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Wealth Briefing quotes Asher Rubinstein at length on the IRS/UBS litigation

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US Tax Victory Against UBS Signals Further Evasion Crackdown
14 September, 2009
Tom Burroughes, Editor  in London

A lawyer acting for UBS clients in the US has told WealthBriefing why they are entitled to get information explaining why their details were handed over to US judicial authorities in February.

As reported last week, the Swiss Financial Market Supervisory Authority was told by a judge in Bern, Switzerland, that it must hand over redacted copies on its findings and court filings to three account holders. The judge is examining complaints by customers identified only as W, H and K that the regulator shouldn’t have ordered account details to be sent to the US Internal Revenue Service in February.

“It is not surprising that UBS account holders are challenging Finma’s order to release information about those accounts. Swiss law provides a mechanism whereby account holders may challenge such disclosure of information – before it is disclosed.  Also, Swiss law provides for a right of appeal,” Asher Rubinstein, a partner at Rubinstein & Rubinstein, told WealthBriefing in an emailed comment.

“In other words, there exist two levels for challenging the release of information. Yet, in the UBS criminal case, it appears that Finma summarily, unilaterally and without appeal ordered the disclosure of information related to these UBS accounts,” Mr Rubinstein said.

Finma had ordered UBS to send information on some US account holders as part of the bank’s February settlement of a criminal case with the US Justice Department. Details on about 250 clients were sent. The case is separate from the civil case, settled last month, in which around 4,450 client account details will be handed to US authorities.

“From the perspective of Swiss account holders who are facing issues of non-compliance with tax laws, it would have been beneficial to know the criteria by which Switzerland will disclose account information,” Mr Rubinstein said.

“There are many people with non-compliant accounts at UBS, and all of them would like to know the criteria by which UBS will disclose the 4,500 accounts as settlement of the civil litigation. If, for instance, there is a $1 million threshold, then people with accounts less than $1 million might breathe a sigh of relief.  But it is precisely for that reason that the IRS is not divulging the criteria, so that all account holders will remain nervous,” he said.

“So too with Finma, account holders are eager to learn of Finma’s criteria for divulging information. The Swiss court ordered that Finma documents be released, but the details of Finma’s decion making, the details of Finma’s criteria of which accounts should be given up, will be redacted,” he continued.

“Like the UBS settlement criteria, Finma’s criteria, at least for now, remain secret. The end result is that account holders cannot rest easy. Of course, the Voluntary Disclosure Program may offer such account holders much better terms than if they are found out otherwise. On the issue of Finma’s criteria, an open question is whether Swiss account holders have a legal right to know what Finma’s criteria are, but that is an issue for Swiss constitutional lawyers to analyze,” he added.

The legal case continues.

Asher Rubinstein again quoted in Dow Jones and the Wall Street Journal about Offshore Accounts and the Ramifications of the UBS Settlement

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Swiss Ruling May Foreshadow Lawsuits Against UBS
– By Arden Dale; Dow Jones Newswires;

NEW YORK (Dow Jones)–A court ruling ordering the Swiss financial regulator to turn over documents to U.S. customers of UBS AG (UBS) could be the precursor to lawsuits against the bank.

The Swiss Financial Market Supervisory Authority must turn over redacted copies of its findings and court filings to three UBS account holders, according to the ruling, Bloomberg reported.

The ruling is the latest development in an effort by global authorities to crack down on people who use secret bank accounts to evade taxes. A suit by the U.S. Justice Department against UBS has been a key part of that initiative. The UBS case was settled in August; as part of it, the Internal Revenue Service will get information on 4,450 accounts that held as much as $18 billion at one time.

In the ruling Wednesday, Judge Francesco Brentani in Bern, said Finma must give the documents to three UBS account holders, identified only as W, H and K, Bloomberg reported. The judge is reviewing complaints that the regulator shouldn’t have ordered account details to be sent to the Internal Revenue Service in February.

Finma ordered UBS to provide information on some U.S. account holders as part of a February settlement between the DOJ and UBS.

Asher Rubinstein, a partner at law firm Rubinstein & Rubinstein, LLP, said information in the documents theoretically could be used in lawsuits by UBS customers against the bank.

The bank is “going to be heading for quite a number of suits by Americans” he adds. Such suits could charge that the bank “aided and abetted customers’ tax fraud” by encouraging them to set up secret accounts and hide the income from them from U.S. tax authorities.

UBS declined to comment on the ruling.

