Right now under a 1996 treaty, Swiss banks may turn over account data only when proof of "tax fraud or the like" can be proven. Complicating matters is the fact that under their own legal code the Swiss don't view tax evasion as a crime. But it's the unprecedented shotgun approach of the current action that seems to particularly rankle UBS. In the court filing the company's lawyers wrote the action "appears to be one of the broadest, if not the broadest, ever served by the IRS on any institution, domestic or foreign."
The lawsuit was filed in February, a day after UBS agreed to pay a $780 million settlement with the IRS for crossing the line in assisting with U.S. tax evasion. At the time, the bank admitted to numerous acts that would be shocking if viewed through any other lens but the Swiss's unique view of tax and securities compliancy:
• UBS private bankers helped Americans evade U.S. taxes through sham offshore companies in tax havens including Panama, Hong Kong and the British Virgin Islands. UBS admitted to creating misleading forms indicating these sham companies were the beneficial account owners and not the individuals.
• UBS private bankers marketed securities and banking services in the U.S. without the required licenses from the SEC. These bankers met with clients in the U.S. and communicated with them regularly as they traded securities in their accounts or transferred assets.
• UBS private bankers used encrypted laptop computers so they could maintain their secrecy. They received training on how to avoid detection by U.S. authorities.
As part of the settlement, UBS also released the names of more than 250 U.S. clients. Since then, two have been prosecuted and the IRS is encouraging others to avoid criminal charges by coming forward voluntarily. UBS has notified the clients whose records were released to the IRS.
UBS said it has offered to provide clients with the documentation needed for voluntary disclosures and it told Bloomberg that "many thousands of clients have requested the necessary documentation or transferred their assets." I'll bet.
Lita Epstein has written more than 25 books, including Reading Financial Reports for Dummies.