The U.S. Justice Department said it asked a federal court in Miami for an order authorizing the Internal Revenue Service to request information from Zurich-based UBS about U.S. taxpayers who may be using Swiss bank accounts to evade federal income taxes.
The department said it seeks permission to allow the IRS to serve what is known as a "John Doe" summons on the bank. The summons is used to obtain information about possible tax fraud be people whose identities are unknown.
On June 19, former UBS banker Bradley Birkenfeld pleaded guilty in federal court in Florida to conspiring to defraud the IRS by assisting UBS clients in avoiding U.S. reporting requirements on income in Swiss bank accounts.
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.
If approved by the court, the summons will direct UBS to produce records identifying U.S. taxpayers with accounts in Switzerland who elected to have their accounts remain hidden from the IRS, department officials said.
Birkenfeld said in court that UBS had approximately $20 billion of assets under management in "undeclared" accounts for U.S. taxpayers.
The law requires a U.S. taxpayer to report all financial accounts in a foreign country if the total value of the accounts exceeds $10,000 at any time during the calendar year.
"We are working cooperatively with both the Swiss government and UBS to obtain this information. However, we are prepared to seek enforcement if that process is not successful," Deputy Assistant Attorney General John DiCicco of the department's tax division said in a statement.
IRS Commissioner Doug Shulman said, "The information we gather from this action will help us detect wealthy individuals who don't pay their taxes as well as provide details about how advisors facilitate this abuse."
Shares Hit 10-Year Low in Europe
Monday was already a tough day for UBS shares. Investors took fright that UBS could face further losses and sent it stocks tumbling to a 10-year low after news the Swiss bank might sell off the heart of its U.S. wealth management business.
Sources with direct knowledge of the matter told Reuters last week that as part of a company-wide review it is now examining a sale of U.S. broker Paine Webber which it bought nearly eight years ago for about $10 billion.
Landsbanki Kepler analyst Dirk Becker said investors were worried there could be an imminent profit warning, ahead of the bank's quarterly results in early August.
He added that a sale of Paine Webber "would not be positive." "That was part of their strategy to grow in wealth management. Any sale would be an emergency operation."
UBS is under pressure from the Swiss financial watchdog and one of its top shareholders, Olivant, to overhaul its business after more than $37 billion in writedowns during the global credit turmoil.
UBS stock fell briefly below the 21 Swiss francs price set for a 16 billion Swiss francs ($15.75 billion) rights issue designed to shore up its balance sheet.
It closed 4.3 percent lower at 21.44 Swiss francs—a loss equivalent to some 3 billion Swiss francs ($2.95 billion) of market value.
Peter Thorne, an analyst at Helvea, said investors may take a possible sale of its U.S. brokerage as a signal that the troubled Swiss bank needed the money to patch up growing problems.
"Two years ago, it was almost unthinkable that they would sell it," said Thorne. "It is not exactly the family silver but almost. In my mind, it has been slated for disposal ever since the crisis broke."
In the June edition of a staff magazine, UBS Chairman Peter Kurer pledged to take a "hard look" at the group's strategy while underlining the need for every business to generate "sufficient profits."
Many analysts see the U.S. wealth management business, made up almost entirely of the Paine Webber operation whose name has since been ditched, as a natural candidate for sale.
Senior bankers say it could make an attractive buy for Bank of America or Morgan Stanley.
Paine Webber, which was bought as a bridgehead into North America, suffers from higher costs and thinner margins than the lucrative Swiss business.
It burns through almost nine out of ten dollars in revenues to pay 8,200 brokers and other costs. Costs at UBS's wealth management business in Switzerland and elsewhere outside the United States eat up just half of income.
The U.S. market has been tough to crack. While UBS's Swiss business has predominantly very wealthy customers, the U.S. operation is more "downmarket."
Paine Webber, which sells investment advice and stock tips on commission, has proven largely unsuccessful in tapping America's super-rich.
It made just 183 million Swiss francs pretax profit in the first three months of this year compared to more than 1.4 billion francs earned before taxes in banking for the rich in Switzerland and elsewhere.