Trust Updates Archive

UBS IRS SEC Banks Trusts Investment Fiduciary Moneylaundering Private Banking Offshore UBS Settlement Signals Major Breakthrough in Tax Shelter Investigation

(Feb. 19, 2009--Chicago, IL) -- UBS has agreed to pay $780 million to settle allegations that it conspired to defraud the U.S. government of taxes owed by its cross border clients. Government regulators say this is a major breakthrough in their offshore tax-shelter investigations. Many tax shelters, say sources, utilize domestic and foreign trusts.

"The veil of secrecy has been pulled aside and we will continue to aggressively pursue those who shirk their federal tax obligations or assist others in doing so," says John A. DiCicco, Acting Assistant Attorney General of the Justice Department's Tax Division.

Misuse of trusts is among the IRS "Dirty Dozen": top 12 tax scams. Internationally, says the IRS, there is growing concern that trusts are playing an integral part in money laundering. Though trust scams are most often initiated by individual trustees, the IRS warns that corporate fiduciaries should take steps to avoid becoming successor to such trusts.

The UBS agreement, entered on February 18 in a Florida federal court, defers for 18 months, prosecution of charges that the Swiss bank defrauded the IRS. If the Swiss bank continues to cooperates with the IRS, and the U.S. Securities and Exchange Commission, in disclosing information about its client base, federal regulators will recommend dropping criminal charges.

In an unprecedented move, UBS, based on an order by the Swiss Financial Markets Supervisory Authority, has agreed to immediately provide federal regulators with the identities of, and account information for,U.S. taxpayers who elected to conceal their UBS accounts from the IRS.

"Client confidentiality," says Peter Kuer, UBS AG chairman, "to which UBS remains committed, was never designed to protect fraudulent acts."

The $780 million settlement includes $380 million in profit disgorgement and $400 million in federal backup withholdings on cross border accounts. Penalties on back taxes and interest are steep: 50 percent per year. The government contends that UBS helped upwards of 14,000 clients shelter some $20 billion, evading $400 million in taxes.

In separate SEC charges filed ina Washington, D.C. federal court, the agency asserts that UBS knew it was required to register as a broker-dealer and investment adviser prior to providing services to U.S. clients, but failed to do so. The bank also agreed to settle those charges. The SEC contends that UBS conducted its cross border business in the US through Swiss-based bankers who actively concealed that they were not registered. UBS employees, says the SEC, "received training on how to avoid detection by U.S. authorities of their activities."

Of the $380 million in disgorgement, $200 million will be paid to the SEC to settle its charges. The SEC says its investigation into unregistered broker-dealers and advisors who participate in tax shelter schemes is ongoing.

For more on this topic, see the upcoming issue of Trust Regulatory News.

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