Thursday, February 12, 2015

UBS Again in Prosecutors' Sights (2/12/15)

It has been reported over the last couple of days that UBS is again in U.S. prosecutors' sights -- this time for the using unregistered securities (sometimes referred to as bearer bonds) for tax evasion. Christie Smythe and David Voreacos, UBS Bond Probe Said to Look at Whether Bank Breached Tax Deal (Swissinfo using Bloomberg 2/12/15), here.  A few excerpts:
Investigators are looking into UBS’s use of so-called bearer securities, which can be redeemed by anyone holding the paper, making them a potential tool for hiding assets. Authorities are focusing on whether UBS issued the securities to clients or invested in them on their behalf, according to the person. Investigators suspect the conduct may have occurred when the bank was still bound by the deferred-prosecution agreement, which expired in October 2010, the person said, asking not to be identified because the inquiries aren’t public. 
If that’s true, the Justice Department could take the unusual step of reopening the accord and prosecuting the bank on the original conspiracy charge, according to lawyers including Michael Perino, a law professor at St. John’s University in New York. 
“If you’re violating the terms of a deferred-prosecution agreement, that means the government can go back on its decision not to prosecute you,” Perino said. 
New Charges 
Prosecutors also could file new charges against UBS and seek stiffer penalties and oversight at sentencing for violating the previous agreement, according to Brandon Garrett, a University of Virginia law professor who has written a book examining corporate prosecutions. 
“UBS has already settled three prosecution agreements since 2009,” Garrett said. “UBS is already a recidivist many times over,” he said. The government may decide to seek a conviction with probation supervision, he said. 
* * * * 
Popularized after the U.S. Civil War, bearer bonds were traditionally issued in paper form and were payable to whomever physically held them. Because they’re unregistered, they can be used to evade taxes or launder money, according to tax specialists including Stephen Land, a lawyer with Duval & Stachenfeld LLP. 
‘Mostly Illicit’ 
Rendered virtually illegal in the U.S. by tax regulations, they are still common investments in Europe, he said. If held in paper form, a bearer bond offers complete anonymity. 
“When you think of that kind of anonymity, you can understand why the government hates bearer bonds,” Land said. 
Bearer securities largely disappeared from the U.S. market following the 1982 budget law. U.S. restrictions tightened further within the past few years, making it impractical for U.S. companies to issue bearer bonds, Land said. 
U.S. investors also face strict regulations and tax consequences making the bonds unattractive, according to a 2012 client notice published by law firm Milbank Tweed Hadley & McCloy LLP. 
“A lot of people believe that the advantages would be mostly illicit” and “the legitimate advantages are few,” said Richard Painter, a corporate law professor at the University of Minnesota. 
While the bonds can be traded electronically, eliminating some of the secrecy benefits, they may still be treated as unregistered for the purposes of a financial institution’s internal procedures, tax experts said. 
“Until you actually take the bond out of the clearing system, there is an electronic record,” said Remmelt A. Reigersman, a lawyer with Morrison & Foerster LLP. “It’s just that nobody decides to look behind the curtain.” 
Also those with access to Tax Notes Today might want to read Amy S. Elliott,  UBS Discloses Bearer Bond Tax Evasion Investigation, 2015 TNT 29-2 (2/12/15) (no link available) for further or at leastl different detail.

Finally, Professor Brandon Garrett is quoted.  I posted a couple of days ago on Jed Rakoff's review of Professor Garrett's book:  Judge Jed Rakoff Reviews Brandon Garrett's Book on Too Big to Jail: How Prosecutors Compromise with Corporations (Federal Tax Crimes Blog 2/10/15), here.  The book is Too Big to Jail: How Prosecutors Compromise with Corporations (Belknap Press/Harvard University Press 2015), here.

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