[Senate Hearing 111-30]
[From the U.S. Government Publishing Office]
S. Hrg. 111-30
TAX HAVEN BANKS AND U.S. TAX COMPLIANCE: OBTAINING THE NAMES OF U.S.
CLIENTS WITH SWISS ACCOUNTS
=======================================================================
HEARING
before the
PERMANENT SUBCOMMITTEE ON INVESTIGATIONS
of the
COMMITTEE ON
HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS
UNITED STATES SENATE
of the
ONE HUNDRED ELEVENTH CONGRESS
FIRST SESSION
----------
MARCH 4, 2009
----------
Available via http://www.gpoaccess.gov/congress/index.html
Printed for the use of the
Committee on Homeland Security and Governmental Affairs
S. Hrg. 111-30
TAX HAVEN BANKS AND U.S. TAX COMPLIANCE: OBTAINING THE NAMES OF U.S.
CLIENTS WITH SWISS ACCOUNTS
=======================================================================
HEARING
before the
PERMANENT SUBCOMMITTEE ON INVESTIGATIONS
of the
COMMITTEE ON
HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS
UNITED STATES SENATE
of the
ONE HUNDRED ELEVENTH CONGRESS
FIRST SESSION
__________
MARCH 4, 2009
__________
Available via http://www.gpoaccess.gov/congress/index.html
Printed for the use of the
Committee on Homeland Security and Governmental Affairs
U.S. GOVERNMENT PRINTING OFFICE
49-492 WASHINGTON : 2009
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COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS
JOSEPH I. LIEBERMAN, Connecticut, Chairman
CARL LEVIN, Michigan SUSAN M. COLLINS, Maine
DANIEL K. AKAKA, Hawaii TOM COBURN, Oklahoma
THOMAS R. CARPER, Delaware JOHN McCAIN, Arizona
MARK PRYOR, Arkansas GEORGE V. VOINOVICH, Ohio
MARY L. LANDRIEU, Louisiana JOHN ENSIGN, Nevada
CLAIRE McCASKILL, Missouri LINDSEY GRAHAM, South Carolina
JON TESTER, Montana
ROLAND W. BURRIS, Illinois
MICHAEL F. BENNET, Colorado
Michael L. Alexander, Staff Director
Brandon L. Milhorn, Minority Staff Director and Chief Counsel
Trina Driessnack Tyrer, Chief Clerk
------
PERMANENT SUBCOMMITTEE ON INVESTIGATIONS
CARL LEVIN, Michigan, Chairman
THOMAS R. CARPER, Delaware TOM COBURN, Oklahoma
MARK L. PRYOR, Arkansas SUSAN M. COLLINS, Maine
CLAIRE McCASKILL, Missouri JOHN McCAIN, Arizona
JON TESTER, Montana JOHN ENSIGN, Nevada
MICHAEL F. BENNET, Colorado
Elise J. Bean, Staff Director and Chief Counsel
Robert L. Roach, Counsel and Chief Investigator
Christopher J. Barkley, Staff Director to the Minority
Timothy R. Terry, Counsel to the Minority
Mary D. Robertson, Chief Clerk
C O N T E N T S
------
Opening statements:
Page
Senator Levin................................................ 1
Senator Collins.............................................. 8
Senator McCaskill............................................ 20
WITNESSES
Wednesday, March 4, 2009
John A. DiCicco, Acting Assistant Attorney General, Tax Division,
U.S. Department of Justice..................................... 10
Hon. Douglas Shulman, Commissioner, Internal Revenue Service,
U.S. Department of the Treasury................................ 13
Mark Branson, Chief Financial Officer, Global Wealth Management
and Swiss Businesses, UBS, Zurich, Switzerland................. 27
Alphabetical List of Witnesses
Branson, Mark:
Testimony.................................................... 27
Prepared statement........................................... 57
DiCicco, John A.:
Testimony.................................................... 10
Prepared statement........................................... 45
Shulman, Hon. Douglas:
Testimony.................................................... 13
Prepared statement........................................... 51
EXHIBITS
1.a. GTax Haven Bank Secrecy Tricks, chart prepared by the U.S.
Senate Permanent Subcommittee on Investigations................ 61
b. GQuotation from UBS Wealth Management & Business Banking
internal report: ``Review of US Resident Non-W9 Business, Legal
and Compliance,'' page 9, December 10, 2004, chart prepared by
the U.S. Senate Permanent Subcommittee on Investigations....... 62
c. GQuotation from UBS Wealth Management & Business Banking
internal report: ``Review of US Resident Non-W9 Business, Legal
and Compliance,'' page 3, December 10, 2004, chart prepared by
the U.S. Senate Permanent Subcommittee on Investigations....... 63
d. GQuotation from UBS document: ``US International
Training,'' in section subtitled: ``Lessons Learned,'' page 5,
September 26, 2006, chart prepared by the U.S. Senate Permanent
Subcommittee on Investigations................................. 64
e. GQuotation from UBS Memorandum: ``FPWM policy for dealing
with US persons under the QI agreement,'' in section subtitled,
``Purchase of alternative structures,'' page 2, July 4, 2000,
chart prepared by the U.S. Senate Permanent Subcommittee on
Investigations................................................. 65
f. GQuotation from UBS email to third-party corporate
formation agents: ``Structures/Vehicles for U.S./Canadian
Clients,'' August 17, 2004, chart prepared by the U.S. Senate
Permanent Subcommittee on Investigations....................... 66
2. GLetter to the Permanent Subcommittee on Investigations from
His Excellency Urs Ziswiler, Swiss Ambassador to the United
States of America, dated February 20, 2009, declining an
invitation to participate in the Subcommittee's hearing........ 67
3. GDEFERRED PROSECUTION AGREEMENT, UNITED STATES OF AMERICA v.
UBS AG, United States District Court, Southern District of
Florida, dated February 18, 2009 (including deferred
indictment).................................................... 69
4. GCOMPLAINT, SECURITIES AND EXCHANGE COMMISSION v. UBS AG,
United States District Court for the District of Columbia,
dated February 18, 2009........................................ 112
5. GDECLARATION OF DANIEL REEVES excerpted from EX PARTE
PETITION FOR LEAVE TO SERVE ``JOHN DOE'' SUMMONS, United States
District Court, Southern District of Florida, dated June 30,
2008........................................................... 123
6. GDECLARATION OF BARRY B. SHOTT, excerpted from EX PARTE
PETITION FOR LEAVE TO SERVE ``JOHN DOE'' SUMMONS, United States
District Court, Southern District of Florida, dated June 30,
2008........................................................... 140
7. GPETITION TO ENFORCE JOHN DOE SUMMONS, UNITED STATES OF
AMERICA v. UBS AG, United States District Court, Southern
District of Florida, dated February 19, 2009................... 145
8. GDECLARATION OF DANIEL REEVES, excerpted from PETITION TO
ENFORCE JOHN DOE SUMMONS, UNITED STATES OF AMERICA v. UBS AG,
United States District Court, Southern District of Florida,
dated February 19, 2009. [Exhibits to Declaration not attached.
See post-hearing Exhibit No. 18, below.]....................... 151
9. GDECLARATION OF BARRY B. SHOTT, excerpted from PETITION TO
ENFORCE JOHN DOE SUMMONS, UNITED STATES OF AMERICA v. UBS AG,
United States District Court, Southern District of Florida,
dated February 19, 2009. [Exhibits to Declaration not attached.
