When Swiss financial giant UBS admitted it conspired to help U.S. citizens avoid paying taxes by letting them stash their fortunes in secret bank accounts, prosecutors hailed it as a victory for the little guy. John A. DiCicco, who leads the Justice Department's tax division, described it as "one milestone in an ongoing law enforcement effort to reassure hard-working and law-abiding taxpayers who pay their fair share of taxes that those who don't will pay a heavy price."
But a closer look at the government's agreement with UBS raises questions about just how big a win the settlement is. In fact, it might make another case the government is pressing against the bank harder to win.
What do some observes say is wrong with the settlement?
In the settlement, UBS agreed to turn over the names of 250 Americans with secret accounts. Peter Kurer, the bank's chairman, said doing so wouldn't violate its commitment to keep its clients' identities secret because that policy "was never designed to protect fraudulent acts." Under a treaty between the United States and Switzerland, people who've committed tax fraud aren't protected under bank secrecy laws, so their names can be handed over in cases like this.
In fact, that's exactly what Swiss Finance Minister Hans-Rudolf Merz said has happened, according to a Reuters report. "It is evident there has been tax fraud [at UBS]," Merz said at a press conference. "Bank secrecy will stay," he added.
But the treaty defines tax fraud as using forged documents or engaging in "a scheme of lies" to deceive tax authorities. That's a bit different than plain-vanilla tax evasion, some experts say. And it may help account for the discrepancy between the 17,000 U.S. citizens who hid their identities and the existence of their secret accounts from the Internal Revenue Service and the 250 whose names have been turned over.
What's more, the terms of this settlement may affect how the government pursues a separate civil lawsuit against UBS. The IRS is suing to force UBS to turn over an additional 52,000 names of U.S. citizens suspected of having secret Swiss accounts.
In this week's settlement, prosecutors agreed to let UBS argue that Swiss law prevents them from turning over the names. And the government also said it wouldn't try to revoke the company's U.S. banking or broker-dealer licenses, which would hobble its ability to do business in the United States, as long as it complied with the terms of the settlement.
The Swiss newspaper Le Temps reported that prosecutors' threat to withdraw those licenses was one of the factors that convinced UBS and bank regulators in Switzerland to turn over the names this time. Apparently that tactic won't be available this time.
"It's not at all clear under Swiss law that the U.S. is going to be able to get those names," said Dennis Brager, an attorney specializing in tax litigation and controversy and founder of Brager Tax Law Group in Los Angeles.
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