Abstract
This chapter summarizes Levin-led investigations into tax haven banks facilitating tax evasion by U.S. clients. In one inquiry, whistleblowers expose how UBS opened secret Swiss accounts with $20 billion in assets for U.S. clients, and how Liechtenstein’s LGT Bank concealed its U.S. client accounts. Another inquiry exposes how Credit Suisse dragged its feet closing secret Swiss accounts for U.S. clients and was fined $2.6 billion. The chapter also examines U.S. enforcement actions taken against tax haven banks as well as the role of tax treaties. It also explains how the investigations helped spur enactment of landmark legislation known as FATCA to expose foreign bank accounts held by U.S. clients and helped inspire similar transparency measures abroad.
“In case of an interrogation by any authority: protect the banking secrecy.”
UBS, US International Training, at 5 (9/26/2006), 2009 Senate Hearing Exhibit 1d
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Notes
- 1.
Information about LGT Bank and UBS is based upon “Tax Haven Banks and U.S. Tax Compliance,” S.Hrg. 110-614 (7/17 and 25/2008) (hereinafter “Tax Haven Bank Hearing Record”), https://www.gpo.gov/fdsys/pkg/CHRG-110shrg44127/pdf/CHRG-110shrg44127.pdf.
- 2.
See, for example, “Tax Scandal in Germany Fans Complaints of Inequity,” New York Times, Carter Dougherty and Mark Landler (2/18/2008), http://nyti.ms/2mGyzQw.
- 3.
Id.
- 4.
“IRS and Tax Treaty Partners Target Liechtenstein Accounts,” IRS Press Release No. IR-2008-26 (2/26/2008), https://www.irs.gov/newsroom/irs-and-tax-treaty-partners-target-liechtenstein-accounts.
- 5.
For more information about the Marsh accounts, see Tax Haven Bank Hearing Record, at 81–82, 122–128.
- 6.
For more information about the Wu accounts, see Tax Haven Bank Hearing Record, at 82, 128–135.
- 7.
For more information about the Greenfield accounts, see Tax Haven Bank Hearing Record, at 83–84, 144–147.
- 8.
Id., at 84.
- 9.
For more information about the Lowy accounts, see Tax Haven Bank Hearing Record, at 82–83, 135–144.
- 10.
For a copy of the international arrest warrant, see Id., at 222.
- 11.
United States v. Olenicoff, Case No. 8:07-CR-00227-CJC (USDC CD Calif.), Plea Agreement for Defendant Igor M. Olenicoff (12/10/2007). See also “Stay Out of Jail for $52 Million?” Forbes, William P. Barrett and Janet Novack (12/12/2007), http://bit.ly/1dRoZZG.
- 12.
“Banker Pleads Guilty to Helping American Real Estate Developer Evade Income Tax on $200 Million,” U.S. Attorney’s Office for the Southern District of Florida Press Release (6/19/2008), http://www.usdoj.gov/usao/fls/PressReleases/080619-01.html; United States v. Birkenfeld, Case No. 08-CR-60099-ZLOCH (USDC SD Fla.), Statement of Facts (6/19/2008), at 3–4.
- 13.
Mr. Birkenfeld was sentenced in August 2009. In preparation for the sentencing, his legal counsel requested and PSI provided a one-page letter stating that Mr. Birkenfeld had provided accurate information that was of assistance in the PSI investigation. He was ultimately sentenced to 40 months in prison. In 2012, the IRS awarded Mr. Birkenfeld $104 million for supplying information that led, among other results, to the recovery of $780 million from UBS. Mr. Birkenfeld was released from prison that same year.
- 14.
Tax Haven Bank Hearing Record, at 77.
- 15.
Id., at 31.
- 16.
See, for example, “Mystery Site Puts $7-million Bounty on Man Wanted in Theft of Canadians’ Bank Data,” The Globe and Mail, Greg McArthur (6/11/2008), https://tgam.ca/2mIhYvM.
- 17.
Tax Haven Bank Hearing Record, at 708–709 (August 8, 2008 letter from PSI to Mr. Bennett regarding Peter Lowy’s actions).
- 18.
“Super-Rich Tax Cheats,” American News Project (7/25/2008), https://www.youtube.com/watch?v=noU5dRoPIX4.
- 19.