See post-hearing Exhibit No. 19, below.]....................... 175
10. GBACKGROUND INFORMATION FOR THE COURT'S CONSIDERATION PRIOR
TO THE SCHEDULED STATUS CONFERENCE, filed by UBS, and RESPONSE
TO BACKGROUND FILING BY RESPONDENT, filed by the United States,
UNITED STATES OF AMERICA v. UBS AG, United States District
Court, Southern District of Florida, dated February 20, 2009... 182
11. GEBK investigation of the cross-border business of UBS AG
with its private clients in the USA, Summary Report, prepared
by the Swiss Financial Market Supervisory Authority (FINMA),
February 18, 2009.............................................. 198
12. GReview of US Resident Non-W9 Business, Legal and
Compliance, report prepared by UBS AG Wealth Management &
Business Banking, Risk and Compliance, December 10, 2004....... 215
13. GUBS document entitled, US International Training, September
26, 2006 (protect the banking secrecy)......................... 227
14. GUBS CONTACT REPORT, November 29, 2004 (orange, green, blue,
C, 1 nut, a swan).............................................. 234
15. GUBS AG Memorandum, dated July 4, 2000, regarding IRS 2001,
FPWM policy for dealing with US persons under the QI agreement. 235
16. GUBS email to third-party corporate formation agents titled
Structures/vehicles for U.S./Canadian Clients, dated August 17,
2004........................................................... 237
17. GEX PARTE PETITION FOR LEAVE TO SERVICE ``JOHN DOE''
SUMMONS, United States District Court, Southern District of
Florida, dated June 30, 2008................................... 238
18. GDECLARATION OF DANIEL REEVES, UNITED STATES OF AMERICA v.
UBS AG, United States District Court, Southern District of
Florida, dated February 19, 2009............................... 328
19. GDECLARATION OF BARRY B. SHOTT, UNITED STATES OF AMERICA v.
UBS AG, United States District Court, Southern District of
Florida, dated February 19, 2009............................... 633
20. GINDICTMENT, UNITED STATES OF AMERICA v. Raoul Weil, United
States District Court, Southern District of Florida, November
6, 2008........................................................ 644
21. GTAX CONVENTION WITH SWISS CONFEDERATION and Mutual
Agreement of January 23, 2003, Regarding the Administration of
Article 26 (Exchange of Information) of the Swiss-U.S. Income
Tax Convention of October 2, 1996, with Appendix of
Hypotheticals.................................................. 657
22. GMutual Assistance in Criminal Matters, agreement between
Switzerland and the United States of America................... 712
23. GCorrespondence from O'Melveny & Myers LLP on behalf of
their client UBS AG to the Permanent Subcommittee on
Investigations, dated March 3, 2009, regarding number and types
of accounts that UBS maintained for U.S. clients as part of the
U.S. cross-border business..................................... 872
24. GEnglish translation and original of Swiss Federal
Administrative Court press release, Appellate Proceeding in the
Matter of Administrative Assistance of the Confederate Tax
Administration to the United States of America for Tax Fraud
and Related Matters, March 6, 2009............................. 876
25. GEnglish translation and original of Swiss Federal
Administrative Court Interlocutory Order, Supervision of banks
and stock exchanges, possibly international administrative
assistance, February 20, 2009.................................. 881
26. GDocuments associated with April 2, 2009, G-20 summit
proceedings regarding tax havens:
a. GG-20 final communique, London Summit--Leaders' Statement 890
b. GFinancial annex to G-20 communique, Declaration On
Strengthening the Financial System............................. 899
c. GOECD list of tax havens, A Progress Report on the
Jurisdictions Surveyed by the OECD Global Forum in Implementing
the Internationally Agreed Tax Standard........................ 905
27. GSwiss Government press release, Switzerland to adopt OECD
standard on administrative assistance in fiscal matters, March
13, 2009....................................................... 908
28. GLiechtenstein commits to the OECD standard in tax matters
and seeks to conclude bilateral tax agreements with individual
States, Liechtenstein press release and accompanying The
Liechtenstein Declaration, statement of H.S.H. Heriditary
Prince Alois of Liechtenstein, Liechtenstein Prime Minister
Otmar Hasler, and Liechtenstein Prime Minister elect Dr. Klaus
Tschutscher, March 12, 2009.................................... 909
29. GResponse provided for the record by IRS Commissioner
Douglas H. Shulman to a question posed at the hearing by
Senator Claire McCaskill regarding the whistleblower award
program........................................................ 919
30. GResponses to supplemental questions for the record
submitted to The Honorable Douglas H. Shulman, Commissioner,
Internal Revenue Service, U.S. Department of the Treasury...... 920
31. GResponses to supplemental questions for the record
submitted to John A. DiCiccio, Acting Assistant Attorney
General, Tax Division, U.S. Department of Justice.............. 936
32. GResponses to supplemental questions for the record
submitted to Mark Branson, Chief Financial Officer, Global
Wealth Management & Swiss Bank, UBS............................ 939
TAX HAVEN BANKS AND U.S. TAX
COMPLIANCE: OBTAINING THE NAMES OF
U.S. CLIENTS WITH SWISS ACCOUNTS
----------
WEDNESDAY, MARCH 4, 2009
U.S. Senate,
Permanent Subcommittee on Investigations,
of the Committee on Homeland Security
and Governmental Affairs,
Washington, DC.
The Subcommittee met, pursuant to notice, at 2:34 p.m., in
Room SH-216, Hart Senate Office Building, Hon. Carl Levin,
Chairman of the Subcommittee, presiding.
Present: Senators Levin, McCaskill, and Coburn.
Staff Present: Elise J. Bean, Staff Director and Chief
Counsel; Mary D. Robertson, Chief Clerk; Robert L. Roach,
Counsel and Chief Investigator; Ross Kirschner, Counsel;
Christopher J. Barkley, Staff Director to the Minority; Timothy
R. Terry, Counsel to the Minority; and Clifford C. Stoddard,
Jr., Counsel to the Minority; Adam Parks, Detailee (ICE);
Rachel Siegel, Detailee (GAO); Marcelle John, Congressional
Fellow; Kevin Wack, Congressional Fellow; Daniel Goshorn, Law
Clerk; Ryan McElveen, Intern; Melissa Mann and Clark Porter
(Senator McCaskill).
OPENING STATEMENT OF SENATOR LEVIN
Senator Levin. Good afternoon, everybody.
Each year, the United States loses an estimated $100
billion from U.S. taxpayers using offshore tax schemes to dodge
their U.S. tax obligations. Those offshore shenanigans cheat
honest U.S. taxpayers who pay their fair share and rob the U.S.
Treasury of funds needed for the operations of our government.
This Subcommittee has dedicated significant effort to
combating offshore tax abuse. We have exposed some of the
facilitators--the lawyers, accountants, broker-dealers, company
formation agents, trust administrators, and others--that help
clients dodge their U.S. tax obligations. We have exposed some
of the schemes, such as mass marketed tax shelters peddled as
investment strategies, networks of offshore trusts and
corporations with hidden assets, phony offshore stock
portfolios used to offset real income, and deceptive offshore
transactions used to recast taxable income as allegedly tax-
free payments.
Last July, we held hearings which focused on financial
institutions which are located in offshore secrecy tax havens
and use an array of abusive practices to help U.S. clients hide
assets and income from Uncle Sam. The hearings and a staff
report presented case histories showing how two tax haven banks
used a long list of secrecy tricks to make it nearly impossible
for U.S. tax authorities to trace funds sent offshore. Those
tricks, as indicated on this chart,\1\ included using code
names for clients to disguise their identities; directing
personnel to use pay phones instead of business phones to make
it harder to trace calls back to the bank; providing bankers
with encrypted computers when traveling to keep client
information out of the reach of tax authorities; funneling
money through offshore corporations to conceal incriminating
wire transfers and make audits difficult; opening accounts in
the names of offshore shell companies to hide the real owners;
and providing bankers with counter-surveillance training to
detect and deflect inquiries from government officials.
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\1\ See Exhibit No. 1.a., which appears in the Appendix on page 61.
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This kind of conduct, which actively facilitates tax
evasion, amounts to a declaration of war by offshore secrecy
jurisdictions against honest, hardworking taxpayers. We are
determined to fight back and end the abuses inflicted on us by
those tax havens.
Our focus today is threefold. First, we want to understand
the steps being taken by the U.S. Government to stop UBS, one
of the banks we examined last July, from aiding and abetting
tax evasion by U.S. persons. Specifically, we will examine the
nature of our effort to obtain the names of U.S. clients whom
the bank aided and abetted in the violation of U.S. tax law.
