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Outing Secret Account Holders

In July this year, we posted about the U.S. Senate's investigation into how Swiss bank UBS AG hid around $18 billion for 19,000 Americans that went unreported to the IRS. We mentioned that the Senate's 115-page report cited a memo from LGT Bank, run by the royal family of Liechtenstein, about the use of secret offshore accounts for bribery in the U.S. and elsewhere.

The Senate report didn't specifically refer to potential Foreign Corrupt Practices Act violations, but we thought the Justice Department might turn attention toward foreign-bank clients who might be involved in the alleged bribery. To do that, though, the DOJ would first need to crack European bank secrecy laws that protect the identity of clients.

Now comes a report that the DOJ may be succeeding. The Washington Post said this week that Swiss authorities have revealed the identities of "about 70 UBS clients for use by Justice Department investigators." DOJ investigators have also obtained names of an additional 30 or so American holders of undeclared UBS accounts from other parties, the Post said. And Reuters reported that 250 U.S. customers of UBS were given 30 days to appeal against Switzerland handing over their details to U.S. investigators.

Yesterday, however, Swiss authorities and UBS denied disclosing information about Americans suspected of tax evasion. The Swiss said cooperation between Washington and Bern was ongoing, without giving any details. UBS also said it had not given any information to U.S. authorities.

Assuming the Washington Post is right, the Swiss disclosures follow an earlier leak to the IRS of confidential information by a former employee at LGT Bank in Lichtenstein. The IRS used the information to begin enforcement proceedings earlier this year against about 100 U.S. taxpayers, some of whom were named in the Senate report. The U.S. government, the Post said, has been offering whistleblowers up to 30 percent of any money they help the IRS recover. IRS Commissioner Douglas Shulman said the strategy is working: "[W]e've got a lot of names that we're combing through and will be pursuing aggressively." He advised anyone using secret accounts to make voluntary disclosures to the IRS right away.

(Even President-Elect Obama has weighed in. He labeled UBS as one of the banks who helped "tax cheats," and he co-sponsored a Senate bill last year to crack down on offshore tax havens. The Stop Tax Haven Abuse Act listed 34 jurisdictions, including Switzerland, as potential tax-evaison countries.)

Another development that should worry foreign account holders is a report that Liechtenstein and Washington have agreed to exchange confidential bank information in connection with tax-related investigations. Liechtenstein's bank secrecy laws had been seen as stronger than Switzerland's. But tax scandals during the past year traced back to clients at Lichtenstein banks have forced the country and its ruling family to start cooperating with tax fraud investigations.

None of this confirms that the DOJ is looking for FCPA violators among holders of undeclared foreign bank accounts, or that it will find any if it is looking for them. But as we said in June, the story is worth watching. So stay tuned.

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Full post as published by The FCPA Blog on November 11, 2008 (boomark / email).