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U.S. Wins Court Order for UBS Swiss Bank Records

Wednesday, 02 Jul 2008 08:32 AM

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WASHINGTON -- A federal judge in Miami has authorized U.S. officials to seek information from UBS AG (UBSN.VX: Quote, Profile, Research) about U.S. taxpayers suspected of using Swiss bank accounts to evade income taxes, part of a probe that could crack open Switzerland's tradition of bank secrecy.

The order issued on Tuesday gives the Internal Revenue Service permission to serve a summons on Zurich-based UBS to obtain information about possible fraud by people whose identities are unknown.

"The order clears the way for the IRS to take the next steps against wealthy individuals who don't pay their taxes." IRS Commissioner Doug Shulman said in a statement.

U.S. District Judge Joan Lenard in Miami granted the so-called "John Doe" summons, a day after the Justice Department made what it called an unprecedented request for the records, part of an IRS investigation into services UBS provided to U.S. clients from 2000 to 2007.

UBS said it was aware of the judge's action. "UBS looks forward to working with the IRS to address the summons," a spokeswoman said.

The order "directs UBS to produce records identifying U.S. taxpayers with accounts at UBS in Switzerland who elected to have their accounts remain hidden from the IRS," the Justice Department said in a statement.

The law requires a United States taxpayer to report all financial accounts in a foreign country if the total value of the accounts exceeds $10,000 at any time during the calendar year. A willful failure to report a foreign account can result in a penalty of up to 50 percent of the amount in the account at the time of the violation, the Justice Department said.

On June 19, former UBS banker Bradley Birkenfeld pleaded guilty in federal court in Florida to conspiring to defraud the IRS by assisting UBS clients in avoiding U.S. reporting requirements on income in Swiss bank accounts.

According to Birkenfeld's court statement, UBS employees assisted wealthy U.S. clients in concealing their ownership of assets held offshore by creating sham entities and then filing IRS forms falsely claiming the entities owned the accounts.

On one occasion, Birkenfeld helped a client by purchasing diamonds with the client's Swiss bank account funds and then smuggling the jewels into the United States inside a toothpaste tube, according to a grand jury indictment against him.

Birkenfeld said in court that UBS had about $20 billion of assets under management in "undeclared" accounts for U.S. taxpayers.

Shares of UBS closed down 5.3 percent at 20.30 francs on the Swiss stock exchange on Tuesday after the bank announced a management restructuring. UBS is under pressure from the Swiss financial watchdog and investors to overhaul its business after more than $37 billion in write-downs during the global credit turmoil.

Judge Lenard said in her two-page order that the court determined that the "John Doe" summons to UBS and its affiliates and subsidiaries "relates to the investigation of an ascertainable group or class of persons."

She said there is a reasonable basis for believing that they (the group or class of persons) may have failed to comply with the U.S. tax laws, and that the sought information is not readily available from other sources.

© Thomson Reuters 2008. All rights reserved.

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