A U.S. judge said the Internal Revenue Service can demand information from UBS AG about U.S. clients of Wegelin & Co., the Swiss bank that pleaded guilty this month to conspiring to help cheat the IRS.
U.S. District Judge William H. Pauley III signed an order in Manhattan federal court that authorized the IRS to serve a summons on UBS, the largest Swiss bank. The tax agency seeks records of Wegelin’s correspondent account at UBS, according to the Jan. 25 order announced yesterday.
Those records will allow U.S. authorities to determine who held assets at Wegelin and other Swiss institutions using the UBS account, according to U.S. Attorney Preet Bharara. Wegelin admitted on Jan. 3 that it helped U.S. taxpayers hide more than $1.2 billion in assets from the IRS.
The summons is “the latest step in our efforts to identify and prosecute U.S. taxpayers who think they can evade their legal responsibility to pay taxes by secreting their money away in anonymous offshore accounts at Wegelin and other banks,” Bharara said in a statement.
Pauley gave permission to the IRS to serve a so-called John Doe summons on UBS for accounts held from 2003 to 2011. In a court petition, Assistant U.S. Attorney Natalie N. Kuehler said Wegelin held a correspondent account through a UBS office in Stamford, Connecticut. Other Swiss banks also used Wegelin’s UBS account through “nested” relationships, Kuehler wrote.
UBS will fulfill its legal obligations in the U.S., the Zurich-based bank said today in a statement. The summons isn’t for information on UBS clients or for data from Switzerland, it said.
“Wegelin used the UBS correspondent account to provide offshore banking services to dozens of U.S. taxpayers, who the IRS believes may have failed to report the existence of their Swiss bank accounts to the IRS and the Department of Treasury,” Kuehler wrote in a Jan. 25 filing.
In an indictment last year, prosecutors said that more than 100 U.S. taxpayers conspired with Wegelin and Swiss bankers Michael Berlinka, Urs Frei and Roger Keller to hide income from the IRS. Those individuals, who live outside the U.S., were first indicted in January 2012 and haven’t appeared in court to answer the charges. The bank held more than $1.2 billion in assets not declared to the IRS, according to the indictment.
Wegelin and the three bankers wooed U.S. clients fleeing UBS, the government said. UBS avoided U.S. prosecution in 2009 by admitting it aided tax evasion, paying $780 million and handing over data on 250 accounts. It later disclosed information on about 4,450 more accounts.
By attracting ex-UBS clients, Wegelin opened new undeclared accounts for at least 70 U.S. taxpayers, according to the indictment. Most of those accounts were given an internal code of “BNQ,” indicating the accounts were undeclared.
Since the UBS deferred-prosecution agreement, more than 38,000 U.S. taxpayers avoided criminal charges by declaring their offshore accounts to the IRS and telling the agency about the bankers who helped them and how they moved their money.
Of those, 246 had undisclosed accounts at Wegelin, according to an affidavit by IRS Agent Cheryl Kiger.
Under Wegelin’s plea agreement, the bank agreed to pay $20 million in restitution to the U.S., forfeit $15.8 million that represents fees on undeclared accounts and pay a fine of more than $22 million. The agreement needs the approval of U.S. District Judge Jed S. Rakoff. Sentencing is set for March 4.
Taken together with the $16.2 million Wegelin forfeited from its correspondent bank account, the government would receive a total of about $74 million.
The IRS also has served John Doe summonses on UBS and HSBC Holdings Plc, Europe’s largest bank by market value.
The case is In the Matter of the Tax Liabilities of John Does, 13-mc-21, U.S. District Court, Southern District of New York (Manhattan).