The former UBS banker who blew the whistle the Swiss bank that helped Americans evade taxes, Bradley Birkenfeld, 44, is profiled in the Washington Post today. A son of a Massachusetts neurosurgeon, Birkenfeld had homes in Switzerland, drove a BMW, and once smuggled diamonds for a client in a toothpaste tube. Read the Post story here.

Birkenfeld first contacted his superiors at the bank in 2006 about discrepancies between UBS’s written and actual policies in marketing its bank accounts to wealthy Americans. After the bank didn’t pay a promised bonus, Birkenfeld invoked official “whistleblower” status because he he believed he was being retaliated against, the Post reported. Before he’d settled his bonus dispute, Birkenfeld in 2007 contacted the Internal Revenue Service, the Justice Department, Securites and Exchange Commission, and a Senate investigative panel, the Post said.

Birkenfeld’s contacts with the government led to his guilty plea last year to a criminal charge for aiding UBS’s cross-border business. He coooperated with the government, which has recommended his potential 5-year prison sentence be cut in half. He is scheduled to be sentenced Friday in Fort Lauderdale, Fla.

The Justice Department probably won’t get all of the 52,000 names of rich Americans suspected of using UBS bank accounts to evade the Internal Revenue Service. But Swiss and U.S. negotiators said that the disclosure of at least 4,450 names is all but certain. Read The Washington Post report from this morning here.

UBS and DOJ lawyers cut an out-of-court deal last week on a civil lawsuit seeking the names after spending hours in a D.C. building without air conditioning. The final negotiations came after months of heated back and forth on the lawsuit that was turned into a diplomatic issue by the Swiss government.

Swiss government officials previously said they would forbid UBS from complying with any U.S. court order to reveal names. Officials in the Alpine tax haven have not explicitly agreed to disclose any names, but Swiss and U.S. negotiators have agreed that at least 4,450 names will inevitably be turned over to the IRS, The Post reported.

“We will be receiving an unprecedented amount of information,” said IRS Commissioner Doug Shulman, according to The Post.

Read the DOJ news release here, the U.S.-Swiss declarations here and the bank agreement and consent here.

The Justice Department and UBS AG cut an out-of-court deal this week after months of heated back and forth on a civil lawsuit that seeks to force the Swiss bank to divulge the names of rich Americans suspected of tax evasion. The details of the deal forged in the early hours of Wednesday morning still aren’t public but Reuters reported today that it was a hot and steamy affair.

An individual close to the negotiations told Reuters that when the Swiss and American lawyers signed off on the agreement at 2:45 a.m., they had been in a Mint Annex Building room on 9th Street NW in Washington without air conditioning for nearly five hours. D.C. was just recovering from a two-day heat wave which brought temperatures that neared 100 degrees.

“They were all sweating pretty good,” the person close to the negotiations told Reuters.

The Justice Department has demanded that UBS to turn over 52,000 names of account holders suspected of using Swiss accounts to evade Internal Revenue Service.  The Swiss government turned the matter into a diplomatic issue, saying it would forbid UBS from complying with any U.S. court order to reveal the names. The latest reported settlement talks focused on some 7,000 to 5,000 accounts tied to offshore companies and trusts.

Read our previous report here.

UBS AG and the Justice Department have reached an out of court agreement on a contentious civil lawsuit that seeks to force the Swiss bank to divulge the names of rich Americans suspected of tax evasion, The Associated Press reported this morning.

No details of the agreement were announced during a telephone conference that included U.S. District Judge Alan S. Gold, DOJ Tax Division attorney Stuart Gibson and UBS attorney Eugene Stearns, according to The AP. The lawyers only told Gold that they concluded negotiations, the news wire service reported.

The Justice Department demanded that UBS to turn over 52,000 names of account holders suspected of using Swiss accounts to evade Internal Revenue Service.  The Swiss government turned the matter into a diplomatic issue, saying it would forbid UBS from complying with any U.S. court order to reveal the names. We previously reported that the latest  settlement talks focused on some 7,000 accounts tied to offshore companies and trusts.

UBS AG and the Justice Department have agreed that they will seek an out of court settlement on a contentious civil lawsuit that seeks to force the Swiss bank to divulge the names of rich Americans suspected of tax evasion. Read today’s New York Times article here.

UBS.com

The Justice Department demanded that UBS to turn over 52,000 names of account holders suspected of using the Swiss accounts to evade U.S. taxes.  The Swiss government turned the matter into a diplomatic issue, saying it would forbid UBS from complying with any U.S. court order to reveal the names. We previously reported that settlement talks are now focusing on some 7,000 accounts tied to offshore companies and trusts. While the final contours of the settlement aren’t known, it’s likely the DOJ will get at least some of the names it sought.

Tax Division attorney Stuart Gibson said in a conference call with U.S. District Court Judge Alan Gold in Miami that UBS and the U.S. would be able to reach a final deal by Aug. 7, according to The Times. Gold said he would call off a trial that was slated to start Monday, the newspaper reported.

UBS paid $780 million to settle criminal charges in February. And it was the criminal side of the Tax Division that helped negotiate the settlement, after “high-ranking Swiss officials” flew to Washington to resolve it, the Times reported. Gibson, who is heading up the civil case, learned about the agreement Thursday at 7:45 p.m, the Times reported.

Secretary of State Hillary Clinton is slated to discuss the matter with Swiss Foreign Minister Micheline Calmy-Rey today, The Times added.

UPDATE: The final version of the New York Times story deleted information that had appeared on the Web mid-day Friday about the criminal division participating in international settlement negotiations that did not include the civil division lawyers pursuing the case. The possible explanations for the deletion are 1) the information was wrong and someone complained or 2) an editor deemed it extraneous and cut it.

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.

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.

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.

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.

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.