A US banker is scheduled to be sentenced on 17 October for his role in a tax fraud promoted by UBS. As part of its marketing of the venture, the Swiss bank used the annual art fair it has sponsored since 2002 in the US, Art Basel Miami Beach, as a venue to woo wealthy Americans.
The banker, Bradley Birkenfeld, 43, who until recently resided in Switzerland, testified to a congressional subcommittee that the Swiss bank sponsored US events including Art Basel Miami Beach as part of its effort to encourage US taxpayers to set up accounts to evade US taxes.
Mr Birkenfeld pled guilty in a federal court in Florida in June to conspiracy to defraud the US and the Internal Revenue Service. The UBS activities were recounted in a report issued in July by the Senate Permanent Subcommittee on Investigations (SPSI), which has been examining the role of tax haven banks in helping US taxpayers evade taxes.
The SPSI report details eight cases of misconduct involving UBS or LGT Bank in Liechtenstein. The banks urged US taxpayers to open offshore accounts, and helped them hide the income and the accounts from US tax authorities.
Mr Birkenfeld, for example, conspired with US citizen Igor Olenicoff to hide $7.2m in taxes owed on $200m of assets in Switzerland and Liechtenstein.
Swiss bankers from UBS “targeted US clients, travelled across the country in search of wealthy individuals, and aggressively marketed their services to US taxpayers who might otherwise never have opened Swiss accounts,” the report says. This resulted in US taxpayer accounts “which collectively held billions of dollars in assets that were not disclosed to the IRS”. The bank offered products and services within the US that its Swiss bankers were not licenced to provide.
US securities and banking laws prohibit non-US bankers conducting their business there without the appropriate licence. This includes any marketing or advertising, cold calling potential new clients or updating existing clients via email, fax, post or telephone while in the US.
The report says that between 2002 and 2008, UBS’s accounts in Switzerland for clients from the US and Canada grew from around 11,000 to around 20,000 in the US alone, representing net asset growth from $17.9bn to $20bn. Offshore tax abuse costs the US $100bn each year in unpaid taxes, the report says.
Mr Birkenfeld testified that UBS authorised and paid for “prospecting” business trips to the US in which more than 80 Swiss bankers from Lugano, Geneva, and Zurich sought customers through direct marketing. The bank provided tickets and funds for events attended by wealthy US individuals, and sponsored US events likely to draw the wealthy, including Art Basel Miami Beach.
Mr Birkenfeld described how the bankers used the events to drum up business, saying that “it wasn’t difficult to walk into a party” with a business card. His testimony added that “when people aren’t paying” inheritance, income, and capital gains tax, “it’s quite easy for people to bring money to you.”
The subcommittee’s investigation, using Homeland Security records, found that at least five UBS client advisors travelled to the US for trips coinciding with Art Basel Miami Beach. Most of the UBS Swiss client advisors declared the entry as a pleasure trip on US Customs forms.
While the two banks did not technically violate their obligations to the US government, the practices helped keep accounts secret from the IRS, therefore facilitating tax evasion, the SPSI says. The report asks Congress for reforms, including strengthened reporting requirements of US taxpayer income by foreign banks. UBS has stopped all travel by its Swiss bankers to the US and has issued more restrictive policies. It is conducting an internal review of the problem and has cooperated with SPSI in the investigation. UBS declined to comment.