“Last Minute” Efforts to Thwart UBS Disclosing Americans with Non-compliant Accounts
by Asher Rubinstein, Esq.
Two noteworthy developments in the US Government’s litigation against UBS in federal court in Miami, seeking to obtain the names of 52,000 Americans with undeclared accounts at UBS in Switzerland:
First, on the eve of oral arguments scheduled to being next week, UBS filed a motion for discovery, which was denied by the court. Moving for discovery days before oral argument has the appearance of a stall tactic. Coupled with public statements from UBS that the bank is seeking a settlement, it appears that UBS fears this case going to trial next week.
Much more dramatic, however, is the report that the Swiss Government is “prepared to seize UBS client data rather than allow the bank to hand it over to the United States to settle a tax case.” (New York Time, July 9, 2009.) Apparently such governmental action would not only be in response to a settlement, but also to an order from the U.S. court. Arguing that “Swiss law prohibits UBS from complying with a possible order by the court in Miami”, the Swiss Department of Justice and Police posted a statement on its website that “all the necessary measures should be taken to prevent UBS from handing over the information on the 52,000 account holders demanded in the U.S. civil proceeding”.
The facts are clearly not in UBS’ favor here. UBS has already paid a $780 million settlement as part of a “deferred prosecution”, thus avoiding criminal indictment for assisting Americans in fraudulently hiding money offshore. Facts about the extent of UBS’ machinations in assisting tax fraud – – UBS bankers lying about their trips to the US to solicit wealthy clients, encrypting data, assisting in establishing offshore entities in order to obscure true beneficial ownership, even of smuggling diamonds into the US in toothpaste tubes – – have already come to light. Clearly, UBS is in a tenuous position of coming to the US to commit a crime, and then hiding behind Swiss law to keep mum about it.
We suspect that if the Swiss government does make good on its threat to “seize” the banking data, then UBS would attempt to argue that it is impossible to comply with a court order to release the data. In other words, the announcement of a Swiss government seizure of data would precipitate UBS’ claim of impossibility of performance.
We don’t believe that such a strategy would be successful. We suspect that UBS will be forced to settle, because (a) otherwise UBS would risk losing its valuable banking license in the US, (b) UBS has too many assets within the US, subject to US jurisdiction and potential attachment, and (c) should (a) and (b) occur, the effects will be felt not just at UBS but throughout the entire Swiss economy.
Moreover, as part of it’s “deferred prosecution” settlement of the criminal charges against it, UBS agreed to cooperate with the US and comply with court orders. Failure to provide the 52,000 names once ordered to by the US court on the grounds of “impossibility” could result in the reinstatement of the criminal prosecution against UBS. Additionally, the US court could rule that the impossibility was created expressly to avoid a contempt order and therefore not a true impossibility.
Americans with non-compliant accounts at UBS or other foreign banks, who have been following the IRS/UBS litigation to see whether supposed Swiss banking secrecy would cover them, are advised to consider the IRS’ Voluntary Disclosure program. Once the IRS gets the identities of the account holders (whether by settlement, court order or otherwise), it will be too late for the account holders to come forward and avoid criminal prosecution for tax fraud or expect any reduction in penalties. The Voluntary Disclosure program ends on September 23, 2009.