Second, we want to show how our tax treaties are inadequate in
the battle against tax cheats. Third, we want to get people to
focus on how hard it is going to be to put an end to the
offshore secrecy racket, and offer some ideas on what should be
done to stop the abuses.
First, let's examine the UBS case. UBS is headquartered in
Switzerland and is one of the largest banks in the world.
During our July hearing, UBS admitted publicly for the first
time that an estimated 19,000 U.S. clients had opened UBS
accounts in Switzerland with nearly $18 billion in assets that
were not disclosed to the U.S. Internal Revenue Service (IRS).
Since then, new evidence suggests that there may be far
more than 19,000 U.S. clients with hidden accounts at that
Swiss bank. A 2004 UBS internal report, which was introduced in
court by the United States and we have marked as Exhibit 12,\2\
analyzes the U.S. client accounts opened in Switzerland. It
states:
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\2\ See Exhibits No. 1.c. and 12, which appear in the Appendix on
pages 63 and 215.
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``The number of account relationships in WM&BB in
Switzerland with U.S. residents where the account holder has
not provided a W-9 is approximately 52,000 (representing CHF 17
billion''--which means 17 billion Swiss francs--``in assets).''
``WM&BB'' stands for the Wealth Management and Business
Banking group at UBS in Switzerland. A ``W-9'' is the form that
is supposed to be filed with the bank by an account holder who
is a U.S. person. The reference to ``account relationships''
leaves it unclear whether UBS had 19,000 U.S. clients, as UBS
estimated in July, many of whom may have had multiple accounts;
or whether it had 52,000 U.S. clients; or some number in
between. We hope to clear up that issue today.
UBS also admitted during our July hearing that, for years,
its Swiss bankers had made a practice of traveling to the
United States to search out new clients and service existing
clients, even though its Swiss bankers were not licensed to
provide banking or securities services while in the United
States.
In our July hearing, we presented an analysis of U.S.
customs records showing that, from 2001 to 2008, about 20 UBS
bankers made more than 300 trips to the United States. It now
looks like the Subcommittee's analysis was far too
conservative. Listen to this UBS report of 2004:
``In the last year, we are advised that 32 different Client
Advisers from BS NAM''--and that is a group within UBS which
targets business in North America, and now to continue with the
UBS report--``that 32 different Client Advisers have traveled
to the United States on business. On average each Client
Adviser visited the United States for 30 days per year, seeing
4 clients per day. This means that approximately 3,800 clients
are visited in the US per year by Client Advisers based in
Switzerland.''
That is the UBS report which is part of that chart.\1\
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\1\ See Exhibits No. 1.b. and 12, which appear in the Appendix on
pages 62 and 215.
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That UBS Swiss bankers made 3,800 client visits in a single
year in the United States is a stunning fact.
Another striking document involves UBS efforts to train UBS
bankers who traveled to the United States. In the last hearing,
we released an internal UBS training document used to instruct
its bankers on how to detect and avoid surveillance by U.S.
authorities. The new document filed in the court case, which we
have marked as Exhibit 13,\2\ is a 2006 internal UBS document
entitled ``U.S. International Training.'' And in a section
called ``Lessons Learned,'' it states:
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\2\ See Exhibits No. 1.d. and 13, which appear in the Appendix on
pages 64 and 227.
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``In case of an interrogation by any authority:
--protect the banking secrecy
--no client respective communication/wait for assistance
of a UBS lawyer.''
Well, ``protect the banking secrecy'' says it all.
These and other documents demonstrate the actions that UBS
and its personnel took to help U.S. clients hide assets and
income from Uncle Sam and preserve the secrecy needed to thwart
U.S. tax enforcement.
UBS has acknowledged its past conduct, promised to close
the offending accounts, and announced that it would no longer
open Swiss accounts for U.S. clients without notifying the IRS.
Those announcements by UBS, made at our July hearing, were
unexpected, they were welcome, and they sent a shock wave
through the offshore bank secrecy world because they
represented the first time that a major bank in a tax haven
jurisdiction stated publicly it would no longer help U.S.
clients escape their tax obligations.
At the time UBS made these announcements, UBS was under
pressure from the Justice Department. In April 2008, the
Justice Department had indicted a former UBS private banker,
Bradley Birkenfeld, for conspiracy to defraud the United States
out of millions in taxes--specifically, $7.2 million in taxes
owed by a U.S. citizen on $200 million in assets hidden with
UBS' help in Switzerland and elsewhere. In June 2008, Mr.
Birkenfeld pled guilty, and it was clear from the pleadings
that he was cooperating with U.S. prosecutors. That guilty plea
also shook up the offshore secrecy world, since it represented
the first time the United States had convicted a Swiss banker
for helping a U.S. client cheat on his taxes.
Later in June, the United States opened up a second front
in the UBS matter by initiating what is known as a John Doe
summons proceeding in Federal court. In that civil proceeding,
the United States asked a U.S. court for permission to serve a
summons on UBS seeking the names and account information for
all U.S. clients who had opened UBS accounts in Switzerland
from 2002 to 2007, without notifying the IRS as required by our
law so that the IRS could evaluate their tax liability. The
summons is called a John Doe summons because it seeks
information about persons for whom the United States does not
have names. On July 1, 2008, the court issued an order allowing
the IRS to serve the summons on UBS.
Two weeks ago, the Department of Justice confronted UBS
itself by instituting criminal action charging the bank with
defrauding the IRS. UBS decided not to dispute the facts, but
to acknowledge that it had violated U.S. law and had defrauded
the United States of America. It entered into a Deferred
Prosecution Agreement with the United States which provides
that if UBS takes certain steps, the prosecution will be
dismissed.
What steps did the agreement require UBS to take? First,
UBS agreed to close all of the Swiss accounts it had opened for
U.S. clients without notifying the IRS and to put an end to
that line of business. Second, UBS agreed to pay a fine of $780
million. That fine requires UBS to disgorge the profits
obtained from opening Swiss accounts for U.S. clients from 2001
to 2008--that is, some $380 million. The remaining $400 million
represents some of the back taxes, with interest, that UBS
should have withheld from those accounts and paid to the IRS
but did not.
Next, UBS agreed to immediately turn over the names of a
tiny subset of its U.S. clients. The President of Switzerland
has said publicly that UBS provided the United States with the
names of 250 to 300 such clients.
Finally, the Deferred Prosecution Agreement addressed the
John Doe summons proceeding. While the agreement explicitly
acknowledged that UBS would contest in court U.S. efforts to
obtain the names of all U.S. clients with Swiss accounts that
were not disclosed to the IRS, the agreement also specified
that if UBS loses that case on appeal, it either must turn over
all of the requested client names to the IRS or face the
possibility that the United States would resume the prosecution
and use UBS' factual admissions in a criminal proceeding
against the bank. A trial is now scheduled for July to
determine whether UBS has to turn over the names.
The basic focus in that trial will be Swiss secrecy laws.
Today, Switzerland is one of the most vocal supporters of bank
secrecy in the world. The Swiss hold out bank secrecy as a
national value, in the same way Americans prize freedom and
democracy. The Swiss claim that bank secrecy is essential to
protecting individual privacy and is more important than any
law in the United States requiring the payment of taxes. The
Swiss explain that tax evasion is not a crime in their country;
it is only a civil matter that can be remedied by the payment
of back taxes and a fine. They say that only one narrow type of
tax misconduct, which they call tax fraud and which requires
deceptive conduct such as the filing of a false document, can
justify disclosing client information from a Swiss bank.
