"Pay my troops no mind; they're just on a fact-finding mission."

How the U.S. cracked open secret vaults at UBS

The UBS delegation, led by newly-appointed Group General Counsel Markus Diethelm, arrived armed with the results of an internal report highlighting instances of tax fraud within the bank, insiders told Reuters. The plan was simple: admit guilt, settle the case quickly and move on.

But Kevin Downing, the U.S. Department of Justice Tax Division Attorney who had been investigating UBS since the middle of 2008, chose that meeting to drop a bombshell: he wanted the bank to disclose names of U.S. tax evaders as a condition for a settlement.

That put UBS in the nightmarish position of either breaching nearly a century of Swiss bank secrecy or risking indictment in the United States.

The cross-border accounts were hardly a big part of the bank’s business. They added up to almost $20 billion, or less than 1 percent of UBS’s total invested assets of about $2 trillion (2.174 trillion Swiss francs) at the end of 2008.

Even so, the highest end of the market appears safe for UBS and other Swiss banks. That is because the super wealthy use lawyers to minimize the tax impact through sophisticated watertight tax avoidance structures rather than stashing cash in a secret bank account, or they come from emerging countries that are less sensitive about tax evasion issues.

“Tax evasion is not a problem of the big guys,” said one seasoned Swiss banker.


Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s

%d bloggers like this: