Posts Tagged ‘Tax Enforcement’
Friday, March 12th, 2010

The search for U.S. offshore tax shelters won’t be ending with UBS.

HSBC announced Thursday that 24,000 accounts — nearly one-quarter of the bank’s worldwide clientele — may have been compromised last year by an employee who stole client data.  Now U.S. Department of Justice and IRS officials believe they will be able to obtain the data, which likely includes names of U.S.-based clients using the accounts to evade paying taxes, Reuters reported Friday.

In December, a former HSBC employee, Herve Falciani, allegedly took information on thousands Swiss accounts and turned it over to French tax authorities. According to the news service, U.S. officials believe they can negotiate with France to obtain the information via a treaty.

“To the extent the HSBC data includes U.S. based taxpayers having interests in HSBC foreign accounts, it is a virtual certainty such information will be delivered to the U.S. government,” attorney Chuck Rettig, who presents U.S. clients who held previously undisclosed accounts, told Reuters.

While not condoning the theft, U.S. officials hope the leak might lead more people to come forward.

“A lot of folks, and they seem to be IT (information technology) people, see what’s happening” and bring information to the U.S., Reuters quoted Kevin Downing, a top DOJ lawyer, as telling a group of private and government lawyers at a conference in Washington. “We welcome these guys; please come in.”

Read more from the Reuters account here.

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Monday, July 13th, 2009

As a matter of politics and law, there is almost zero chance the Justice Department will walk away from the UBS AG civil lawsuit without at least some of the 52,000 names of account holders it seeks in a major tax evasion case. But with Switzerland going to the mat to protect its bank secrecy industry, the solution seems to be a negotiated settlement that will give the U.S. at least some of the names of suspected tax cheats.

Carrick Mollenkamp at the Wall Street Journal reports that settlement talks are focusing on some 7,000 accounts tied to offshore companies and trusts, “which are more susceptible to fraud,” according to a “person familiar with the matter.”

The Swiss bank has already given the U.S. the names of some 250 account holders suspected of using the Swiss accounts to evade taxes. That was part of an earlier $780 million settlement of criminal charges against the bank. 

Getting the most important names of account holders would allow the U.S. to claim victory, while ending the growing diplomatic test of wills between the two countries. Switzerland would be able to say its bank secrecy remains intact by finding that fraud was potentially involved in the accounts that it does allow UBS to reveal. 

A settlement that gets the U.S. a good bit of what it seeks isn’t the same as dropping the case, as the New York Times reported on June 22 the U.S. was considering doing. The Justice Department denied the report by Lynnley Browning. Browning filed this report Sunday saying in effect that she was right all along and suggesting the DOJ mislead folks with their denial. I don’t think that’s the right way to characterize matters. You can’t negotiate for anything if you’ve already “dropped” your case. By continuing to pursue the case, the DOJ had a big, big stick to force the Swiss to hand over thousands of names the U.S. otherwise wouldn’t have gotten.

Meantime, today’s much anticipated hearing before U.S. District Judge Alan Gold in Miami will now focus on a motion made Sunday by the U.S., Switzerland and UBS to delay a ruling in the case, pending outcome of the settlement negotiations.

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Wednesday, July 8th, 2009

The Swiss government has turned the UBS AG tax evasion case into a major affaire diplomatique. In an amicus filing, Switzerland said UBS would violate Swiss bank secrecy laws if the bank complied with any U.S. court order to reveal the names of 52,000 Americans suspected of using UBS accounts to duck the tax man. Therefore, Switzerland will order UBS not to comply and could even seize UBS documents to prevent disclosure.

“When the Government of Switzerland issues such an order, it will be an Act of State,” the Swiss government said in the amicus filing, throwing down the gauntlet.

This afternoon, U.S. District Judge Alan Gold asked the Department of Justice to prepare a response to the Swiss government’s ultimatum by Sunday at noon, “after consultations with the Executive Branch, the Department of State and/or  other relevant government agencies.”

Specifically, Gold wants to know “what remedies the United States is prepared to request of this Court… in the event the Petition is granted and there is non-compliance.”