Switzerland and the United States disagree on whether tax
evasion should be a crime. That has been true for decades. But
here, Swiss bankers aided and abetted violations of U.S. tax
law by traveling to this country, with client code names,
encrypted computers, counter-surveillance training, and all the
rest of it, to enable U.S. residents to hide assets and money
in Swiss accounts. The bankers then returned to Switzerland and
treated their conduct as blameless since Swiss law says tax
evasion is no crime. The Swiss bank before us deliberately
entered the United States, actively sought U.S. clients, and
secretly helped those U.S. clients defraud the United States of
America. Bank secrecy under those conditions is not a value to
be protected; it is part and parcel of a conspiracy to commit a
crime under U.S. law.
UBS has specifically acknowledged wrongdoing and admitted
in court that it ``participated in a scheme to defraud the
United States and its agency, the IRS.''
I want to read that again, because I think those words are
so compelling. UBS has specifically acknowledged wrongdoing and
admitted in court that it ``participated in a scheme to defraud
the United States and its agency, the IRS.'' But the Swiss
Government, instead of condemning UBS' misconduct, is trying to
thwart our efforts to get the names of all of the bank's U.S.
clients with hidden Swiss accounts. Switzerland characterizes
our effort as a ``unilateral measure'' that is contrary to
Swiss law. According to the press, the President of Switzerland
insists that, in his country, ``Bank secrecy remains intact.''
I am not surprised the Swiss Government is opposing UBS'
compliance with the John Doe summons and has directed the bank
not to provide all the names, or that it refused to show up at
this hearing. They make a living off secrecy. Bank secrecy is a
cash cow in Switzerland.
The Swiss Government argues that, instead of the John Doe
summons, the United States ought to be using the procedures set
up under the U.S.-Swiss tax treaty. But that tax treaty, like
other tax treaties and tax information exchange agreements that
the United States has in place around the world, is not
designed to handle inquiries for information on taxpayers whose
names are unknown. As the IRS explained in a court pleading,
the Swiss have consistently applied the tax treaty ``to provide
the [IRS] assistance only in response to specific requests that
name a particular taxpayer.''
When we don't have specific taxpayer names, our tax
treaties have proven to be of little use. In the UBS case, for
example, 7 months ago at the urging of the Swiss, the United
States made a request under the treaty to get information about
unnamed U.S. clients with UBS accounts in Switzerland. Out of
the 52,000 UBS account relationships and estimated 19,000 U.S.
clients, guess how many U.S. clients the Swiss have determined
can be provided to us under the tax treaty?
Twelve out of either 19,000 or 52,000, or the number that
we will make clear today. Twelve U.S. clients out of a universe
of tens of thousands.
To make matters worse, the Swiss Government notified the 12
that they could appeal the determination, and lengthy appeals
are now underway in Swiss courts. The IRS stated in a court
pleading that, 7 months after making its request, ``the Swiss
Government has not provided any records sought under the Treaty
Request, and it is not clear when, if ever, it will.''
So here is the bottom line about the failure of our tax
treaty with Switzerland to get us needed information in order
to go after U.S. tax cheats. UBS has accepted ``responsibility
for the violation of [U.S.] law.'' UBS has admitted that it
referred U.S. clients who wanted to hide their assets to
outside firms ``with the understanding that these outside
advisers would help such U.S. clients form offshore companies
in order to enable such clients to evade'' U.S. law. UBS also
admitted that its bankers and managers took a range of other
actions which ``actively assist[ed] or otherwise
facilitate[d]'' U.S. taxpayers who were evading U.S. taxes,
such as having their bankers travel to the United States to
service those clients in ways that would conceal their account
transactions. And, again, UBS specifically agreed in the court
case that, acting through certain of its bankers and managers,
it ``participated in a scheme to defraud the United States and
its agency, the IRS.''
Despite those admitted facts, UBS refuses to turn over the
vast majority of the names of the U.S. persons with whom they
schemed to defraud the United States. UBS and Switzerland
justify that refusal by invoking Swiss secrecy laws. They say
the United States should use the tax treaty process instead,
but that is not going to help because the Swiss have
interpreted the treaty to deny information requests about
potential tax cheats whose names are unknown. And why are those
names unknown? Because of Swiss secrecy laws.
Too many countries are using our treaties as a shield to
deny us tax information instead of using those treaties as a
sword to expose tax cheats as was intended. The result is a
cynical charade in which tax havens like Switzerland try to
have it both ways--claiming to be a cooperative partner in the
international fight against tax abuse, while providing a safe
haven and promising ironclad secrecy laws for tax evaders.
We cannot rely on our tax treaties with secrecy tax havens
to protect us from offshore tax abuse. We have to rely on our
own laws instead, and we need to strengthen those laws if we
want to put an end to offshore tax haven abuses against Uncle
Sam and against honest, taxpaying Americans.
As a first step, Congress should enact the Stop Tax Haven
Abuse Act, S. 506, which I and a number of my colleagues
introduced earlier this week and which the Obama Administration
endorsed yesterday through Treasury Secretary Geithner.
This bill offers powerful new tools to detect and stop
offshore tax offenders, including by ending the Ugland House
scam that allows phony offshore shell corporations operated
from the United States to dodge U.S. taxes, permitting the
establishment of legal presumptions that can be used to combat
offshore secrecy, authorizing special measures--these are all
the things our bill would do--authorizing special measures
against financial institutions or countries that impede U.S.
tax enforcement, requiring third-party disclosures of offshore
transactions, extending the deadline for assessing taxes in
offshore cases from 3 to 6 years, and closing a raft of
offshore tax loopholes.
Now, there are also actions that the Obama Administration
can take to clamp down on offshore tax abuses, without waiting
for legislation. The Administration could, for example,
establish a special enforcement unit to handle the hundreds if
not thousands of prosecutions likely to result from the UBS
case alone and to initiate proceedings against other tax haven
banks. That enforcement unit would send the message that the
UBS tax scofflaws are not going to get off scot free, and no
tax haven bank account is free from risk.
The Administration could also become an active participant
in ongoing international efforts to penalize offshore
jurisdictions that facilitate tax evasion. Efforts by the G20
group of nations to coordinate action against offshore tax
havens are gaining steam in anticipation of the G20 meeting in
April, but the United States has so far been largely silent. It
is time for the United States to become a leader, not a
follower, in international efforts to develop a list of
uncooperative tax havens and to develop a toolbox of penalties
to be imposed on those who impede tax enforcement.
Another step the Administration could take is to continue
the efforts of the Bush Administration to strengthen the
Qualified Intermediary Program that determines what information
foreign banks give to the IRS. Right now, these QI Agreements
between the IRS and foreign banks require the foreign banks to
report to the IRS only those foreign accounts containing U.S.
securities. At a minimum, QI Agreements should require foreign
banks to report all foreign accounts with U.S. account holders,
whether those accounts contain securities, cash, or other
assets. In addition, QI Agreements should make it clear that
foreign banks have to disclose to the IRS accounts held by a
foreign entity, such as an offshore corporation, that is
beneficially owned by a U.S. person.
A longer-range project is for the United States to
strengthen its tax treaties and tax information exchange
agreements. New provisions are needed to ensure that
information can be obtained for unnamed U.S. taxpayers
associated with entities suspected of tax misconduct, and to
eliminate the tax fraud distinction which has become a barrier
to effective tax information exchange.
Finally, the Administration should consider finalizing a
regulation proposed by the Clinton Administration years ago.
That regulation would allow the United States to engage in
automatic information exchanges of account information with
countries on a reciprocal basis for tax enforcement purposes.
Right now, the only automatic tax information exchanges we
engage in are with Canada. A lot more countries may be willing
to participate. The resulting account data could produce new
information identifying U.S. tax dodgers.
Offshore tax abuses are burning a $100 billion hole in the
U.S. budget. While the Justice Department and the IRS are to be
commended for their creative and tenacious efforts in the UBS
case, nobody should think for a moment that the offshore tax
battle is over, even if the IRS wins that lawsuit. Despite UBS
being caught red-handed and admitting wrongdoing, the Swiss
Government is fighting the John Doe summons and defending Swiss
secrecy. The president of the Swiss Bankers Association told
the press, ``The large majority of foreign investors with money
placed in Switzerland evade taxes''--his words--but he showed
no regret that the Swiss financial institutions are
facilitating that tax evasion--quite the contrary since tax
evasion is not a violation of law in Switzerland. And
Switzerland is just one of 50 tax havens battling to keep
offshore secrecy laws in place.
