Watch Asher Rubinstein discusses tax havens and the implications of the UBS/IRS settlement on CNBC’s “Kudlow Report”.
Asher Rubinstein on CNN regarding the UBS settlement, IRS Voluntary Disclosure Program and changes in Offshore Banking
IRS gets a key to Swiss bank accounts
By Aaron Smith, CNNMoney.com staff writer
NEW YORK (CNNMoney.com) — The Internal Revenue Service announced Wednesday that it has reached a deal with the Swiss government, gaining access to thousands of UBS AG accounts that Americans might have used to avoid paying taxes.
“Thousands of taxpayers who avoided paying taxes in the past are being brought into compliance,” said IRS Commissioner Douglas Shulman in a teleconference with reporters. “As this agreement demonstrates, the world of international taxes has drastically changed.”
An IRS press release stated that 4,450 accounts held by rich American investors were included in the settlement.
In the teleconference, Shulman said the IRS expects to gain access to a total of more than 5,000 UBS (UBS) accounts, through the IRS-UBS settlement, combined with a voluntary disclosure program and “other sources.” He said these accounts have held $18 billion in assets at one time, though he did not have a current tally for their value.
A UBS spokeswoman would not comment on the value of the accounts and referred questions to a company press release. In the release, UBS Chairman Kaspar Villiger said the settlement “helps to resolve one of UBS’ most pressing issues.”
“I am confident that the agreement will allow the bank to continue moving forward to rebuild its reputation through solid performance and client service,” said Villiger. “UBS welcomes the fact that the information-exchange objectives of the settlement can be achieved in a lawful manner under the existing treaty framework between Switzerland and the United States.”
Deterrent: The announcement is the result of a settlement that the IRS and Switzerland-based UBS reached earlier this month to track down and identify wealthy Americans who have avoided paying taxes by hiding their assets in offshore accounts. Shulman said the deal should deter Americans from evading taxes in the future.
Shulman said investors who evaded taxes through UBS can avoid prosecution by reporting their tax activity by the Sept. 23 voluntary disclosure deadline, so long as they meet certain requirements.
“Although the clock is ticking, there is still time for you to come in and get right with your government,” said Shulman. “Talk to your tax professional.”
Asher Rubinstein, an offshore attorney with New York-based Rubinstein & Rubinstein, said that some of his clients have participated in the voluntary disclosure program. He said that taxpayers have to provide “complete and honest disclosure” and cannot participate if their funds are the proceeds of illegal activity.
“This is a government that is in need of cash, and the IRS is trying to raise the cash,” said Rubinstein, explaining the incentive for the program.
He said that the IRS was initially seeking 52,000 accounts and received about 5,000, so it wasn’t a complete victory. But still, he said the landscape has changed dramatically for U.S.-based tax evaders.
“The bottom line is that the days of tax havens are gone,” said Rubinstein. “If you’re a wealthy American, you can’t just expect to stash your money in the Cayman Islands or Switzerland or Liechtenstein and expect to be off the IRS radar.”
Shulman said during the teleconference that the IRS was “never interested in pursuing 52,000 accounts and this was never an IRS number. “Remember,” he explained, “we filed this lawsuit when the Swiss government was taking the position that we could not have access to any of these accounts. That posture changed in the past month and we were able to gain access to the accounts we wanted.”
First Published: August 19, 2009: 10:11 AM ET
Watch Asher Rubinstein Discuss Offshore Developments on CNBC Europe
Watch Asher Rubinstein Discuss Offshore Developments on CNBC Europe.
Watch Asher Rubinstein discuss Offshore developments on CNBC
Watch Asher Rubinstein discuss Offshore developments on CNBC.
Rubinstein Says UBS `Tip of the Iceberg' in Tax Probe
Asher Rubinstein interviewed on Bloomberg TV Rubinstein Says UBS `Tip of the Iceberg’ in Tax Probe.
Settlement of the IRS v. UBS Case: Why Is the IRS Backing Down?
Settlement of the IRS v. UBS Case: Why Is the IRS Backing Down?
by Asher Rubinstein, Esq.
Today, for the third time, lawyers for UBS and the Department of Justice requested that the court adjourn the matter to allow both sides additional time to reach a settlement. Although the terms of the settlement will not be released until they are approved by the court, we have heard the following possible terms:
1. UBS will disclose the identities of substantially fewer than the 52,000 American account holders which the IRS initially sought. We’ve heard that the number will be closer to 10,000, possibly 20,000 names.
2. The IRS may only be focusing on the names of account holders who were visited by UBS bankers in the US.
3. UBS will not pay a fine.
We are skeptical about these possible terms becoming part of any settlement agreement, because we do not believe that the IRS would settle for so little, when it has such a strong position in this case.
First, given that the facts are so clearly against UBS – – their bankers came to the US to solicit clients, lied to US Customs agents about the purpose of their visits, encrypted data, set up offshore entities to obscure true beneficial ownership of accounts, even smuggled diamonds into the US in toothpaste tubes . . . and now UBS is hiding behind Swiss law for their criminal violations in the US – – the IRS clearly has the upper hand in this case. Therefore, it is very surprising that the IRS would agree to settle for 10,000 or even 20,000 names, as suggested.