The U.S. needs to explain “how far it intends to proceed by way of request for enforcement, up through and including receivership and/or seizure of UBS’ assets within the United States,” Gold wrote.

You can download the order here.

Wednesday, July 8th, 2009

The Swiss government has called the Justice Department’s bluff in the fiercely fought UBS AG tax evasion case.

After the DOJ’s Tax Division took a club to the Swiss in a ferocious brief filed June 30 in Miami federal court, the Alpine tax haven said today it would forbid UBS from complying with any U.S. court order to reveal the names of 52,000 Americans suspected of using hiding assets from the IRS in accounts at the Swiss bank.

Even more wild: The Swiss government said it would consider seizing UBS documents to prevent the release of the names. Read the Associated Press story here.

There’s no telling what will happen if U.S. District Judge Alan Gold after a hearing in Miami on Monday rules that UBS must hand over the names. If Switzerland refuses to let the bank comply, it could be hit with a fine. How much, who knows. But Reuters looks at UBS’s financials and says the bank could probably afford to pay as much as $5.5 billion. Read the Reuters story here.

The Swiss are absolutely livid that the U.S. might destroy its precious bank secrecy rules, which for decades have allowed the world’s despots, potentates, oligarchs and ordinary tax cheats to launder stolen billions or otherwise hide assets. In really egregious cases, like the late Nigerian military dictator Sani Abacha, the Swiss will cooperate with investigators.

But opening the door as wide as the U.S. is demanding in the UBS case would destroy Switzerland’s business as a tax haven. And it would also make Swiss cities like Geneva a lot less amusing to visit: You’d see lot fewer jewel-bedecked Russian women teetering in high heels and tight jeans down the street next to fully draped Saudi women, who reveal only their eyes and their Fendi hand bags.

Tuesday, June 30th, 2009

Stuart D. Gibson and Richard D. Euliss – I have no idea what you Tax Division guys look like. But the brief you filed Tuesday in the UBS AG tax case is so muscular, so righteous, so full of passion …. so, dare we say, sexy?

Sure, you gave the filing in Miami federal court a demure title, Memorandum of Law In Support of Petition to Enforce “John Doe” Summons. But it’s really a big extended middle finger from the Tax Division to the Swiss government and whomever (note: probably the State Department) leaked to the New York Times that the U.S. was considering dropping one of its most important tax-evasion cases ever. The table of contents comes out blasting:

  •  UBS BROKE THE LAW AND HELPED U.S. TAXPAYERS EVADE THEIR TAXES
  •  UBS KNOWINGLY HELPED ITS U.S. CUSTOMERS COMMIT TAX EVASION
  •  UBS PRIVATE BANKER USED STEALTH TO AVOID DETECTION

And so on.

The confrontational language sure suggests the U.S. won’t settle this civil suit without getting what it demands: the names of 52,000 Americans suspected of hiding assets from the IRS in Swiss-based UBS accounts. Jack Blum, a Washington lawyer who specializes in tax evasion investigations, said UBS is “the best case on the facts the U.S. government will ever have.”

Blum added: “The precedent is essential. UBS subjected itself to U.S. jurisdiction through its conduct. Give up here, and it’s Game Over for IRS.”

Indeed, the brief by Gibson, a senior litigation counsel, and Euliss, a trial attorney, states: “The United States has a vital national interest in maintaining the integrity of its system of taxation.”

The brief paints a portrait of arrogance on the part of UBS. Its bankers “lied on Customs forms – claiming to be in the United States for pleasure … and conducted their business under the radar.”

The bank “openly and notoriously” helped U.S. citizens evade taxes and “secretly and consistently violated with impunity” a Qualified Intermediary agreement to disclose foreign and U.S. beneficial owners of its accounts.

UBS trained its bankers in “spycraft” and “illegally” sent them into the U.S. to “troll” for customers, the brief says.

You can read the 55-page filing here.

To step back for a moment: The U.S. is cracking down on tax havens. In February, UBS admitted under a deferred prosecution agreement that it routinely violated U.S. law by recruiting U.S. clients to put assets in offshore accounts, and by filing paperwork to hide its crimes. The bank disclosed as many as 300 U.S. clients identities to the government and agreed to pay a $780 million fine.