Update: Changes in the Offshore Banking World

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We take this opportunity to update readers about recent developments in the Offshore world. Readers are reminded that the IRS Foreign Account Voluntary Disclosure Program expires very soon, on September 23, 2009.

Austria
Austrian bank confidentiality laws are written into Austria’s constitution, which had resulted in a higher level of secrecy.  Amending those constitutional secrecy provisions requires a two-thirds vote of the Austrian Parliament.  A proposal to loosen those secrecy laws failed in July.  Thus, it appeared that Austria might be the last European holdout.

However, on September 1, the Austrian parliament voted, by the required two-thirds majority, to relax Austria’s constitutional bank secrecy regulations.  We have not yet read an official summary, but we have read reports that under the new laws, information will be released to foreign authorities for civil, criminal or administrative tax inquiries (i.e., including civil audits).  Specific taxpayer names must be named.  Presumably, John Doe summonses (a/k/a “fishing expeditions”), such as the summons at issue in the recent UBS case, will not be honored.   However, this is not definite, pending release of the actual amendments.  Austria’s recent legislation was enacted in order to get Austria off of the OECD’s “grey list”.

Liechtenstein
In September, 2009, Liechtenstein signed a tax information exchange agreement with Germany.  The agreement follows the OECD model exchange of information agreement, which eliminates the distinction between tax fraud and tax avoidance.  The agreement will take effect in 2010.

Likewise, in August, 2009, Liechtenstein signed a tax accord with the United Kingdom.  Under the agreement, British taxpayers with non-compliant accounts in Liechtenstein must come forward and report those accounts to the UK tax authority, or else Liechtenstein will close those accounts.

Liechtenstein signed a tax information exchange agreement with the United States in December, 2008.

While these changes mean that Liechtenstein will no longer be a safe haven for undeclared funds or accounts which are otherwise not tax compliant, Liechtenstein still remains one of the top jurisdictions for tax compliant asset protection from civil creditors.

Switzerland
Following weeks of three-party negotiations between the US Department of Justice, UBS and the Swiss Government, the parties reached a settlement which ended the civil litigation in federal court.  Pursuant to the settlement, UBS will release approximately 4,500 names of American account holders to the US Government.  The account holders will be able to utilize the Swiss legal process to appeal the disclosure of the information, but must disclose their appeal to the U.S. Justice Department.  IRS investigations, and civil and criminal charges are certain to follow.  Despite reassurances from Swiss government and banking officials that Swiss privacy laws remain strong, it is clear that the once-sacrosanct Swiss banking secrecy is seriously weakened, if not entirely undone.

France
Following the U.S., which signed a Tax Information Exchange (TIE) agreement with Switzerland in June, France signed a tax treaty with Switzerland in August, 2009. The new tax treaty between France and Switzerland adopts the latest OECD standards on financial transparency.

Days after the French-Swiss tax agreement was signed, it was reported that Switzerland divulged the identities of some three thousand French citizens with Swiss accounts that may not be tax-compliant. Two points are particularly intriguing about this latest development. First, the information divulged by the Swiss is reported to be precise and particular, containing names, account numbers and dollar amounts. Second, the provision of this information appears to be quick and relatively effortless. Compare, for example, two rounds of litigation (civil and criminal), months of motions and court proceedings, and months further of settlement negotiations between the U.S., UBS and the Swiss Government, which led to the disclosure to the IRS of names of Americans with Swiss accounts. France obtained the information from Switzerland with comparative ease.

Monaco
Monaco had been perhaps the most secretive offshore tax haven. For this reason, we’ve speculated that Bernard Madoff may have hidden the proceeds of his fraud in Monaco. However, on September 8, 2009, Monaco and the U.S. signed a TIE. Pursuant to that agreement, the US will be entitled to request banking and financial information in criminal tax investigations and civil tax audits.

Canada
Canada is following the US lead on pressuring UBS to release the names of account holders.  It is believed that some Canadians are on the list of the 4,500 names which UBS will provide to the US in order settle the legal action against UBS.  Like the US, the Canadian government is offering an amnesty for taxpayers to come forward with non-compliant foreign accounts.

Connecticut
The Connecticut Attorney General has asked the federal government for information on whether any taxpayers from Connecticut are on the UBS list.  With many hedge funds headquartered in Connecticut, this might prove to be a lucrative target for Connecticut tax investigators.  We fully expect other states to follow suit.

Conclusion
What does this all mean?