In addition, UBS has a very valuable banking license in the US, plus significant assets in the US, both under US jurisdiction and both vulnerable to seizure and receivership by a US court, which gives the US tremendous leverage to obtain a favorable settlement. Moreover, when UBS agreed to a deferred prosecution of the criminal case against it, it agreed to cooperate with the US government. UBS’ failure to comply with a court order to release names would be non-cooperation and a violation of the deferred prosecution agreement. This would lead to a re-institution of the criminal case against UBS. Again, the US has significant leverage over UBS here. Therefore, any settlement that would involve disclosure of less than a significant majority of the 52,000 names would have to be seen as a defeat for the US and does not make sense.
Second, such a settlement would defeat the purpose and goals of the Voluntary Disclosure Program. Most Americans with foreign accounts will refuse to voluntarily disclose their accounts, expecting to be in the majority of undisclosed names and thereby continue to avoid IRS discovery. The IRS’ threats of discovery and prosecution would suffer a lack of credibility.
The IRS has used a “carrot and a stick” thus far in getting people to come forward. It has publicized criminal prosecutions and guilty pleas to scare people, and promised a reduction in penalties and no criminal prosecution, in order to encourage voluntary disclosure. Now, any settlement that would lead a taxpayer to say “I shouldn’t have gone into the program; I would have gotten away with it” severely undercuts what the IRS is trying to accomplish. Once again, any settlement for less than a majority of 52,000 names would be a serious defeat for the IRS.
We believe it is more likely that a settlement would involve extending the period of the Voluntary Disclosure program (past September 23) and an agreement by UBS to disclose the names of those who do not come forward on their own at the end of that extended period.
Of course, any settlement that involves the disclosure of any number of names raises serious questions about the viability of Swiss secrecy laws. One ambiguity is the basis for the Swiss to release 10,000 names, but not 42,000 other names. Perhaps Swiss secrecy laws will be amended in some manner, and that amendment would form a basis to determine which names are released. For example, the amendment might involve a re-definition of “tax fraud” under Swiss law that would re-classify any account opened in the name of a foreign corporation or trust (i.e., not a person’s name) as fraudulent, and that might form the basis of disclosure.
Of course, there are difficulties with that possibility. A change in Swiss law would be subject to approval of the Swiss Parliament and the Swiss Federal Council, as well as public referendum in Switzerland, where challenges to traditional Swiss banking secrecy have been met with vigorous opposition.
Another possibility would involve a re-interpretation of banking secrecy laws by Swiss authorities, to deny protection to Swiss banks (and bankers) who affirmatively violate foreign laws on foreign soil. This would allow the Swiss government to “save face” and would avoid the need to amend current Swiss laws. Such a compromise would make UBS – – the egregiously guilty party – – the scapegoat in this conflict. The drawback to this solution is that it would provide the IRS with only about 10,000 names (those people who met UBS bankers in the US) and would create an implication that it is ok to have a secret foreign account as long as one goes to Switzerland (or elsewhere) to open it.
The main point here is that it is not likely that the IRS would accept less than what its leverage over UBS could otherwise ensure. One might question whether, under the surface, the IRS may agree to less now, in order to obtain more in the near future: an end to Swiss banking secrecy.
“Last Minute” Efforts to Thwart UBS Disclosing Americans with Non-compliant Accounts
“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.
The “Perfect Storm” Against Non-Compliant Foreign Banking, First Guilty Pleas by Americans with “Secret” UBS Accounts
The “Perfect Storm” Against Non-Compliant Foreign Banking, First Guilty Pleas by Americans with “Secret” UBS Accounts
by Asher Rubinstein, Esq.
As we’ve reported below , in an extraordinary act that belied generations of Swiss banking secrecy, UBS earlier this year revealed to the IRS the identities of approximately 350 Americans with non-compliant offshore accounts. UBS did this as part of a settlement with the Justice Department, which allowed UBS to avoid criminal indictment for aiding, abetting and encouraging tax fraud. A civil case against UBS in federal court in Miami is still pending. In the civil case, the IRS is seeking the identities of 52,000 Americans with allegedly non-declared UBS accounts.
The disclosure of the 350 names has led to two tax fraud prosecutions thus far, and both prosecutions have resulted in guilty pleas. On June 25, 2009, Steven Michael Rubinstein (no relation to us), pled guilty to filing a false tax return. He kept funds at UBS and in Monaco, in the name of an entity established with UBS assistance in the British Virgin Islands. He faces a prison sentence of three years, and millions of dollars in fines and penalties. In April, Robert Moran pled guilty to concealing more than $3 million at a UBS account. Moran faces a similar sentence.
Americans with non-compliant foreign accounts, whether at UBS or elsewhere, must understand the impact of recent events: offshore bank secrecy is dying, if not already dead. Last week, Switzerland agreed to a new exchange of information agreement with the U.S. ; Liechtenstein and other offshore banking jurisdictions have already signed such agreements. UBS is on the ropes in federal court in Miami and will likely be forced to give the IRS 52,000 names. HSBC and Credit Suisse are also being investigated, and we can expect a legal offensive against them and other banks. Domestically, prominent Senators and the President have introduced anti-tax haven legislation with severe penalties for non-compliance. The OECD campaign against tax havens is running alongside the IRS campaign, and has resulted in announcements of financial transparency from every significant offshore jurisdiction.
