Friday, February 10, 2012

Did UBS Turn Over to U.S. Information About Other Swiss Banks? (2/10/12)

We know from the Wegelin indictments that at least some U.S. depositors with UBS fled to Wegelin in the hope of keeping ahead -- and out of sight -- of the U.S.  Those of us who practice in this area know that UBS customers also went to other banks with U.S. footprints -- and thus, it was thought, exposure lesser than UBS.  Wegelin may have been the most aggressive in seeking those accounts.  But there were others.

Recent reports have suggested that UBS may have alerted the U.S. to the Swiss banks into which the U.S. depositor money flowed.  I post some of the articles below and readers try to sort out what UBS did and didn't do, or claims it didn't do. 

I infer, for example, in among  information that UBS did turn over to the U.S. would have been wire transfers out of UBS to other Swiss banks (as well as banks outside Switzerland) and the U.S. would have known of those other Swiss banks that way.  Certainly, in this sense, at least as to the U.S. depositors that UBS disclosed, the U.S. became aware that money was moved to other Swiss banks.
I suspect that UBS is denying that it went beyond providing the account information -- i.e., it did not supply information outside the account information regarding the activities of its fellow Swiss banks and bankers. The U.S. mined a great deal of disclosure about the activities of the other Swiss banks in the voluntary disclosure program which required information about those activities and, in the egregious cases (i.e., the list of 11), the prosecutors have followed through for more detail.

Readers having more information or insight are encouraged to share by comment.


Katharina Bart, BS denies helping U.S. in tax probes of other banks (Reuters 2/9/11), here.

UBS provided US with data about rivals ( 2/9/11), here.


  1. Jack,

    Over at Bruce Krasting's blog he is discussing that there has been a huge demand for high denomination physical Swiss Franc currency. Supposedly it almost impossibly now to get a bank safe deposit box in Switzerland and hotels are now renting out deposit boxes to non guests for long term storage.

    1. Thanks, Tim. That is very interesting. I encourage readers to go to the linked blog and comment either there or on this blog.

      Jack Townsend

    2. I was assuming that there would be a huge demand for diamonds and other valuable jewels and real estate ...

    3. Unless the blogger checked with 300+ banks and 1000+ branches I doubt he knows whether getting a safe deposit box is practically impossible.

      I haven't checked with that many banks either but I do know:

      1) according to a banker I've spoken with, there has been increased demand for SD boxes over the past 3 years or so, particularly from French and Italian customers.

      2) SD boxes are still available at that bank and others. Availability varies by bank/branch. If there's room in the vault to fit more boxes, and sufficient demand, banks would add them. Not all banks offer SD boxes, because they don't have a vault to put them in, just a small safe where they keep small amounts of their own cash. This would be the case for some of the smaller banks that have only one office and specialize in private banking.

      3) For anyone with a US passport, you can count with the finger of one hand the number of banks that will open a new Swiss account, even if the money is declared. It would be highly unusual for a bank to rent an SD box to someone who is not an account holder.

      4)A hotel SD box is an interesting concept, but it is nowhere as secure as a bank box. The box itself isn't very strong; it's the vault, and various security measures, that make it safe.

      5) Closing an account and taking out all the money in cash, if the account is eventually disclosed, might tip the scale into the willful category. There are no easy solutions.

      6) There is no "hotel box secrecy law" like the bank secrecy law, and we all know how weak that is.

      7) If the IRS had come up with a reasonable penalty structure, a percentage of unpaid taxes rather than a percentage of highest balance, it might have resulted in 50% of unreported accounts to be disclosed. With the current draconian penalties, only 1% to 2% of accounts have been disclosed, based on various estimates, including the Tax Advocate Office's estimate.

  2. Now this is interesting. UBS wants to close your account, so you fly to Switzerland and withdraw all the money in CH 1000 bills, and put it in a safe deposit box, and never reopen another account.

    How can the IRS find out?

    But really, most people with CH 1000 bills are Europeans looking for safety from the crash of the Euro.

    1. The agreement was to disclose not just accounts that were open at the time, but that had been in existence from 2002 to present, and which met certain criteria.

      Closing an account does nothing about previous noncompliance.

    2. What agreement?

      UBS released the 4500 names it itself chose, subject to the limitation of the Swiss Govt one-time suspension of Swiss law, and limited by personal appeals filed with the Swiss Courts by those given advance warning.

      The criteria UBS used pertained to those that used entities (and were named beneficiaries). Not sure of the time limits it chose, but if thousands who moved are now with Wegelin, and are undeclared, the conclusion is that they were not reported, or else Wegelin would declare them and be done with the IRS.

    3. M, I have read the agreement and it applied to both accounts using entities and not using entities. For entity accounts the threshhold was lower ($250K) vs. $1 million for those held in the person's own name. There were other criteria as well that had to be met for the account to be disclosed, including amount of income, whether the account holder was a US resident etc.

