The Justice Department’s Tax Division used a 2008 closed-door meeting with officials from Swiss banking giant UBS to crack open the bank’s secret vaults, according to a Reuters story published Friday.
On Oct. 17, 2008, one day after the Swiss government bailed out the bank, UBS executives and Swiss regulators met with U.S. officials to discuss a wide-ranging tax DOJ fraud investigation centered on the bank.
At the meeting, Kevin Downing, a Tax Division attorney, pressed UBS to disclose the names of U.S. tax evaders. According to persons who were at the meeting, Downing informed UBS that it would have to turn over the names in order to work out a settlement, Reuters reported.
UBS General Counsel Markus Diethelm, who had intended for the company to admit guilt and settle quickly, instead faced the prospect of choosing between violating coveted Swiss banking secrecy or an indictment from the U.S. Department of Justice.
The Securities and Exchange Commission had begun the investigation of UBS in early 2008, and the Justice Department jumped on board shortly thereafter. In May 2008, the investigation had a breakthrough when a former UBS banker pointed U.S. investigators to thousands of suspected American tax evaders allegedly concealing assets in UBS’ Swiss bank accounts.
The whistleblower, Bradley Birkenfeld, later pleaded guilty to charges stemming from his failure to report the tax evasion by his biggest client, California real estate developer Igor Olenicoff, who eventually paid $52 million in fines and back taxes. Birkenfeld was sentenced to three years and four months for his part in the scheme and began serving his time in January 2010.
In February 2009, UBS entered into a deferred prosecution agreement, admitting guilt on charges of conspiring to defraud the United States by impeding the IRS. As part of the agreement, the bank provided the United States with the identities and account information for about 4,450 U.S. customers of UBS. The bank also paid $780 million in fines, penalties, interest and restitution.
Citing “interviews with insiders and a review of documents,” the Reuters article described how the tax case was ultimately resolved, including direct involvement from Secretary of State Hillary Clinton.
According to Reuters, the Swiss Finance Ministry sent a letter to its U.S. counterparts meant to convey the message that Bern wanted to find a solution to the UBS case despite the obvious legal constraints.
U.S. officials saw the letter as political interference and never responded, the article said. Instead, DOJ officials contacted UBS on Nov. 12 to inform it that Raoul Weil, UBS’s global head of wealth management, was being indicted, sparking fear that Chief Executive Marcel Rohner and Chairman Peter Kurer would be next.
UBS is still feeling the effects of the settlement, but has managed to avoid disaster, thanks in part to Oswald Gruebel the bank’s new CEO, the story said.