The rest of the world is getting fed up with offshore tax
havens that turn a blind eye to tax evasion and allow their
financial institutions, lawyers, accountants, and others to
profit from tax dodging. Countries victimized by offshore tax
abuses are losing billions of dollars per year. We cannot
afford to ignore those offshore tax losses any longer. And it
is way past due that we act to end the offshore tax-dodging
drain on our treasury.
Let me now turn to my Ranking Member, Senator Coburn, for
his opening statement. This is the first Subcommittee hearing
in which he is participating in that new role. I welcome him. I
look forward to working with him in the Subcommittee's ongoing
efforts to combat offshore tax abuse and in so many other joint
endeavors.
Senator Coburn.
OPENING STATEMENT OF SENATOR COBURN
Senator Coburn. Thank you, Mr. Chairman, and let me tell
you how much I appreciate what you and your staff and the staff
on PSI Subcommittee have done. We have before us significant
problems. There is no question there has been fraud. There is
no question there have been violations of U.S. law. But there
is also no question that the origin of these problems is a very
complex Tax Code in the United States, and it is up to us to
simplify it, make it fair, make it more straightforward.
I will have a very limited statement and then put something
into the record.
It is just simply a matter of fairness that if you owe
taxes in the country, you ought to pay them, because if you do
not, you are stealing money from somebody less fortunate. You
are not just protecting your assets; you are actually taking
assets from somebody who is much less fortunate than you are.
Today's hearing presents us with an opportunity today to
get a little further along in terms of the facts of this case.
I am reviewing Senator Levin's bill. I do have one central
concern: That we not drive capital out of this country. But one
of the things we want to do is have a Tax Code that rewards
capital investment and capital formation in this country, and I
will be working with Senator Levin in that regard.
I look forward to hearing our witnesses and questioning
them, and I would yield back.
PREPARED OPENING STATEMENT OF SENATOR COBURN
Mr. Chairman, I want to thank you for continuing this important
inquiry into how certain foreign banks and their American clients have
flouted U.S. tax laws. I truly appreciate what you and the Subcommittee
staff have accomplished.
We have before us significant problems. There is no question there
has been fraud. There is no question there have been violations of U.S.
law. But, let us be clear: there is also no question that the root of
many of these problems is our country's very complex Tax Code. We need
to simplify it, make it fair, make it straightforward.
Of course, I don't mean to minimize the effrontery of the
individuals involved in these schemes. Though I am no fan of the U.S.
tax code, fraud of any kind deeply offends me. As a fundamental matter
of fairness, if you owe taxes to your government, you ought to pay
them. When you fail to do so, you are literally robbing your honest
neighbors. You are not merely ``protecting your assets;'' you are
actually stealing the assets of the less fortunate. It is a shameful
crime. But today I would like to make a larger point . . .
This country has the world's largest economy as well as the world's
largest equity market. We are leaders in commodity and debt markets, as
well. But our lead has definitely been shrinking as countries with more
favorable tax rates and more sensible regulatory regimes attract
capital that used to flow to our shores. The Cato Institute's Chris
Edwards and Dan Mitchell recently described the myriad ways that U.S.
tax policy puts this county's economy at a competitive disadvantage.
For example, the U.S. boasts the following dubious distinctions:
The 2nd-highest corporate tax rate in the world at 40
percent, which includes the 35 percent Federal rate plus the average
state rate. By contrast, the average corporate rate in Asia is 29
percent, in Latin America 27 percent, and in Europe 24 percent.
Complex and uncompetitive business taxation. The
World Bank ranks the U.S. 76th on having a low burden of business taxes
and tax compliance costs.
The 8th-highest dividend tax rate in the OECD.
The 3rd-highest estate or inheritance tax rate in the
OECD.
One of the highest tax rates in the world on
corporate capital gains.
Tax rates on individual income, capital gains,
dividends, and estates that are scheduled to rise in 2011 when current
tax cuts expire.
State-level corporate tax rates that have not been
cut in decades.
With such albatrosses around our neck, it is no wonder that
America's share of global equities market capitalization has plummeted
from one-half in 1997 to just one-third in 2007; that our share of
world gross domestic product has also declined; that our leading role
in initial public offerings has vanished; and that we are well below
our potential when it comes to transactions in interest-rate products
and foreign-exchange trading.
The world is, as they say, ``flat,'' and global competition for
capital has become more fierce than ever before. The United States,
with its draconian tax code, is losing this competition to countries
like Singapore, Luxembourg, Hong Kong, and especially the U.K. Nations
such as these are making smarter tax and regulatory policies, and these
decisions are paying great dividends in the form of increased jobs and
investment. These countries understand that financial activity--
especially those relating to derivatives and money management--crosses
international borders with the greatest of ease, and they have rolled
out the welcome mat.
Consider how the U.K., with just a 5 percent share of world gross
domestic product, boasts a 40 percent share of daily foreign exchange
trading and interest rate derivatives trading and is a leader in metals
and oil trading. Even more impressive has been the Irish experience:
Ireland reduced its capital gains tax rate from 40 percent to 20
percent in 1980 and later slashed its corporate tax rate to 12.5
percent--decisions that gave birth to the Celtic Tiger. Such smart tax
policies transformed Ireland into an industrial and financial hub, and
Irish incomes rose from 30 percent below the European average in the
1980s to 40 percent above the average in 2004.
Clearly, we need a tax code that rewards capital investment and
capital formation in this country, but we do not yet have one. Instead,
we have a tax code that stands athwart the salutary, twin trends of
global capitalization and increasing international tax competition. We
need a flatter, simpler, fairer tax code and not the sky-high rates and
convoluted provisions that are making the U.S. a less hospitable
investment environment.
I look forward to working with our witnesses and with Chairman
Levin to create a more sensible tax and regulatory regime.
Senator Levin. Thank you so much, Senator Coburn.
And now let me welcome our first panel of witnesses for
this afternoon's hearing: John DiCicco, Acting Assistant
Attorney General for the Tax Division of the Department of
Justice; and we are delighted that we have with us Doug
Shulman, the Commissioner of the Internal Revenue Service. We
know how busy your schedule is, Commissioner Shulman, we are
delighted you were able to get here today.
Mr. DiCicco, I believe this is your first appearance before
the Subcommittee. We welcome you. Commissioner Shulman, again,
thank you for being here. You have testified before the
Subcommittee in the past, so we welcome you back. And as you
know, pursuant to Rule 6, all witnesses who testify before this
Subcommittee are required to be sworn, and I would ask you now
both to stand and raise your right hand.
Do you swear that the testimony you are about to give
before this Subcommittee will be the truth, the whole truth,
and nothing but the truth, so help you, God?
Mr. DiCicco. I do.
Mr. Shulman. I do.
Senator Levin. We will use a timing system today--a minute
before the red light comes on, you will see the lights change
from green to yellow, which will give you an opportunity to
conclude your remarks. Your written testimony will be printed
in the record in its entirety, and we would appreciate your
using up to 10 minutes for your oral testimony.
Apparently, the order of our witnesses has been decided
upon in advance with your mutual understanding, so, Mr.
DiCicco, we will have you go first, followed by Commissioner
Shulman.
TESTIMONY OF JOHN A. DiCICCO,\1\ ACTING ASSISTANT ATTORNEY
GENERAL, TAX DIVISION, U.S. DEPARTMENT OF JUSTICE
Mr. DiCicco. Chairman Levin, Acting Ranking Member Coburn,
and Members of the Subcommittee, thank you for the opportunity
to appear before you this afternoon to discuss the Department
of Justice's efforts to combat the use of banks and offshore
entities by U.S. taxpayers to evade income taxes.
---------------------------------------------------------------------------
\1\ The prepared statement of Mr. DiCicco appears in the Appendix
on page 45.