      The important point is that under the UBS agreement, closing an account would not prevent its disclosure if it met the criteria for disclosure. Many banks, including UBS, told US clients that their account would be closed and they had to move their funds elsewhere.

  3. In 2007, when the UBS Whistleblower, Bradley Birkenfeld, contacted the U.S. government and exposed the UBS tax fraud he warned the Bush DoJ prosecutors about this. Birkenfeld specifically warned the DOJ prosecutor, Kevin Downing, that simply plowing forward with the John Doe Summons without additional strategies would result in UBS account holders shifting assets to other local Swiss banks.

    But Kevin Downing was too hell-bent on trying to deny Birkenfeld credit for his enormous revelations and refused to listen to his advice, such as letting him wear a wire and arresting the UBS bankers at Art Basel in Miami. Birkenfeld warned Downing but Downing had an ego too large to enable him to listen to someone who knew. Another massive miscue by Kevin Downing.

    1. To Anonmous @ Feb 10, 2012

      After reading your comment, and not having a pony in the race, I went back and re-read the public information out there about the Birkenfeld affair. All I can say is that is a complete disgrace and, in any other world, Mr. Downing would have been fired--instead he is allowed to remain as a lead prosecutor to sate his ego. Whatever....

      Surely putting Mr. B in prison damaged the nascent IRS whistleblower program. What did Mr. B do that so irked the DOJ? Its not clear from the record.

    2. Both the US and Switzerland consider him a criminal. In Switzerland for disclosing secret banking information, in the US for not disclosing enough.

      This should be a warning to anyone who wants to "talk" to the IRS/DOJ. They are capable of seemingly random acts of malice.

      The funny thing is that his case is so good, the IRS would have to split the multi-million UBS fines with him. Maybe that is why they criminalized him, to weaken his financial suit against the IRS.

    3. To M

      What was the information he did not disclose? Its all very unclear, or perhaps I am not accessing the right material. He is an unsavory character, that I grant you.

      I would have thought his coming forward with the information he did would have gotten him a bye for his criminal activities. Did he try to double cross the DOJ, and if so how? Specifics if you have them ready, but I suppose its all water under the bridge now--he is in jail after all so what does it matter what he did.

      Sounds like to me that his lawyer cocked up gloriously. How could they have led him into this booby trap?

      I suspect that the IRS will be loath to give him anything and that may well be reason that I read "criminal fines" do not qualify for any reward. Just google "criminal fines + IRS rewards" to see what I mean.

      You may well be right M, if Mr. B played too fast and loose but I must admit that does not appear from the reports I read.


      The 60 minutes interviews. Also watch the interview with the DOJ/DA, for their side.

      Apparently there was his largest client Igor Olenicoff about whom he refused to provide info. And it is likely he protected other people/fund managers as well.

      Like any person, (especially a private banker) he formed friendships with some.

      And the reason he turned against UBS (his employer) seems also to be personal, and vindictive (and extortion), like a disgruntled employee.

      His story is not entirely clear. Like any wealthy person, or wealth manager, he is complex, and does not fit into the molds of society, where one's loyalty is to who signs his/her paycheck.

      Apparently he wanted UBS punished (because of his personal vendettas), but none of his clients, because they were his friends.

      DOJ had other plans.

      But like most wealthy people, he thought he could influence US policy. And by trying to do so, he likely stepped on the toes of career DAs who want to be the next political rising stars.

      They want all the credit for the uncovering of tax evasion, and no credit to an eccentric private wealth manager, who only wants some people he dislikes to pay taxes.

    5. I think I read somewhere that DOJ was on his case because he left out details of his involvement as well. I think the bottom line here is that DOJ has put up a trust hurdle to potential whistleblowers who had involvement in tax schemes. If I had insider information of this nature, I would certainly think twice before stepping up because of what happened to Birkenfeld. It really is amazing how his snitching lead to the explosion of events in regards to offshore banking.


    6. I agree. He's become a poster child for several "pro-tax/anti-evasion" groups. But he is in jail for 40 months, for tax crimes??

      That just attracts attention to DOJ/IRS malfeasance.

      His problem is that he is a US-born citizen, and a banker.

      The US needed to make an example of someone, (his judge actually increased his DOJ requested sentence from 30 to 40 months).

      They could not sentence the Swiss citizens, so they sentenced an American one.

      Kinda stupid, since he brought the case against the Swiss in the first place, but the government is not known for its logic.

  4. He should have been locked up for the rest of his life for being partially vindictive. I would think most of the expats and immigrants are in this weird situation because of people like these. They first drum up business with these nefarious schemes and finally will turn against the banks. The unfortunate expats and immigrants are the collateral damage who neither had the intent nor the sophistication.

  5. After he serves his prison term he should be sent to Swiss where he can be indicted and made to serve another 10 years

  6. HSBC provided Indian client information to US?


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