UBS halts U.S. offshore services amidst tax probe



2008-07-17 13:49:13

WASHINGTON (Reuters) –

UBS AG (UBSN.VX) will stop providing

offshore private banking services to U.S. residents through

unregulated entities, the Swiss bank said on Thursday at a

congressional hearing on overseas tax-dodging.

A senior UBS executive apologized to a Senate investigative

subcommittee that released a new report at the hearing claiming

that thousands of wealthy Americans are avoiding taxes by

hiding their assets in Switzerland and Liechtenstein.

Mark Branson, chief financial officer for UBS Global Wealth

Management and Business Banking, said the bank’s 80,000

employees were alarmed by reports of misconduct.

“They want to know that such misconduct does not belong in

UBS and that the firm’s ethics match their own,” Branson said.

“I am here today to tell you and to tell them that no, that

kind of misconduct does not belong in UBS.”

Branson said UBS was working with the U.S. government to

identify U.S. clients who may have engaged in tax fraud.

The Senate Permanent Subcommittee on Investigations’ report

claimed that UBS and another institution, LGT Bank, located in

Liechtenstein, helped many U.S. citizens dodge taxes.

Lawmakers claim that through elaborate schemes at many

banks in dozens of tax haven nations, U.S. citizens annually

avoid $100 billion in tax payments. The report accused tax

haven nations of engaging in “economic warfare against the

United States and honest hard-working American taxpayers.

The subcommittee said UBS had an estimated 19,000

“undeclared accounts” for U.S. citizens hiding $18 billion in

assets from the Internal Revenue Service.

On its change in business practices, UBS said it would ask

affected U.S.-domiciled clients to transfer their banking

relationship to one of its three U.S.-regulated units.

“UBS Wealth Management Americas continues to operate as it

always has and is not affected by today’s announcement, except

that some clients who used to have their accounts in

Switzerland may transfer their accounts into that business,”

the bank said in a statement distributed after the hearing.

Subcommittee Chairman Sen. Carl Levin, a Michigan Democrat,

said he was surprised by UBS’ announcement.

“Other banks engage in these kind of tactics and we have

got to find other ways legislatively and by regulation to end

the abuses of these tax havens which are draining off, we

believe, up to $100 billion a year,” Levin told reporters.

At LGT, a small institution controlled by Liechtenstein’s

royal family, “secrecy was a deeply embedded way of life,”

subcommittee investigators said in their latest report on an

internationally coordinated inquiry begun in February.

Investigators claim that LGT used code names for clients,

told its bankers to use pay phones to call clients, and

“created elaborate, deceptive offshore structures.”

LGT issued a statement at the hearing saying it has

cooperated with the panel and has “always been and continues to

be in compliance with pertinent laws and regulations.”

IRS commissioner Douglas Shulman urged the panel on

Thursday to give authorities more time to audit taxpayers who

have used foreign entities and bank accounts to avoid taxes.

In May, two former UBS bankers, Bradley Birkenfeld and

Mario Staggl, were indicted and accused of helping a U.S.

real-estate developer hide $200 million in assets from tax

authorities. On June 19, Birkenfeld pleaded guilty in federal

court in Florida to conspiring to defraud the IRS.

According to Birkenfeld’s court statement, UBS employees

assisted wealthy U.S. clients in concealing their ownership of

assets held offshore by creating sham entities and then filing

IRS forms falsely claiming the entities owned the accounts.

The Swiss finance ministry said on Thursday it had received

a request for help from the Internal Revenue Service in

connection with alleged tax evasion schemes at UBS.

(Reporting by Rachelle Younglai and Kevin Drawbaugh in

Washington, with Eva Kuehnen in Zurich; Editing by Toni


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