US to seek client names from UBS in tax case
US prosecutors are expected to confront Swiss banking giant UBS with a broad subpoena for the names of wealthy American clients who may have used its services to avoid income taxes, according to lawyers and others involved in the case.
The subpoena would follow an indictment, unsealed Tuesday in Florida federal court, of former UBS private banker Bradley Birkenfeld and his alleged accomplice, Mario Staggl, a Liechtenstein businessman skilled in setting up intricate trusts in Europe and offshore tax havens. Birkenfeld pleaded not guilty Tuesday in Fort Lauderdale. Staggl, who is at large and believed to be in Liechtenstein, didn't return phone calls or emails for comment.
UBS and the Justice Department declined to comment Wednesday.
Liechtenstein, a principality long seen as a popular place for wealthy Europeans to park funds, would be unlikely to deliver Staggl to US prosecutors, said a Swiss investigator familiar with the situation.
The investigation focuses on whether UBS, Birkenfeld and Staggl helped clients hide assets in Swiss and Liechtenstein accounts, moves that allegedly allowed the clients to avoid reporting taxable income to the Internal Revenue Service from 2001 at least through 2006.
A subpoena issued to UBS would take the case to a higher level and be a black eye for the Swiss bank, which has seen its conservative reputation tarnished by $38bn (€24.5bn) in writedowns on sub-prime-mortgage investments. UBS has relied on its private bank, which provides services to wealthy clients and is the world's largest by assets under management, as a source of profit to help it through the financial crisis.
"This is just the beginning," said David Schwedel, Birkenfeld's partner at a Geneva financial boutique called Union Charter. "This appears to be the IRS' effort to pursue UBS in what most likely will become a larger case. Bradley was not the first or only private banker of UBS to be called in on this issue. Most assuredly, he will not be the last."
The probe has been fast moving. Birkenfeld's former boss, Martin Liechti, the head of UBS' wealth-management business for the Americas, was detained last month in Miami by US authorities under a "material witness" warrant. Liechti couldn't be reached for comment Wednesday.
In what appears to be a related probe, California real-estate developer Igor Olenicoff, a client of Birkenfeld and Staggl, pleaded guilty in December to a charge of filing a false 2002 tax return and agreed to cooperate with investigators. The Justice Department investigation is expected to extend to other US clients.
In 2001, UBS agreed to provide US tax officials with information on any customers receiving taxable US income, a move seen at the time as a big step toward ending the secrecy that has helped make Switzerland a center for private banking. Under that pact, UBS agreed that its customers, for example, would fill out an IRS form that details ownership of foreign bank accounts.
That same year, though, Birkenfeld teamed up with Staggl to find ways to help clients including Olenicoff get around the agreement, according to the Florida indictment. The two traveled to the US to pitch the tax-evasion products, using Staggl's skills at setting up Liechtenstein entities that let clients shroud their ownership of bank accounts, according to the indictment.
The prosecutors' case could be helped by Birkenfeld, a 43-year-old who had offered to hand over the names of UBS clients to the Justice Department before his indictment was unsealed, a person familiar with the situation said. On Wednesday, his lawyer, Danny Onorato, declined to comment.
Birkenfeld, who is from Boston and has lived in Switzerland for 12 years, attended a military college, Norwich University, in Vermont and also obtained a business degree from a university in Vevey, Switzerland. He got his start in finance at State Street Corp., the Boston money-management firm, where he worked in hedging currency risk. He has worked for several banks, according to an online biography.
Birkenfeld joined UBS in 2001 and worked there through 2006 before joining Union Charter. Schwedel said the US probe is not related to Union Charter. He said Birkenfeld remains a partner. Birkenfeld "is and has been a trusted, hard-working loyal private banker for more than a decade and has served multiple private banks," Schwedel said. "Never in his career has anything like this ever occurred."
By Glenn Simpson, Carrick Mollenkamp and David Crawford Glenn.Simpson@wsj.com; Carrick.Mollenkamp@wsj.com; David.Crawford@wsj.com
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