Wednesday, February 26, 2014

UBS Banker Pleads Guilty; DOJ Recommends Probation and No Restitution (2/26/14)

As DOJ was getting trashed by the Senate Permanent Subcommittee on Investigations, a former UBS banker was entering a plea.  See Susannah Nesmith and David Voreacos, Ex-UBS Banker Lack Pleads Guilty in U.S. Tax Case (Bloomberg 2/26/14), here.  Key excerpts:
Shifted Money 
The U.S. Securities and Exchange Commission is investigating whether Credit Suisse improperly shifted money in its private banking unit to obscure a drop in asset growth amid the U.S. probe, said a person familiar with the matter. 
U.S. District Judge William Dimitrouleas today accepted the plea agreement and said it included a recommendation that Lack be sentenced to five years’ probation. The agreement also recommended that Lack receive no fine or be forced to make restitution, the judge said.
“As a condition of probation the lawyers are going to recommend that I require you to cooperate in any investigation they might be interested in,” Dimitrouleas said, noting Lack had already begun to cooperate with federal investigators. 
“I’m very sorry for what I did and I apologize,” Lack told the judge.
Of course, the restitution numbers for the active enablers such as Lack, etc., would be very large.  The plea is to a Title 18 offense for which restitution is available without a specific agreement in the plea. Although the restitution number and the tax loss may be roughly the same (OK, there may be differences), the judge will likely be aware that the tax loss number is large and hence that the potential restitution -- which the U.S. is not seeking -- could also be large (albeit net of collections from the taxpayers).  In any event, presumably the judge will take the recommendations or not vary materially from them.


  1. Jack, about your comment likening Swiss bankers to Somali pirates. It seems to me you are painting everyone with the same broad brush regardless of individual facts.

    There were those to whom the description is appropriate.

    But there are also those who only passively accepted clients who walked in the door. Some of those clients had legitimate reasons for having such accounts (foreign residence, relatives, or investments.) In such a case, do you think it appropriate for someone to undertake deep inquiries as to what the client's obligations are under his own country's laws and whether the client is complying, or is the burden on the client?

    If someone walked into a US bank office and said, "My country follows Shariah and women are not allowed to own property. If I die, my inheritance must go to my brother and I will hope that he will use it to support my elderly widowed mother, but I cannot leave money to her. Can she open an account here? Can a US lawyer set up a trust under US law to benefit her? This is analogous to not being able to will property to your dog under US law, but willing it to someone who will spend it on your dog's behalf. Do you believe that the US banker would refuse to help violate the law of a foreign country and not open the account, making him a choirboy, or would he open the account and be a Somali pirate?

  2. As I could not find a reference here with regards to the big myth of $150 billion p.a of lost tax revenue due to "offshore tax schemes" (Senate Subcommittee Report).
    I am not going to repeat the committees claims but would like to emphasize that the Senate Report primarily cites its own investigatory sources and 3rd. party articles that refer to
    transfer pricing issues. While transfer pricing regulations have been under scrutiny, at least by the Democrats, in the Senate, it is certainly not commonly held by those same Democrats that transfer pricing is illegal or constitutes an “offshore scheme”.

    Further no one disputes that OVDI/P disclosures of approx. 43,000 noncompliant USPs raised some one time tax revenues , but relative to the reported figure of $150 billion p.a, miniscule and probably somewhere in the area of $400 mio . As we all know know the vast majority of the $6 billion collected was not tax revenue but instead results from the FBAR penalties assessed for not reporting a foreign account.

    I think it is obvious that the tax loss number does not even represent 0.4% of what has been collected.

    If one now looks at the total number of US expats residing abroad and FBARs filed for 2012 it is not rocket science to see that there is a big discrepancy. At a current rate well below 10% compliance (because nonresident aliens in the US must file a FBAR on their non-US accounts of $10K and over), it appears that all the additional enforcement is producing
    similar results of the War on Drugs. This is not to say that obtaining a highly level of compliance with the tax law , like compliance with the drug laws and DUI laws, is not a public good in itself – it indeed is a public good that the public has chosen, via Congress (and its
    investigatory hearings), for resource allocation. But like the War on Drugs, there are many potential strategies to bring about compliance, about which pundits such as law enforcement officials, social libertarians, the medical profession, and all their paid lobbyists, debate.

    Now is the Senate searching for a magic bean to grow a money tree that will help cover up the $4-500 billion annual deficit (that has led already to a $17 trillion national debt)? The Subcommittee Report states : “Offshore tax evasion has been an issue of concern … because lost tax revenues contribute to the U.S. annual deficit, which today exceeds $500 billion. Collecting unpaid taxes is one way to reduce the deficit without raising taxes.”

    Of course Jack and others would spin it now to say even if the number is only $ 500 mio or even $100 mio collected a year from the IRS civil and criminal enforcement efforts,
    while it’s not going to put a dent in a $500 billion deficit, as Senator John McCain told the Credit Suisse representatives at the hearing February 26, it’s still a large amount of money that turns voters heads. While listening to McCain`s assessment , I
    wondered why in contrast hundreds of billions of annual deficits up to
    nearly a trillion deficit, and 15, 17, perhaps 20 trillion of national
    debt don’t seem to phase the same taxpayer referred to ?

    I still have no clue where this $150 Billion figure originates from ?


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