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The Department greatly appreciates the extraordinary
commitment that the Chairman, Members of the Subcommittee, and
staff have made to investigate the often arcane world of
offshore tax evasion and avoidance. Your tireless work over the
last several years has brought attention to serious misconduct
that threatens to undermine the fundamental integrity of our
tax system. Although we stand ready to enforce the tax laws
whenever and wherever necessary, enforcement is only one
element of successful tax administration. Thanks to your
efforts, taxpayers have a greater understanding of their
obligations and the consequences of noncompliance. You have
also put tax professionals and financial advisers on notice
that their efforts to design, market, and facilitate tax
evasion schemes will not be tolerated.
In conducting law enforcement investigations, the
Department goes to great lengths to ensure that the
government's inquiry is complete and that testimony and
evidence are gathered and fully analyzed outside of the public
arena. Our policy of not disclosing non-public information
about ongoing matters protects the rights of individuals who
may be assisting in the investigation, protects the rights of
criminal defendants, as well as the integrity of the
investigation itself. Our ability to comment is also
circumscribed by Federal Rule of Criminal Procedure 6(e), which
protects the disclosure of grand jury information. In a tax
case, the tax privacy statute, Section 6103 of the Internal
Revenue Code, further limits the government's disclosure of tax
information. Although certain aspects of the UBS matter are
public, both the civil and the criminal matters are ongoing,
and certain documents relating to the criminal matter remain
under court seal. Therefore, my remarks today will be strictly
limited to positions the Department has taken on the public
record.
As the Chairman has mentioned, on February 28, 2009, the
district court in Florida accepted a Deferred Prosecution
Agreement between the government and UBS. Under the terms of
that agreement, UBS waived indictment and consented to the
filing of a one-count criminal information charging UBS in a
conspiracy to defraud the United States and the Internal
Revenue Service, in violation of U.S. criminal law. As part of
the Deferred Prosecution Agreement, UBS also agreed to pay $780
million in fines, penalties, interest, and restitution. If UBS
carries out its obligations under the Deferred Prosecution
Agreement, the government will recommend dismissal of the
charge. The Deferred Prosecution Agreement is a product of UBS'
willingness to cooperate thus far with our investigation. The
Government of Switzerland has also endeavored to provide
significant assistance and cooperation. We appreciate the Swiss
Government's efforts and those of its finance and banking
regulator who assisted in expediting the production of the
records that we have secured and that we are in the process of
securing.
Fundamental to the agreement is UBS' acceptance of
responsibility for violating U.S. law. As set forth in detail
in the Deferred Prosecution Agreement, UBS acknowledged that,
beginning in 2002 and continuing through 2007, UBS private
bankers and managers actively facilitated the creation of
accounts in the names of offshore companies, allowing U.S.
taxpayers to conceal their ownership or beneficial interest in
those accounts in an effort to evade U.S. tax reporting and
payment requirements and in violation of a qualified
intermediary agreement UBS had entered into with the Internal
Revenue Service. UBS also admitted that certain UBS executives
and managers were aware of the misconduct, and UBS agreed that
it failed to implement effective controls to detect and prevent
the unlawful activity, that it failed to initiate an effective
investigation into credible allegations of such unlawful
activity, and that it failed to take effective action to stop
such activities.
UBS bankers routinely traveled to the United States to
market Swiss bank secrecy to U.S. clients interested in
attempting to evade U.S. income taxes. An internal UBS
memorandum filed with the court demonstrates that, in 2004
alone, UBS bankers traveled to the United States where they
held approximately 3,800 separate meetings with U.S. clients to
discuss their clients' Swiss accounts.
UBS used a variety of strategies to conceal their cross-
border activities. They instructed their bankers who traveled
to the United States to falsely represent to Customs that they
were traveling for pleasure. They also recommended that bankers
rotate hotel accommodations in the United States to avoid
detection. UBS bankers used counter-surveillance techniques,
including encrypted spread sheets, designed to help prevent the
detection of their marketing efforts, as well as the identities
and undeclared assets of their U.S. clients.
U.S. clients in turn filed false tax returns with the
Internal Revenue Service which omitted the existence of and the
income earned on the UBS accounts. UBS bankers advised U.S.
clients to misrepresent the receipt of funds in the United
States from their UBS accounts as loans from UBS. U.S. clients
were also advised to destroy all U.S.-based records of their
offshore accounts.
With the assistance of UBS bankers and managers, the U.S.
taxpayers have used Swiss bank secrecy laws and sham entities
to conceal from the IRS approximately $20 billion in assets.
For the period 2000 through 2007, UBS failed to withhold
approximately $120 million in income taxes on income earned in
those accounts.
As part of the Deferred Prosecution Agreement, UBS has
agreed to provide the United States with voluminous and
detailed records concerning accounts held directly or through
beneficial arrangements by U.S. taxpayers. UBS has also
undertaken a continuing obligation to cooperate with the
criminal investigation and any resulting prosecutions. UBS has
further agreed to search for and turn over any additional
records found concerning such accounts. The specific criteria
for account records disclosed and the number of such accounts
as to which records have been disclosed to date are set forth
in a document that the district court has ordered sealed.
UBS has also agreed to pay the United States $780 million
and that it will terminate its U.S. cross-border business. And
as mentioned in the prosecution agreement, while they will
litigate in Federal court the government's motion to enforce
the John Doe summons, in the event that they are ordered to
comply with the summons and they refuse to do so, the United
States can determine that a breach of the Deferred Prosecution
Agreement has occurred and can take appropriate action.
UBS' failure to comply with the terms of the Deferred
Prosecution Agreement may, in the sole discretion of the United
States, be deemed a material breach, permitting the United
States to proceed with the criminal prosecution of UBS. If UBS
fully complies with the Deferred Prosecution Agreement, then
the criminal information will be dismissed.
It is important that the Deferred Prosecution Agreement
only applies and provides protection for the bank as to the
specific conduct set forth in the Deferred Prosecution
Agreement. It does not provide any protection for any conduct
or as to any matter or proceeding outside the scope of the
agreement.
It is also important to emphasize that under U.S. law, U.S.
taxpayers are subject to taxation on their worldwide income.
Although a U.S. taxpayer is free to hold accounts offshore or
in a foreign bank, a U.S. taxpayer must report information
about those assets and must pay the tax on the income
generated. Taxpayers who fail to make disclosure or to report
their income are potentially subject to civil penalties and in
appropriate circumstances criminal prosecution.
As noted in the Deferred Prosecution Agreement, in addition
to addressing UBS' role in designing and facilitating this
scheme, the Department is also assisting the Internal Revenue
Service in determining the identities of the U.S. taxpayers
involved. We are presently involved in a proceeding to enforce
the John Doe summons pending in the Southern District of
Florida, and we have a schedule there which would allow for a
hearing on, I think, July 13 of this year.
In closing, I think it is important to remember that the
vast majority of Americans voluntarily pay their taxes on time
and in full. And at a time when millions of Americans are
losing their jobs, their homes, and their health care, it is
deeply troubling that thousands of the wealthiest among us have
actively sought to evade their civic and legal duty to pay
taxes. The Department of Justice is committed to doing all that
it can to aid the Internal Revenue Service in locating those
who would seek to hide behind secret accounts and to hold them
accountable under the Federal tax laws. And we greatly
appreciate your interest in our efforts.
Thank you for this opportunity to testify before the
Subcommittee, and I am happy to take your questions, within the
parameters that I have outlined.
Senator Levin. Thank you very much, Mr. DiCicco. Mr.
Shulman.
TESTIMONY OF HON. DOUGLAS SHULMAN,\1\ COMMISSIONER, INTERNAL
REVENUE SERVICE, U.S. DEPARTMENT OF THE TREASURY
Mr. Shulman. Mr. Chairman, Ranking Member Coburn, and
Senator McCaskill, I want to thank you for the opportunity to
testify today on the Internal Revenue Service's ongoing efforts
to detect and stop unlawful offshore tax avoidance.