After the hearing, representatives of Peter Lowy occasionally contacted PSI, urging it as late as 2014 to issue a statement indicating it had been mistaken about his role in the Liechtenstein scandal, and that he was not involved in tax avoidance. However, in light of the unchallenged Liechtenstein documents providing contemporaneous evidence that Mr. Lowy was a knowing and willing participant in the formation and dissolution of the $68 million Luperla Foundation, PSI declined the requests to provide a retraction.
- 20.
United States v. UBS, Case No. 09-60033-CR-Cohn (SDFL), Deferred Prosecution Agreement (2/18/2009). See also “UBS Enters into Deferred Prosecution Agreement,” Justice Department Press Release (2/18/2009), https://www.justice.gov/opa/pr/ubs-enters-deferred-prosecution-agreement.
- 21.
“Tax Haven Banks and U.S. Tax Compliance: Obtaining the Names of U.S. Clients with Swiss Accounts,” S. Hrg. 111-30 (3/4/2009), https://www.gpo.gov/fdsys/pkg/CHRG-111shrg49492/pdf/CHRG-111shrg49492.pdf.
- 22.
Id., Exhibit 13, “US International Training,” UBS Document, (9/26/2006), “Lessons Learned,” at 231.
- 23.
See, for example, “UBS Clients Seek Amnesty on U.S. Taxes,” Wall Street Journal, Carrick Mollenkamp and Evan Perez (11/24/2008), http://on.wsj.com/2hCLpdg.
- 24.
See “IRS Reminds Taxpayers that the August 31 Deadline Is Fast Approaching for the Second Special Voluntary Disclosure Initiative of Offshore Accounts,” IRS Press Release No. IR-2011-84 (8/8/2011), https://www.irs.gov/newsroom/irs-reminds-taxpayers-that-the-aug-31-deadline-is-fast-approaching-for-the-second-special-voluntary-disclosure-initiative-of-offshore-accounts.
- 25.
See, for example, “France, Germany Led Charge for New Tax Havens Blacklist,” AFP (10/21/2008), http://nws.mx/2zVPHEZ.
- 26.
See “U.S., Liechtenstein Sign Tax Information Exchange Agreement,” Department of Treasury Press Release No. HP-1320 (12/8/2008), https://www.treasury.gov/press-center/press-releases/Pages/hp1320.aspx. Five years later, in 2013, LGT’s affiliated bank entered into a Non-Prosecution Agreement with the United States and paid a penalty of over $23 million. See “Manhattan U.S. Attorney Announces Agreement with Liechtenstein Bank to Pay $23.8 Million to Resolve Criminal Tax Investigation,” U.S. Attorney for the Southern District of New York press release (7/30/2013), http://www.justice.gov/usao-sdny/pr/manhattan-us-attorney-announces-agreement-liechtenstein-bank-pay-238-million-resolve. In the Non-Prosecution Agreement, the bank admitted, among other matters, that by 2006, it held over 900 undeclared Liechtenstein accounts containing more than $340 million for U.S. clients, and that the bank had assisted a significant number of its U.S. clients to evade their U.S. tax obligations. As part of the agreement, the bank turned over more than 200 client files to U.S. authorities.
- 27.
“Switzerland to Adopt OECD Standard on Administrative Assistance in Fiscal Matters,” Swiss Government Press Release (3/13/2009), www.news.admin.ch/message/?lang=en&msg-id=25863. The next month, Switzerland announced its intention to agree to a revised tax treaty with the United States, incorporating the OECD standards. See, for example, “U.S., Switzerland Begin Negotiations to Bolster Tax Information Exchange,” U.S. Treasury Department Press Release No. TG-85 (4/7/2009), www.treas.gov/press/releases/tg85.htm.
- 28.
See OECD chart entitled, “A Progress Report on the Jurisdictions Surveyed by the OECD Global Forum in Implementing the Internationally Agreed Tax Standard,” (4/2/2009), http://www.oecd.org/ctp/42497950.pdf.
- 29.
See “Promoting Transparency and Exchange of Information for Tax Purposes,” OECD Report (1/19/2010), at ¶ 9, http://www.oecd.org/newsroom/44431965.pdf.
- 30.