A former UBS executive, Bradley Birkenfeld, earlier pleaded guilty to defrauding the U.S. and is reported to be cooperating with federal investigators.

The U.S. pursuit of UBS has ignited a diplomatic uproar in Switzerland, whose whole economy revolves around being a tax haven for the world’s wealthy. The Swiss cited a tax treaty with the U.S. to argue it could not breach its stringent bank secrecy laws.

The brief drips with contempt for UBS’s argument that by signing the tax treaty, the U.S. was essentially saying it was in America’s national interest not to press the Swiss in such delicate matters.

“It is, to put in mildly, presumptuous for a foreign bank that has engaged in serious criminal conduct in the United States to suggest what is in the best interests of the United States,” the brief said in footnote 49.

Then there’s UBS’s argument that the IRS should only get information on customers the bank has acknowledged were engaged in criminal conduct. The brief says that “would be tantamount to the convicted bank robber arguing that he should be given credit for all the times he walked into a bank and didn’t rob it.”

And to UBS’s argument it always acted in “good faith” to comply with U.S. law, the brief bellows: It “bears all the hallmarks of an eleventh-hour confession, made in the hopes the sinner will be absolved from the full consequences of his wrongdoing.”

 “It is time for UBS to face … the consequences it has brought on itself,” the government said.

Acting Assistant Attorney General John A. Dicicco of the Tax Division was also on the brief. U.S. District Judge Alan S. Gold has scheduled a July 13 hearing on the U.S. request for the UBS client names. For UBS’s response read this Associated Press story.

Wednesday, June 24th, 2009
Mary L. Smith (Schoeman, Updike & Kaufman)

Mary L. Smith (Schoeman, Updike & Kaufman)

Last week, we reported that the DOJ issued a defense of President Obama’s nominee to head the the Department’s Tax Division, Mary L. Smith.  But tax bloggers were not satisfied.  ”The Tax Lawyers Blog,” run by tax attorney Peter Pappas, responded with a post titled: “White House Says DOJ Tax Division Nominee is Qualified, I say Bologna,” while “Taxgirl,”run by Kelly Phillips Erb, went with “Justice Tax Division Nominee Has No Tax Experience.”

Pappas took particular issue with the DOJ’s claim that “The Tax Division is not a policymaking entity.” He noted that the last two Tax Division chiefs, Eileen O’Connor and Nathan Hochman, had extensive experience in tax law. O’Connor, for example, was a corporate tax law specialist at the IRS. “And how is it that an essential qualification of the job is not a thorough grounding in substantive tax law?” Pappas wrote. And it seems that Taxgirl is just shocked that so many people wrote recommendation letters for Smith, including Hochman. You can read Hochman’s letter here.

Tuesday, June 23rd, 2009

The Justice Department issued a statement today shooting down a New York Times report that the U.S. is considering dropping its  tax enforcement case against Swiss bank UBS AG.

“There is no basis for the report in the New York Times,” DOJ spokesman Charles Miller said in the statement. “While the Department is always willing to consider  settlement in any case, the suggestion that the Department is planning to drop this suit is simply untrue. The Department is continuing with the case against UBS and will file its brief asking the court to enforce the summons on June 30.”

The U.S. wants the Swiss bank to cough up the names of 52,000 Americans who may have used UBS to evade taxes by putting money in overseas accounts. Naturally, this effort has caused a huge diplomatic row. The U.S. is taking direct aim at Swiss banking secrecy laws – and if your Swiss bank account isn’t secret, Switzerland ain’t much use as a tax haven, is it?

So you see the problem here.

The Times reported that the move to drop the case could be made by mid-July, which would fall right after the June 30 I.R.S. deadline requiring clients of offshore banks to file certain disclosures, known as F-bars.  The U.S. official told the Times:

“If you look at the repatriations and F-bar filings and voluntary disclosures, and if these are big numbers, then it would make sense to settle this case.”

