UBS 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.