boxes and to purchase jewels, artwork and luxury items using the funds in their Swiss bank account while overseas, prosecutors said.

Mr Birkenfeld, who could face a maximum sentence of five years, turned whistleblower after an acrimonious parting with UBS in 2006.

According to the plea agreement filed in court, Mr Birkenfeld agreed to "co-operate fully" with the US government by providing truthful and complete testimony, producing documents, records and other evidence, and appearing at court proceedings in return for a recommendation of a lower prison sentence than the maximum.

UBS said yesterday it was treating these investigations with the "utmost seriousness" and would "appropriately and responsibly address and correct any issues raised in the investigations, including taking appropriate disciplinary action".

It added: "UBS will continue to work with US governmental authorities in an effort to achieve a satisfactory resolution of these matters."

Mr Birkenfeld was indicted in May, along with Mario Staggl, a Liechtenstein national, for his role in helping Igor Olenicoff, a real estate developer, evade paying taxes by helping to conceal $200m of assets. Mr Staggl is still at large. Mr Olenicoff has previously pleaded guilty to filing a false tax return.

source: http://www.ft.com/cms/s/0/b1a1a67c-3e62-11dd-b16d-0000779fd2ac.html

also seee the AFP posted comment:
Fraction' of American clients affected by US tax probe, UBS says

The Associated Press
Friday, June 20, 2008

GENEVA: Swiss bank UBS AG said Friday that it will disclose any instances in which rich American clients may have broken U.S. tax reporting rules by channeling assets through offshore shell companies.

The disclosure comes after the Zurich-based bank said it was cooperating with a U.S. investigation into whether its employees helped clients evade taxes from 2000 to 2007.

The investigation centers on 20,000 UBS clients in the United States who are required to fill out a supplementary tax form giving foreign banks their American tax identification number if they hold any U.S. securities in their accounts abroad.

"A fraction" of those customers are being investigated for possibly breaching the rules by using offshore companies to hold U.S. assets without filling in the supplementary form, known as W-9, UBS spokesman Serge Steiner said.

UBS said in a statement that it is working with Swiss and U.S. authorities to "promptly provide information concerning instances in which the establishment and operation of such offshore entities and their UBS securities accounts appears to have been part of a scheme to defraud U.S. tax authorities."

"UBS is treating these investigations with the utmost seriousness and will appropriately and responsibly address and correct any issues raised in the investigations, including taking appropriate disciplinary action," it added.

UBS disclosed in May that the U.S. Justice Department is investigating whether the bank was helping clients evade taxes from 2000 to 2007. The bank said at the time it was cooperating with the investigation and a separate probe into whether its bankers failed to meet registration rules set by the U.S. Securities and Exchange Commission.

Swiss law prevents banks from divulging the names and details of their clients except in cases of outright tax fraud. Tax evasion or non-reporting is not considered sufficient grounds for the Swiss government to aid another government's investigation.

Last week U.S. authorities sent a request for legal assistance to their Swiss counterparts to lift the anonymity of certain clients.

Meanwhile, a spokesman for the Justice Ministry in Bern confirmed media reports that a Swiss government delegation is to meet with U.S. federal authorities in the United States on Friday to discuss the case against UBS.

The U.S. investigation has already affected the Swiss bank's operations in the United States, where it manages some US$710 billion (€458.6 billion) for rich American clients.

Last November UBS told some private banking clients they would in future have to travel to Switzerland if they want to speak with their advisers. Swiss media have reported that UBS was concerned its employees could face arrest if they travel to the United States. The bank has declined to comment on the reports, but acknowledged that a senior UBS manager was detained in the U.S. last month as a material witness in a case being heard in Florida.

The case concerns a former UBS executive, Bradley Birkenfeld, who pleaded guilty before a federal court in Fort Lauderdale on Thursday to helping clients hide hundreds of millions of dollars and evade U.S. taxes.

The case against Birkenfeld is seen as key to the Justice Department and SEC investigations.

