Legal News

A Falling Shelter? DOJ Playing Hardball with UBS, Swiss Regulators

By Ashby Jones

Might the U.S. Justice Department blow a hole in Switzerland’s centuries-old banking-secrecy rules?

Apparently it’s trying. In an unprecedented move against a foreign bank, the DOJ is seeking to force UBS AG to turn over the names of wealthy U.S. clients who allegedly used the giant Swiss bank to avoid taxes. Here are stories from the WSJ’s Evan Perez and the NYT’s Lynnley Browning. Click here for the government’s filing.

In seeking a federal court order Monday, the Justice Department ratchets up the pressure in its high-profile case, which has spawned federal criminal and civil probes into the alleged tax evasion. The matter places UBS in a bind between U.S. tax authorities and a Swiss law that prevents banks from disclosing confidential information without client approval.

U.S. authorities have been holding discussions for several weeks with UBS and Swiss banking authorities to identify the U.S. account holders. People familiar with the talks say UBS officials floated the possibility that the U.S. could obtain the names through a request to Swiss regulators.

But Monday’s federal court filing instead puts the bank in direct conflict with the U.S. government. “We are prepared to seek enforcement if that process is not successful,” said John A. DiCicco, deputy assistant attorney general for the Justice Department’s Tax Division, referring the ongoing talks.

The Justice and Internal Revenue Service investigation has been aided by information from a former UBS banker, Bradley Birkenfeld, who pleaded guilty June 19 to helping his U.S. clients evade taxes. Birkenfeld told U.S. prosecutors that UBS holds an estimated $20 billion in assets for U.S. clients in undeclared accounts. These accounts generated $200 million a year in revenues for the bank, prosecutors said.

UBS said in a statement that it was aware of the request, known as a John Doe summons, and that “UBS takes this matter very seriously and is working diligently with both Swiss and U.S. government authorities, consistent with Swiss law and the legal frameworks for intergovernmental cooperation and assistance.”

Full post as published by Law Blog - WSJ.com on July 01, 2008 (boomark / email).