---------------------------------------------------------------------------
\1\ The prepared statement of Mr. Shulman appears in the Appendix
on page 51.
---------------------------------------------------------------------------
Mr. Chairman, I am pleased to be here today to tell you
about the unprecedented focus that the IRS has placed on
detecting and bringing to justice those who unlawfully hide
assets overseas to avoid paying tax. In today's economic
environment, where the Federal Government is necessarily
running deficits to restore economic growth, it is more
important than ever that citizens feel confident that
individuals and corporations are playing by the rules and
paying the taxes that they owe.
When the American public is confronted with stories of
financial institutions helping American citizens maintain
secret overseas accounts involving sham trusts to improperly
avoid U.S. tax, they should be outraged, as I am and I know you
are. But they should also know that the U.S. Government is
taking unprecedented measures, and there is much more in the
works.
I can assure you that the President and the Treasury
Secretary are committed to taking aggressive action on offshore
tax abuse. Over the next several months, the Administration
intends to propose a series of legislative and enforcement
measures to reduce U.S. tax evasion and avoidance.
While I am proud of the progress we have made at the IRS
since I have become Commissioner, we are only at the beginning.
You can expect to see a multi-year effort to beef up our
resources and the tools that we have to address international
tax abuse.
In the wake of publicity around the recent case that my
colleague Mr. DiCicco discussed, the press has been full of
speculation from those who are advising U.S. taxpayers who have
undeclared offshore accounts and income. My advice to those
taxpayers who are hiding accounts still is very simple: The IRS
has been steadily increasing pressure on offshore financial
institutions that facilitate concealment of taxable income by
U.S. citizens. That pressure will only increase under my watch.
Those who are unlawfully hiding assets should come and get
right with their government through our voluntary disclosure
process.
Mr. Chairman, there is no silver bullet or one strategy
that will alone solve the problems of offshore tax avoidance.
Rather, an integrated approach is needed, made up of separate
but complementary programs that will tighten the net around tax
cheats.
My written testimony today explores elements of these
strategies in more detail, but let me highlight a couple of
them here today.
First, the IRS is devoting significant and ever increasing
resources to international issues. I have both increased the
number of audits and increased hiring in the area of offshore
tax abuse, hiring international experts and investigators.
Indeed, over the last 5 months, when we have essentially been
in a hiring freeze because of the continuing resolution, I have
shifted resources to make sure we can keep hiring people for
international issues.
The President's 2010 budget will allow us to increase our
resources in the international area as well by including
funding for a robust portfolio of IRS international tax
compliance initiatives.
The IRS is also looking closely at how to continue to
improve our Qualified Intermediary Program, or QI program for
short. Let me just say that the QI program gives us a very
important line of sight into banks that service U.S. and
foreign taxpayers, and that is a line of sight that we did not
have before. But as I have said before, with any large and
complex program, we have to strive to continuously improve the
QI system and address weaknesses as they become apparent.
Accordingly, the IRS and the Treasury Department are
considering enhancements to strengthen the QI program,
including: First, expanding information reporting requirements
to include more sources of income for U.S. persons with
accounts at QI banks; second, strengthening documentation rules
to look through trusts and private corporations to their
beneficial owners and requiring withholding for accounts with
documentation that is considered insufficient. Additionally, we
have already proposed changes that would shore up the
independent review by outside auditors of the QI program in
substantial ways.
As you can see, the IRS and Treasury Department are
considering a range of measures to ensure that the QI program
is working as intended. However, there will always be instances
where the IRS discovers a potential violation of the tax law
after the fact. In these cases, there are administrative and
legislative changes that would be helpful to the IRS as we
investigate potential wrongdoing.
Secretary Geithner stated during his confirmation process
that he will treat offshore tax abuse issues as a high priority
and will examine a range of policy issues, including changing
presumptions for transactions in tax secrecy jurisdictions and
other ideas that are included in your legislation. That
dialogue is underway at the Treasury Department.
Additionally, Mr. Chairman, I want to applaud the work of
you, Senator Whitehouse, Senator McCaskill, Senator Nelson, as
well as the work of your staff in producing the Stop Tax Haven
Abuse Act. I look forward to working with you to put a halt to
offshore tax haven and tax shelter abuses.
Mr. Chairman, these are important steps forward, but much
more will come. The President's budget committed to identifying
$210 billion in savings over the next decade from international
enforcement and reforming deferral and other tax reform
policies. The Administration will have more detailed and
specific announcements in the near future.
Thank you for this opportunity to provide an update on our
activities to combat illegal tax avoidance schemes relating to
offshore accounts and transactions. Because this is a global
problem, it will require closely coordinated strategy among
nations dedicated to ending abusive practices that deprive our
country of precious resources and erode confidence in the
fairness of our tax administration system.
I want to compliment the work that you and this
Subcommittee have done to bring to light offshore tax abuse. I
have enjoyed working together on these issues, and I look
forward to continuing to work together with this Subcommittee
in the future. And I am happy to respond to questions.
Senator Levin. All right. Now, Dr. Coburn has a couple of
amendments of his own on the floor, so he is going to need to
leave when the votes have started. So I am going to yield to
him to go first.
Senator Coburn. Thank you, Mr. Chairman. I appreciate that.
I will go very quickly.
First, to Mr. DiCicco, if you can, what is your estimated
timeline on the Deferred Prosecution Agreement? At what time
will you all say they are not complying, we are going to drop
this?
Mr. DiCicco. Well, at any time during the process, if we
see a material breach and it is not corrected, I think we can
take action at that time. Right now the Deferred Prosecution
Agreement is to come to an end at the later of--I think it is
18 months or when the summons enforcement action is concluded.
Senator Coburn. Right.
Mr. DiCicco. But at any place along the line if there is a
significant breach or material breach, then we have the option
to conclude the agreement and to go back and institute----
Senator Coburn. So it would be safe to say 18 months from
now, if we do not have the information, it is going to get
dropped and the prosecution will commence?
Mr. DiCicco. Well, Senator, I would have to see how--
Senator Coburn. I am not going to hold you to it. I am just
trying to get a timeline.
Mr. DiCicco. I would think, Senator, that the timeline for
getting the John Doe summons matter resolved would probably be
more than 18 months, more likely could be as long as a couple
years because I suspect that appeals will be taken, and it
takes time for that process.
Senator Coburn. Well, is there any provision agreement if
UBS is obstructing through the courts?
Mr. DiCicco. Well, one of the conditions of the Deferred
Prosecution Agreement and what we agreed to was that we would
proceed--both parties agreed that we would proceed in the
district court and have a court decide whether we would get
that information or not. So as long as that is going forward--
--
Senator Coburn. So if, in fact, that is delayed, what we
would extend to is outside the bounds of that 18 months.
Mr. DiCicco. That is right.
Senator Coburn. Can you tell me what are the circumstances
for criminal prosecution of offshore accounts? You mentioned
offshore accounts and that some of them are prosecuted on a
criminal basis. What would make them a criminal--set them up
for a criminal prosecution?
Mr. DiCicco. Well, there are a lot of factors that go into
making that determination, including the intent, the amount
involved, the circumstances surrounding how the account was
opened, whether it was the result of criminal proceeds, drug
trafficking, stolen money, or whether it was perhaps just a
simple inherited account. I mean, all these factors would be
weighed before a decision really can be made.
Senator Coburn. OK. Commissioner Shulman, in your statement
you included individuals and corporations. Do we have evidence
that there are corporations involved in this process or are you
mostly talking about LLC's and other such personal investment
vehicles?
Mr. Shulman. Just speaking as the Commissioner, I would
defer any discussion about specifics to my colleague.
Senator Coburn. Well, it is very important because in your
statement you implied individuals and corporations.
Mr. Shulman. Yes. Generally, since I became IRS
Commissioner, I made international issues one of my top issues
that we are going to pursue, dedicate resources to, focus on,
both from a policy perspective and administrative perspective.