Documents released in that case said that at one point Birkenfeld purchased diamonds using one client's Swiss bank account and smuggled the diamonds into the United States in a toothpaste tube.

UBS declined to comment on the case, but spokesman Steiner said the bank's policy categorically forbids employees from carrying cash or valuables for clients.

Shares in UBS closed 2.85 percent lower at 23.18 Swiss francs (US$22.44; €14.38) in Zurich

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U.S. Asks Court to Direct UBS to Turn Over Accounts (Update2)

By Robert Schmidt and Ryan J. Donmoyer

June 30 (Bloomberg) -- Prosecutors asked a federal judge in Florida to issue a summons that would require Swiss bank UBS AG to turn over U.S. taxpayers' account information.

The unprecedented step comes as a Justice Department investigation into the bank is heating up. Earlier this month, Bradley Birkenfeld, a former UBS private banker, pleaded guilty to conspiracy and said the bank helped wealthy U.S. citizens conceal $20 billion in assets and evade income tax laws.

It is the first time the Justice Department has sought to serve a so-called ``John Doe'' summons on a foreign bank, said Justice Department spokesman Charles Miller.

John DiCicco, deputy assistant attorney general in the Justice Department's tax division, said in a statement that the U.S. has been ``working cooperatively'' with UBS and the Swiss government to obtain the account information.

``However, we are prepared to seek enforcement if that process is not successful,'' DiCicco said.

Rohini Pragasam, a spokeswoman in New York for Zurich-based UBS, wasn't immediately available to comment.

A ``John Doe summons'' would be served on UBS by the Internal Revenue Service, which uses the tactic when it is investigating possible tax fraud by people whose identities are unknown. The summons would direct UBS to produce records identifying U.S. taxpayers who have accounts with the bank in Switzerland who chose to have their accounts remain hidden from the IRS, the Justice Department said.

Wealthy Americans

Birkenfeld said when he pleaded guilty on June 20 that he and his colleagues helped wealthy Americans hide money by telling them to put cash and jewelry in Swiss safety deposit boxes, buy artwork and jewels using offshore accounts and set up accounts in the names of others.

Birkenfeld pleaded guilty to conspiring with his biggest client, California billionaire Igor Olenicoff, to help him evade $7.2 million in income taxes. Olenicoff, a real estate developer and chief executive officer of Olen Properties Corp., pleaded guilty Dec. 12 to filing a false income tax return. He was sentenced to two years' probation and agreed to pay $52 million in back taxes, interest and penalties.

``There is reason to suspect that, much like Olenicoff, many United States taxpayers used UBS's services to shelter their assets and, as a result, failed to file accurate tax returns,'' U.S. attorney R. Alexander Acosta in Miami said in a declaration filed with the court today.

IRS Commissioner Doug Shulman said in a statement that today's court filing ``sends a strong, unequivocal signal to anyone thinking of short-changing the nation and their fellow citizens by evading the tax laws.'' He said the secrecy surrounding offshore accounts ``is rapidly fading.''

Revealing Identities

According to documents filed with the court, a Nov. 4, 2002, letter from UBS to its customers sought to calm fears that the bank might reveal their identities as a result of a new information-sharing agreement between the Swiss and American governments.

``Our bank has had offices in the United States as early as 1939 and has therefore been exposed to the risk of U.S. authorities asserting jurisdiction over assets booked abroad since decades,'' the letter says. ``Please note that our bank has a successful track record of challenging such attempts.''

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By Elena Logutenkova

July 1 (Bloomberg) -- UBS AG, the biggest wealth manager, fell to the lowest level in almost a decade in Swiss trading after U.S. prosecutors sought the authority to force the bank to reveal names of American clients with secret accounts.

UBS dropped 1.14 Swiss francs, or 5.3 percent, to 20.30 francs. The shares fell as low as 19.81 francs, not far from the all-time low of 19.03 francs on Oct. 2, 1998, three months after the bank was formed through the merger of Swiss Bank Corp. and Union Bank of Switzerland.