This is truly a “perfect storm” against offshore bank secrecy, with significant consequences for Americans with un-declared offshore funds. Guilty pleas by UBS account holders will be followed by more prosecutions and more guilty pleas.
Against this background, the IRS’s Foreign Account Voluntary Disclosure Program offers a form of amnesty and should be considered by American taxpayers with foreign accounts. The program does not apply to taxpayers once the IRS already knows about their foreign accounts, and the Voluntary Disclosure Program will expire in less than three months. Americans with offshore accounts should meet with us now regarding Voluntary Disclosure, before the IRS discovers the accounts. Within the “perfect storm” of the current anti-tax haven crackdown, discovery by the IRS is likely, in which case it will be too late to take advantage of amnesty.
New Switzerland-U.S. Tax Treaty Further Erodes Offshore Banking Secrecy; Questions Remain, but Disclosure Is Prudent
Switzerland and the U.S. have agreed on a new Tax Information Exchange Agreement (TIA), which will further erode offshore banking secrecy. The new agreement will allow the U.S. greater access to banking records regarding American taxpayers with accounts in Switzerland. This is the latest in a chain of events that have dramatically threatened offshore bank secrecy, including the I.R.S. legal challenge against UBS , investigations of CreditSuisse and HSBC, and the agreement of many offshore jurisdictions to greater transparency. Domestically, Senators Levin and Baucus and President Obama have proposed wide-ranging anti-tax haven legislation, with significant new disclosure requirements and penalties. Americans who have relied on offshore secrecy to avoid getting caught by the IRS need to re-examine their strategies.
The terms of the new Swiss-U.S. TIA have not been officially released; however, they are said to follow the Model Convention with Respect to Taxes on Income and on Capital, released by the Organization for Economic Cooperation and Development (OECD) in 2008. Under the terms of that Model Convention, Switzerland would have to share banking information for acts that are considered criminal acts under both U.S. and Swiss law. Previously, only affirmative tax fraud was recognized as a criminal act in both countries. Non-disclosure of foreign income was not a serious crime in Switzerland. If the new TIA follows the terms of the Model Convention, Switzerland would now have to change its internal law to criminalize non-reporting of income. This is one ambiguity of the new TIA.
The Swiss have announced that they will only comply with specific requests regarding specific accounts, and not IRS “fishing expeditions” like the current “John Doe” summons the U.S. is seeking to enforce against UBS . This limitation is not, however, contained in the Model Convention. Thus, it is not entirely clear at this point what the reach of the new TIA will be. It is also not known whether the new TIA will only be prospective or whether it will require disclosure of past accounts. It should be noted that the new TIA will be subject to approval of the Swiss Parliament and the Swiss Federal Council, as well as public referendum in Switzerland, where challenges to traditional Swiss banking secrecy have been met with vigorous opposition.
Another open question is whether the new agreement will result in the IRS dropping its litigation against UBS in a Miami federal court. The IRS is demanding that UBS disclose the identity of 52,000 Americans with allegedly non-compliant accounts. Oral argument is scheduled in July. The Swiss have indicated that the new agreement will effectively settle that case, while American officials have stated that the litigation will continue and the IRS will pursue disclosure of the 52,000 Americans with offshore accounts.
In light of these events, Americans with non-compliant offshore accounts should consider voluntary disclosure before the IRS discovers their accounts. The IRS is offering a sort of amnesty to taxpayers who voluntarily come forward before they are discovered. The IRS’ Voluntary Disclosure Program offers reduced penalties and a promise of no criminal prosecution. However, this program expires in less than three months and will not apply to taxpayers once the IRS gets their names.
Such pre-emptive disclosure is best made by qualified legal counsel, experienced in offshore compliance and IRS negotiations. Rubinstein & Rubinstein can approach the IRS on your behalf, demonstrate proper current compliance and negotiate to avoid criminal prosecution and reduce fines and penalties for past non-compliance. Although fines and penalties may be significant, they pale before the consequences of an IRS criminal prosecution.
In addition, Americans with signature authority or other interest in a foreign bank or financial accounts in 2008 are required to file Treasury Form TD F 90-22.1, “Report of Foreign Bank and Financial Accounts”, also known as the “FBAR” , by June 30, 2009. The penalties for failing to file Form TD F 90-22.1 on time can be severe. Therefore, if you held an interest in a foreign bank or financial account in 2008, it is imperative that the IRS receives Form TD F 90-22.1 by June 30, 2009. Participating in the Voluntary Disclosure Program will also remedy FBAR non-filing.
Asher Rubinstein represents many American clients with offshore accounts, in connection with Voluntary Disclosure, FBAR filing and conversion to tax-compliant offshore structures. If you have a non-compliant foreign account, contact us before the IRS contacts you. Given recent events, discovery by the IRS is likely.