“U.S. Discloses Terms of Agreement with Swiss Government Regarding UBS,” U.S. Justice Department Press Release (8/19/2009), https://www.justice.gov/opa/pr/us-discloses-terms-agreement-swiss-government-regarding-ubs.
- 31.
2009 Protocol to 1996 Switzerland-U.S. Income Tax Convention, https://www.congress.gov/treaty-document/112th-congress/1/document-text. The protocol will take effect when it is ratified by the U.S. Senate. Due to Senator Rand Paul’s opposition, the Senate has never taken a vote to ratify the protocol. As of 2017, eight years after the Swiss agreed to provide greater disclosures related to U.S. tax matters, the new protocol has yet to take effect.
- 32.
“Promoting Transparency and Exchange of Information for Tax Purposes,” OECD Report (1/19/2010), at ¶ 4, http://www.oecd.org/newsroom/44431965.pdf.
- 33.
FATCA was introduced as H.R. 3933 on October 27, 2009; examined in a House hearing on November 5, 2009; and enacted into law on March 18, 2010, as Title V(A) of the Hiring Incentives to Restore Employment (HIRE) Act, P.L. 111-47.
- 34.
See “Guidance on Reporting Interest Paid to Nonresident Aliens,” Treasury Department and IRS, 26 CFR §§1.6049-4(b) (5) and 1.6049-8, as revised by TD 9584 (4/17/2012), requiring the reporting of such interest as of January 1, 2013.
- 35.
See “Convention on Mutual Administrative Assistance in Tax Matters,” OECD Website, http://bit.ly/2Abebg9.
- 36.
OECD Automatic Exchange Portal, “About Automatic Exchange,” “A Brief History of AEOI,” http://www.oecd.org/tax/automatic-exchange/about-automatic-exchange/.
- 37.
“Offshore Tax Evasion: The Effort to Collect Unpaid Taxes on Billions in Hidden Offshore Accounts,” S. Hrg. 113-397 (2/26/2014), Volumes 1–2, https://www.gpo.gov/fdsys/pkg/CHRG-113shrg88276/pdf/CHRG-113shrg88276.pdf (Volume 1); and https://www.gpo.gov/fdsys/pkg/CHRG-113shrg89751/pdf/CHRG-113shrg89751.pdf (Volume 2).
- 38.
See “United States and Switzerland Issue Joint Statement Regarding Tax Evasion Investigations,” Justice Department Press Release (8/29/2013), http://www.justice.gov/opa/pr/2013/August/13-tax-975.html.
- 39.
“Dougan’s Reign Tested as Credit Suisse Tax Charge Looms,” Bloomberg, Elisa Martinuzzi, Max Abelson and Elena Logutenkova (5/11/2014), https://bloom.bg/2zMTSFg.
- 40.
United States v. Credit Suisse, Case No. 1:14-CR-188 (USDC ED Va.), Information (5/19/2014).
- 41.
“Levin Statement on Credit Suisse Pleading Guilty to Aiding U.S. Tax Evasion,” (5/19/2014).
- 42.
See “Bank Leumi Admits to Assisting U.S. Taxpayers in Hiding Assets in Offshore Bank Accounts,” Justice Department Press Release (12/22/2014), http://www.justice.gov/opa/pr/bank-leumi-admits-assisting-us-taxpayers-hiding-assets-offshore-bank-accounts. For another example, see “Acting Manhattan U.S. Attorney Announces Agreement with Swiss Asset Management Firm to Resolve Criminal Tax Investigation,” Justice Department Press Release (8/15/2017), https://www.justice.gov/opa/pr/acting-manhattan-us-attorney-announces-agreement-swiss-asset-management-firm-resolve-criminal (describing non-prosecution agreement with Swiss asset manager, Prime Partners, promising disclosure of estimated 175 client names of U.S. persons helped to evade U.S. taxes).
- 43.
“IRS Offshore Voluntary Disclosure Efforts Produce $6.5 Billion; 45,000 Taxpayers Participate,” IRS Press Release No. FS-2014-6 (6/2014), https://www.irs.gov/uac/Newsroom/IRS-Offshore-Voluntary-Disclosure-Efforts-Produce-$6.5-Billion;-45,000-Taxpayers-Participate.
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Bean, E.J. (2018). Battling Tax Haven Banks. In: Financial Exposure. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-319-94388-6_6
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