Prosecutors yesterday asked a Miami federal judge to let the Internal Revenue Service issue a summons to Zurich-based UBS for client information as part of an investigation into whether the Swiss bank helped affluent customers evade American taxes. The U.S. probe is intensifying at the same time the bank is reeling from record losses on subprime-infected assets.

``God knows what damage the tax probe will cause, and morale within the bank must be at a record low,'' said Rolf Biland, who oversees about $4.1 billion as Zurich-based chief investment officer at VZ Vermoegenszentrum.

The bank will probably post a loss for the second quarter after writedowns on real estate securities, analysts including Stalmann have forecast. The bank may report markdowns of about 5 billion francs ($4.9 billion) for the second quarter, according to the median estimate of six analysts, following more than $38 billion of writedowns in the previous three quarters.

`Core Franchise'

UBS led a decline in financial shares across Europe, with asset managers among the worst hit. Julius Baer Holding AG, Switzerland's biggest independent wealth manager, dropped as much as 8.3 percent, while Schroders Plc sank as much as 7.3 percent in London trading. The 59-company Bloomberg Europe Banks and Financial Services Index declined 3.7 percent.

UBS Chairman Peter Kurer, who replaced Marcel Ospel in April, told shareholders at the annual meeting that month he will lead a strategic review of all of the bank's businesses to make them better complement the wealth management unit, which he called UBS's ``core franchise.''

The bank said today that it plans to inform shareholders about results of the review at an extraordinary shareholders meeting on Oct. 2. The meeting was called to elect four new board members, as Kurer seeks to increase the level of financial expertise on the board after criticism from shareholders including former UBS President Luqman Arnold.

Shareholders' Meeting

Arnold's Olivant Advisers Ltd., which holds a 2.5 percent stake in the bank, said in a statement today that it welcomed the changes in corporate governance at UBS.

UBS shares sank 69 percent in the past year, cutting the bank's market value to 58.7 billion francs.

``They are addressing the problems but the market would like to see things move more swiftly,'' said Biland.

The Miami judge is likely to grant the so-called ``John Doe'' summons, said Jack Blum, a partner at Baker & Hostetler LLP and an expert on offshore banking. UBS may have little choice but to comply, he said, because the Swiss government appears to be cooperating. The summons would be the first by the U.S. against a foreign bank.

``The bank is in a very difficult position,'' Blum said. ``If I were advising clients, I'd tell them to come clean; the people who come clean early will probably be allowed to get off with paying the tax, the interest and the penalties. Others could very easily face criminal prosecution.''

Birkenfeld Case

A partial amnesty in 2003 followed an investigation into debit and credit cards linked to offshore accounts that included the issuance of John Doe summonses to Visa International Inc. and American Express Co. The amnesty yielded $170 million in taxes, interest and penalties from 1,300 people.

John DiCicco, deputy assistant attorney general in the Justice Department's tax division, said in a statement that the U.S. has been ``working cooperatively'' with UBS and the Swiss government to obtain the account information.

``However, we are prepared to seek enforcement if that process is not successful,'' DiCicco said.

UBS spokeswoman Rohini Pragasam in New York said the bank ``takes this matter very seriously and is working diligently with both Swiss and U.S. government authorities.''

The IRS uses ``John Doe'' summonses when it is investigating possible tax fraud by people whose identities are unknown. The summons would direct UBS to produce records identifying U.S. taxpayers who had accounts with the bank in Switzerland between 2002 and 2007, and who had their accounts hidden from the IRS.

Bradley Birkenfeld, a former UBS banker, pleaded guilty June 20 that he and his colleagues helped wealthy Americans hide money by telling them to put cash and jewelry in Swiss safety deposit boxes, buy artwork and jewels using offshore accounts and set up accounts in the names of others.

In court filings yesterday, Internal Revenue Service agent Daniel Reeves said that in an Oct. 12 interview, Birkenfeld said he was one of 40 to 50 UBS private bankers who made quarterly trips to the United States to manage customers.