UBS Drops American Account Holders

UBS Drops American Account Holders as Tax Amnesty Deadline Approaches
John Pacenti
Law.com, Daily Business Review
October 13, 2009

For many Americans who secreted away wealth in foreign banks, the best option in the end was to throw themselves on the mercy of the Internal Revenue Service.

The deadline for a tax amnesty program to avoid criminal prosecution is Thursday. The change in U.S. policy and the prosecution of a handful of UBS account holders has convinced many tax litigators that the days of squirreling away wealth in secret overseas accounts, corporations, foundations and other vehicles is over, at least for Americans.

UBS, the bank at the center of the IRS war on foreign tax shelters, sent letters to many American customers this year telling them their business was no longer wanted and to move their assets or their accounts would be frozen, South Florida tax attorneys said.

"The common thread I'm seeing from those who are coming in is that the people had accounts with UBS and they closed those accounts and moved them to another bank in Switzerland," said Gunster, Yoakley & Stewart tax litigator Martin Press in Fort Lauderdale, Fla. "UBS is saying, 'We don't want Americans anymore.'"

For UBS, it was a necessary move, said Carlton Fields tax attorney William Rohrer, who practices in Miami. The bank agreed in February to a deferred prosecution agreement setting a $780 million fine for conspiring to defraud the United States. One of their top executives remains a fugitive because of an IRS investigation that broke open after former UBS private banking executive Bradley Birkenfeld started talking to U.S. investigators.

"They needed to clean up their act. This is one of the ways of doing that, basically to jettison any U.S. accounts, even compliant U.S. accounts," Rohrer said.

Those who were told to move their accounts were the lucky UBS customers. Others have received letters from the bank informing them that they were about to be exposed to the IRS criminal investigation unit under a court settlement in which the bank agreed to release information on 4,450 customers.

Many of them were wealthy Americans who had been wooed by the Swiss banking behemoth with promises of avoiding income taxes, but now they are pariahs. U.S. account holders could appeal the disclosure under Swiss banking secrecy laws, but U.S. law requires them to inform the U.S. attorney general's office in a Catch-22 that would make author Joseph Heller proud.

Meanwhile, the prosecution of alleged tax cheats with overseas accounts has widened from South Florida to New York, Los Angeles and Seattle.

Under the program launched in March and extended last month, many Americans with secret offshore accounts -- not only with UBS but a host of other banks -- jumped at the chance.

"It's been a well-crafted stampede," said Robert Panoff, a Miami tax litigator.

At the IRS regional headquarters in Plantation, Fla., agent in charge Daniel W. Auer said the focus on offshore tax havens is about tax fairness.

"This is about the American people," he said. "This is about the American taxpayer. This is about everybody paying their proper and fair share."

He said those with hidden accounts need to "contribute to America like everybody else contributes to America."

Taxpayers who come forward must pay any back taxes plus 20 percent of the highest amount of their holdings in the last six years. The IRS has not released figures on how many have come forward to take advantage of the program in the last seven months.

"It is virtually certain that the penalty reductions under the partial amnesty program are as good as they are ever going to get," said attorney Seth J. Entin, a Greenberg Traurig shareholder in Miami. "If the IRS aims the ship in another direction after Oct. 15, the U.S. clients of that institution may be in a much worse position."

Some lawyers estimate the penalty after Thursday will increase to 50 percent of assets in offshore accounts.

Entin, Panoff and Press said there is a wide spectrum of people coming in to take advantage of the amnesty program. They include U.S. citizens who have lived outside the country their entire lives and only recently learned they should have been filing U.S. tax returns and Holocaust survivors who deposited money offshore out of long-held fears.

"Some of these people had been taking a wait-and-see approach for the last few months or were simply in denial that the secrecy promised to them by the offshore banks is evaporating," Entin said. "They are now coming in out of fear and the desire to avail themselves of the partial penalty amnesty. Others have honestly just learned of the reporting requirements that they should have complied with and want to clean things up in the best way possible."

Press said some clients told him they would rather play a game of chicken with the IRS.

"They say things like, 'I'll take the risk' or 'maybe I'll move the money somewhere else, or maybe I'll move out of the country,'" he said. "I say, 'This is the program. Take it or leave it.'"

Tax practitioners said clients have come in from banks besides UBS and from all over the world, such as Zurich-based Credit Suisse and Julius Baer, LGT in Liechtenstein, London-based HSBC and Israel's Bank Leumi.

Press said he has been contacted by clients in Colombia, Panama and the Cayman Islands, all with different banks.

The program is designed for Americans with large balances. But for people with limited offshore holdings, Rohrer said passing on the amnesty may make more economic sense.

"Once you run the numbers, the program doesn't always provide the best result," he said.

Panoff said he got a call from an attorney who had a client with $70,000 overseas and suggested the client take advantage of the program if only to remove the worry of prosecution.

"People get certainty out of it," he said. "That's what is important to many, many people. They want to sleep at night."