Many wealthy UBS account holders have already come forward recently to declare their accounts out of fear that they would be outed anyways.  According to the official, the rationale in dropping the case is that:

“To have a complete meltdown in Swiss-U.S. relations and go to the mat with Switzerland three years from now when money is getting back into the system doesn’t make sense,”

The Times also reports that a new treaty was established between the United States and Switzerland to fight tax evasion by increasing information sharing.  The DOJ has also filed legal papers in Swiss courts as an alternate avenue to getting names of Americans hiding money in UBS accounts.  The Swiss government is considering a compromise where the charges in the United States are dropped while the Swiss government complies with the Swiss-based filings.

A trial is scheduled before Federal Judge Alan S. Gold of the United States District Court in Miami on July 13.

You can read our previous reports on the UBS case here, here, here, here, here, and here.

Wednesday, June 17th, 2009

The Nevada U.S. Attorney office has scaled back Assistant U.S. Attorney Greg Damm’s subpoena to the Las Vegas Review-Journal seeking identifying information about people who commented on a May 26 article about an ongoing tax evasion trial, including one commenter who called Damm “evil incarnate.” Click here for our earlier report on the flap.

Now, the office is only requesting information about two comments that may be considered threatening to jurors or prosecutors.

Review-Journal Editor Thomas Mitchell has indicated he will comply with the new, much narrower, request. ”I’d hate to be the guy who refused to tell the feds Timothy McVeigh was buying fertilizer,” Mitchell said in the R-J article.  But the ACLU is not satisfied.  The civil liberties organization has filed a motion to quash the new subpoena.

U.S. District Judge David Ezra will have to decide whether the two comments constitute a threat to the safety of jurors or prosecutors. One of the comments refers to the jurors as “12 dummies” who should be hung if they return a conviction.  The other comment came from someone who wanted to wager ”quatloos” (Star Trek currency) that one of the federal prosecutors would not reach his next birthday.

Both comments have been removed from the site because they violate the paper’s policies, the R-J reported. After the newspaper publicized the subpoena, the number of comments on the story almost doubled, from 100 to around 200, the paper said.

The scaled back subpoena bore the name of Assistant U.S. Attorney Eric Johnson, not the author of the original subpoena, Damm.  This isn’t the first time Damm has been the subject of public scrutinty.  Last year, Damm was blasted by the 9th Circuit Court of Appeals for witholding 650 pages of evidence from the defense.

Gregory A. Brower

Gregory A. Brower

Judge Kim Wardlaw wrote: “This is prosecutorial misconduct in its highest form; conduct in flagrant disregard of the United States Constitution; and conduct which should be deterred by the strongest sanction available.”  Wardlaw dismissed the charges and refused to allow a retrial.  Nevada U.S. Attorney Greg Brower’s spokesman Natalie Collins told Law.com that ”OPR’s investigation concluded that the U.S. Attorney’s Office did not engage in any intentional misconduct.”

Wednesday, June 17th, 2009

The Department of Justice released a statement today in response to a query from the National Law Journal about a story we’ve followed closely here at Main Justice: Republican objections to Tax Division nominee Mary L. Smith’s qualifications. You can read our previous coverage here and here and here.

The DOJ statement, which was also released to Main Justice at our request, reiterates Smith’s experience as a litigator and securities lawyer. It doesn’t differ much from the written responses Smith already gave to Senate Judiciary Committee members after her confirmation hearing last month.

Here is the DOJ statement in its entirety:

Mary Smith is an accomplished litigator who has the skills to succeed as
the head of the Tax Division.  Given her substantial litigation and
management experience, Smith would be a significant asset to the Tax
Division.  It is true that she is not a traditional tax lawyer or a tax
specialist.  However, Smith has extensive experience in financial
litigation, both for and against the government.  The Tax Division is
not a policymaking entity – it enforces the federal tax laws and defends
the United States when it is sued by taxpayers seeking refunds for taxes
that have been paid.  For this reason, the Assistant Attorney General
for the Tax Division needs first and foremost to be a person with
significant litigation experience, preferably experience in tax,
corporate or financial litigation.

