UBS, Liechtenstein Aided US Tax Cheats: Senate

A U.S. Senate subcommittee accused banks in Switzerland and Liechtenstein of helping wealthy Americans evade billions in taxes each year, and urged the establishment of tougher laws to combat offshore tax havens around the world.

In a report released late Wednesday, the Senate subcommittee on investigations estimated that offshore abuses were costing U.S. taxpayers about $100 billion a year.

It recommended a range of reforms to squeeze tax cheats, including more stringent U.S. requirements for foreign banks and harsher penalties for financial institutions failing to provide the Internal Revenue Service with details on all accounts their American clients are holding.

"Tax havens are engaged in economic warfare against the United States and the honest, hardworking American taxpayer is losing," said Sen. Carl Levin, chairman of the subcommittee on investigations, which belongs to the Committee on Homeland Security and Governmental Affairs.

"The iron ring of secrecy around tax haven banks and their deceptive banking practices enable and encourage tax cheats to hide assets from the United States," the Michigan Democrat said.

"Congress needs to enact strong penalties on tax haven banks that help U.S. taxpayers avoid paying taxes to Uncle Sam."

The panel's ranking Republican agreed.

"It is simply unacceptable that some individuals are using offshore tax havens and secrecy jurisdictions to shelter trillions of dollars from taxation, forcing working families to shoulder the burden," Sen. Norm Coleman of Minnesota said, adding that foreign banks were "exploiting gaping loopholes" in U.S. laws to act as "Al Capone safe houses for evading taxes."

A Senate subcommittee hearing will be held Thursday.

The 109-page report took aim specifically at Switzerland's UBS, arguably the world's largest wealth manager, and Liechtenstein's LGT Group, owned by the principality's royal family.

The Swiss Finance Ministry and UBS declined to comment.

The bank has said it is cooperating with Swiss and American investigations and will disclose records involving U.S. clients who might have broken tax laws.

But it has also banned its Swiss bankers from traveling to the U.S.

Tax Probe for UBS Widens

A U.S. federal judge ruled earlier this month that the IRS could serve legal papers to UBS in an expanding probe of U.S. taxpayers who may have used overseas accounts to hide assets and avoid taxes.

The Justice Department requested the summons after former UBS private banker Bradley Birkenfeld, 43, pleaded guilty in a Florida federal court to defrauding the IRS.

Birkenfeld, who is cooperating with investigators, said in court that UBS has about $20 billion in assets in undeclared accounts for U.S. taxpayers.

Prosecutors say Birkenfeld and others helped California billionaire Igor Olenicoff hide $200 million in assets overseas.

Olenicoff, who controls a real estate empire, pleaded guilty last year to tax charges and agreed to pay the IRS more than $52 million.

U.S. taxpayers are required to report all foreign financial accounts if their total value exceeds $10,000 at any point during a given year, prosecutors said.

Failure to report the accounts can result in a penalty of up to 50 percent of the amount in the accounts.

The subcommittee report said "UBS Swiss bankers targeted U.S. clients, traveled across the country in search of wealthy individuals and aggressively marketed their services to U.S. taxpayers who might otherwise never have opened Swiss accounts." It said the bank's practices resulted in billions of dollars of U.S. taxpayer money in undeclared accounts that were not disclosed to the IRS.

The report said UBS has estimated that it has 1,000 declared accounts in Switzerland for U.S. clients against 19,000 undeclared, with a combined value of $17.9 billion.

While UBS did not technically violate U.S. reporting requirements under the 2001 "qualified intermediary program," it actively assisted clients in structuring their Swiss accounts to avoid disclosure responsibilities with the IRS and thus aided tax evasion, the report said.

In some instances, it said UBS declined to report accounts to the IRS when clients opened them in the names of offshore corporations, trusts, foundations or other entities, even if the bank knew the true beneficial owners were U.S. taxpayers.

In Liechtenstein, the report said the royal family's LGT Group contributed to a "culture of secrecy and deception" that enabled clients to "evade U.S. taxes, dodge creditors, and ignore court orders." Investigations linked to LGT have been launched in a number of countries since German authorities obtained a CD-ROM in February of some 1,400 alleged tax cheats with accounts at the bank.

Germany has since passed on the file to other countries, including the U.S. The Senate report said LGT aided in tax evasion because it failed to disclose accounts to U.S. tax authorities; advised U.S. clients to create front foundations in Liechtenstein for hiding assets; helped Americans hide assets elsewhere; and established "transfer corporations" to disguise asset movements to and from Liechtenstein.

The subcommittee said none of the accounts it has examined had been disclosed by the bank to the IRS.