It means that you should have no expectation of secrecy vis-a-vis the U.S. government regarding a foreign bank account.  If you have a foreign bank account that is not tax-compliant, now is the time to come forward and take advantage of lowered penalties and the promise of no criminal prosecution for tax fraud.  The IRS Voluntary Disclosure Program expires very soon – on September 23.  Please read “Do You Have a Foreign Bank Account?”

Of course, it is legal for US taxpayers to have foreign accounts, and there are many good reasons for doing so, including Asset Protection. But the foreign accounts must be tax-compliant, which means: (1) properly reporting the existence of the accounts to the government, and (2) paying taxes on income earned in those foreign accounts.  Provided that these obligations are met, the offshore accounts are tax-compliant and, if held in an offshore asset protection trust, will offer unparalleled asset protection from future creditors.

Please contact us  for additional information regarding the Voluntary Disclosure Program, asset protection or other tax questions.

Asher Rubinstein again quoted by Dow Jones and the Wall Street Journal regarding offshore tax compliance

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Asher Rubinstein again quoted by Dow Jones and the Wall Street Journal regarding offshore tax compliance

By Arden Dale
A DOW JONES NEWSWIRES COLUMN

NEW YORK (Dow Jones)–Ripples from the UBS AG (UBS) tax evasion case continue to reach other overseas banks, prompting them to put their houses in order – and even show uncooperative clients the door.

Copies of letters obtained by Dow Jones Newswires reveal several banks giving U.S. customers a deadline to provide tax details or see accounts closed. Some have simply told clients to take their assets elsewhere.

LGT Bank and Credit Suisse are among those threatening to oust some clients amid the uproar over UBS, which reached a settlement with U.S. tax authorities last month and agreed to turn over the identities behind 4,450 secret accounts.

A letter from Liechtenstein bank LGT Bank, for example, dated June 30, gave U.S. customers until this week to provide a completed Form W-9 and another form with U.S. tax details. LGT told recipients it would “terminate our business relationship with you in connection with the above-mentioned account” if the bank didn’t receive the information by Aug. 31.

The Department of Justice and Internal Revenue Service have consistently declined to say whether they are investigating specific banks beyond UBS. However, IRS officials said when they announced the settlement that the Swiss government has agreed to review and process additional requests for information from other banks on account holders “to the extent that such a request is based on a pattern of facts and circumstances equivalent to those of the UBS case.”

Roy Black, a partner at Black, Srebnick, Kornspan & Stumpf in Miami, says there’s “no doubt the government won’t stop with UBS.”

“I can assure you they are putting equal pressure on every offshore bank they can find,” says Black, whose firm, located in a hub of UBS activity, has created a special unit to deal with the large number of cases flooding in.

The LGT letter follows from the bank’s decision in early 2008 to scale down its business with U.S. clients, according to Christof Buri, a spokesman for the bank.

LGT told the U.S. Senate Permanent Subcommittee on Investigations in July 2008, during a hearing at which UBS also testified, that it had never actively pursued U.S. business. That business had always been of secondary importance to it in terms of volume and earnings, the bank said.

Unlike the LGT letter, which gives customers a chance to continue at the bank, a series of three letters from Credit Suisse Private Banking to U.S. clients simply instructs them that their accounts are being terminated. The letters are dated May 26, July 1 and July 14.

The July 14 letter says that if the recipient hasn’t provided information allowing Credit Suisse to transfer the assets to an account elsewhere by Aug. 14, the bank reserves the right to deposit the “relevant assets with the competent Swiss authority in accordance with applicable Swiss law or take other steps we deem appropriate to close the business relationship.”

Credit Suisse declined comment on the specific letters, but spokesman David Walker said in an email that in the normal course of business the company continues “to assess all client relationships.”

“We strongly believe we have the right compliance standards in place and adhere to all applicable laws,” Walker said in the email.

A letter from a third bank gives account holders until Sept. 30 to supply it with various tax-related documents, including a W-9 and a form declaring the offshore account to the IRS. The source who provided a redacted copy of the letter declined to identify the bank.

Asher Rubinstein, a partner at law firm Rubinstein & Rubinstein, LLP, says the push to get rid of U.S. clients or make sure their offshore accounts are tax compliant is hardly surprising, given the current move against tax havens by many governments. Foreign banks don’t want to be “the next UBS,” he says.

Now, he adds, banks are doing their own work to make sure accounts comply with tax rules, instead of taking clients’ word that they are filing all the right forms and paying their taxes.