Smith began her career in the Department of Justice’s Civil Division,
litigating in the Commercial Branch, which defends the United States in
contract cases and sues to recover monies in situations where the
government had been defrauded.  She was a securities lawyer at Skadden
Arps, a premier New York firm, where she focused on securities
litigation and internal investigations.  In her role at Tyco, Smith
dealt with tax issues on a regular basis, interacting with the tax
department on a range of issues including employee benefits and
strategic issues involving litigation and the company’s corporate
reorganization.  She also served on the DOJ Transition team, focusing on
civil issues, including the Tax Division.

Monday, June 1st, 2009

The nomination of Chicago lawyer Mary L. Smith to head the Tax Division hasn’t gotten a lot of attention. But it is a bit of a puzzler. 

Mary L. Smith (Schoeman, Updike & Kaufman)

Mary L. Smith (Schoeman, Updike & Kaufman)

Tax enforcement right now is hot. The Obama administration is pursuing an explosive case against Swiss bank UBS AG seeking names of 52,000 Americans who used offshore accounts to evade billions of dollars in taxes. And yet, the president has nominated someone with virtually no experience in tax law. Read her bio here. After the election, Obama also put Smith in charge of the DOJ Tax Division transition efforts.

Senate Judiciary Committee ranking member Sen. Jeff Sessions of Alabama pummeled Smith, a former Clinton White House associate counsel, at her May 19 confirmation hearing. Click here to read our previous report.

Since then, Smith has submitted written responses to follow-up questions from four Judiciary members – all Republicans. No Democrat asked follow-up questions.

It’s traditional for nominees before the Senate to answer these “questions for the record” after their initial confirmation hearings. The responses are always carefully worded and vetted by the administration.

But given the legitimate questions Sessions raised about her experience, Smith might have used the opportunity to show more engagement with the issues. Instead, she literally cut-and-paste responses to Sens. Chuck Grassley (R-Iowa) and Orrin Hatch (R-Utah) that were word-for-word identical.

Grassley’s first question was simple: “Why do you want to head the Tax Division of the Justice Department?”

Smith could have taken the opportunity to expound on the rampant abuse of tax havens — a major factor in the Bernie Madoff scandal — and the corrosive effect this secretive, shadow banking system has had on the world financial system.

Instead, she said she would be “thrilled to make a contribution” to the “important mission” of the Tax Division.  She wrote of her “strong sense of public service,” adding that she is “honored” and “excited” to be nominated. Read her full response here.

Hatch wrote:

“Ms. Smith, I believe that the Senate owes some deference to a President’s nominees, so long as they are qualified. … But what I do not see in your background is any tax experience. That concerns me because the division which you have been nominated to head is a specific rather than a general one. That suggests the need for specific rather than general expertise … You do not have that expertise and experience … in contrast to the men and women who have headed the tax division in the past in both Republican and Democratic administrations.”

Smith cut and paste for Hatch the same answers she gave to Grassely. She referred to her work as in-house counsel to manufacturing conglomerate Tyco International, when she helped clean up after the 2005 convictions of ex-CEO Dennis Kozlowski and another Tyco official for looting the company of $600 million.

And Smith, a registered member of the Cherokee Nation, mentioned her work in the Clinton White House making Native American tribes equal to state and local governments under the Federal Unemployment Tax Act.

Smith directed senators to a letter in support of her confirmation from former prosecutor Nathan Hochman, the Assistant Attorney General for the Tax Division at the end of the Bush administration. Other letter-writers testified to her management skills and collegiality, including former Bush administration Solicitor General Ted Olson.

But it was Smith’s series of one-sentence answers to written questions from Sesssions and Sen. Tom Coburn (R-Okla.) that seared:

  • She has no advanced degree in tax law.
  • She has never taken any Continuing Legal Education courses in tax law.
  • She has never given a speech or written an article about tax law.
  • She spent only 5% of her time at Tyco on tax issues.
  • She has tried only three cases to judgment, none involving tax issues.
  • She never worked as a prosecutor
  • She has never appeared before a jury.

Read her response to Sessions here and her response to Coburn here.