The big issue we are focusing on today in the hearing is
offshore accounts, wealthy individuals hiding money overseas.
We also have a lot of major initiatives around corporations
using the vagaries of international commerce and international
tax laws to avoid taxes in a civil matter. So that is what I
was referring to.
Senator Coburn. But avoidance is very different from
evasion.
Mr. Shulman. Absolutely.
Senator Coburn. OK. And so the implication is what we are
talking about here was not meant to include corporate accounts
in what we have seen thus far. Is that true?
Mr. DiCicco. Well, Senator, we have not gotten the
information yet, and we have not been able to analyze it.
Senator Coburn. It is possible, but that is not what we
have seen, that is not what we have heard about. Most of these,
at least what we have been told, of somewhere between 19,000
and 52,000 accounts, are probably individual accounts.
Mr. DiCicco. I think that is correct, but I do not know the
answer to that.
Senator Coburn. I am intrigued by your voluntary disclosure
process. I think that is a message that needs to go out to this
country. We are going to help you become more aggressive in
going after this avoidance and evasion. But I would think that
we would want to signal loud and clear, Mr. Chairman, that
there is a way to avoid some of the pitfalls of pain if you are
one of those who is illegally evading taxes in this country,
and that is through your voluntary disclosure program.
Mr. Shulman. Absolutely. It is a longstanding program.
People who come in voluntarily before we found them. So, if we
found you already or we have an active, ongoing investigation,
you are not eligible. But people who come in voluntarily, truly
voluntarily, usually avoid criminal prosecution as long as they
get right with taxes, interest, and the penalties that will
apply. And I cannot say strongly enough, people who are out
there, we are continuing to put pressure and dedicate
resources. This Subcommittee and others are going to continue
to focus on this, and the best thing people can do is come in
through the voluntary disclosure process and avoid criminal
prosecution in most cases.
Senator Coburn. We are going to find you, in other words.
How can you see, Commissioner, tax simplification aiding
this? In other words, if we had a much simpler Tax Code, if we
had a Tax Code, for example, that was based on a national sales
tax, would we see this kind of movement to foreign tax shelters
that we see today?
Mr. Shulman. Well, let me not speak to flat tax or any
specific proposal.
Senator Coburn. Just a simplified, straightforward, easy--
everybody can calculate it. You do not need a CPA to do your
taxes. If we had that kind of tax program, what would be the
benefit of some of these shelters?
Mr. Shulman. As Commissioner of the Internal Revenue
Service, who has to implement a very complicated Tax Code, I am
a big fan of simplification. There are a lot of U.S. citizens
who get caught up in mistakes because they are confused. I
think the folks we are talking about today, generally it is not
mistakes. They are actively avoiding tax. I am a fan in general
of simplification.
Senator Coburn. And you would agree that probably we would
have less incentive to do this if we had a simple, more
straightforward, fairer tax code?
Mr. Shulman. I am not sure about incentive, but certainly I
think there would be a lot fewer mistakes in preparing taxes
and it would be easier for the American citizen. So I am a big
fan of simplification.
Senator Coburn. All right. Let me go the other way. You do
not think people would lessen their desire for tax shelters if
we had a straightforward, simple, fair tax system?
Mr. Shulman. Well, certainly the complexity of the Tax Code
and then you add to it the complexity of crossing the border
and sovereign laws creates loopholes and opportunities for
people who want to push the envelope. So I certainly think it
would certainly help with tax enforcement.
Senator Coburn. Thank you, Mr. Chairman.
Senator Levin. Thank you very much.
Let me start, Mr. DiCicco, with you. In the Deferred
Prosecution Agreement,\1\ UBS acknowledged ``participating in a
scheme to defraud the United States of America.'' Among the
facts that UBS acknowledged and accepted as part of the filing
entitled ``Acceptance of Responsibility for Violation of Law''
is the following: ``Private bankers and managers would actively
assist or otherwise facilitate certain undeclared U.S.
taxpayers who such private bankers and managers knew or should
have known they were evading U.S. taxes by meeting with such
clients in the United States and communicating with them via
jurisdictional means on a regular and recurring basis with
respect to their UBS undeclared accounts. This enabled the U.S.
clients to conceal from the IRS the active trading of
securities held in such accounts and/or the making of payments
and/or asset transfers to and from such accounts. Certain UBS
executives and managers who knew of the conduct described in
this paragraph continued to operate and expand the U.S. cross-
border business because of its profitability.''
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\1\ See Exhibit No. 3, which appears in the Appendix on page 69.
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Now, what this paragraph shows, does it not, is that the
evasion facilitated by UBS goes to all kinds of U.S. account
holders? It does not make any difference whether they held
cash, securities, or other assets in those accounts. The
critical fact is that they did not report those accounts and
income to the IRS, and UBS, by coming to this country and
engaging in practices that helped the U.S. account holders to
conceal those accounts and income, was part of the alleged
conspiracy. Is that correct?
Mr. DiCicco. That is correct, Senator.
Senator Levin. Now, Commissioner, yesterday Secretary
Geithner stated that he fully supports my bill, S. 506, a bill
which has a number of cosponsors, which is called the ``Stop
Tax Haven Abuse Act.'' Is that good news in terms of
enforcement for the IRS?
Mr. Shulman. Yes.
Senator Levin. When I say ``good news,'' I mean the support
of the Administration for our bill. Is that good news to the
IRS?
Mr. Shulman. Yes.
Senator Levin. It is good news for American taxpayers, too,
and we very much welcome that support. And I mentioned this to
the President this morning, by the way. He also happened to be
a cosponsor of this bill when he was a Senator. I did not draw
any connection between the two.
Mr. DiCicco, do you think UBS is the only tax haven bank
that is facilitating tax evasion by U.S. clients or are there
more out there?
Mr. DiCicco. I do not think they are the only one.
Senator Levin. UBS has said in court, Mr. DiCicco, that it
cannot provide the information sought in the John Doe summons
because it is bound by Swiss secrecy laws not to disclose
client-specific information outside of Switzerland. Can you
explain how UBS can invoke Swiss secrecy laws to refuse
compliance with U.S. requests for information about U.S.
clients?
Mr. DiCicco. Senator, I have to be a little careful about
what I say because the matter is pending, but what I will----
Senator Levin. All right. Then let me ask you the question
this way: How big a barrier are secrecy laws to tax
investigations by the United States?
Mr. DiCicco. I think they are a significant barrier, but
what I would say about the UBS matter, the approach that we are
taking is this is a dispute between the United States and UBS.
We are not going head to head with the Swiss Government, but
UBS which, as the Chairman has pointed out, came into this
country, systemically violated its laws, subjected itself to
the jurisdiction of U.S. courts, and we are using U.S. remedies
to get the information that we believe we are entitled to.
Senator Levin. Now, that may not be the purpose of the
case, to go head to head with the Swiss Government, but we are
going head to head with tax secrecy jurisdictions. We are, and
this bill, and I think this Congress, and now this
Administration; we are going head to head with those tax havens
that help American taxpayers who owe taxes avoid paying their
fair share.
Is it your belief, Mr. DiCicco, that the UBS and the Swiss
understood at the time the Deferred Prosecution Agreement was
signed that the U.S. Government planned to seek enforcement of
the summons?
Mr. DiCicco. No question about that, Senator. Discussions
had taken place over a period of time which made it very clear
that is what we would be doing, and in the Deferred Prosecution
Agreement itself, it says very explicitly that we will bring an
enforcement action. It does not say ``we may,'' ``we are
thinking about it.'' It says very specifically ``we will be,''
and that is what we did.
Senator Levin. All right. So it was not a surprise to them
when you proceeded?
Mr. DiCicco. It should not have been.
Senator Levin. In the Deferred Prosecution Agreement, UBS
acknowledged and accepted that some of its private bankers and
managers ``facilitated the creation of accounts in the names of
offshore companies, allowing the U.S. taxpayers to evade
reporting requirements and to trade in securities as well as
other financial transactions.''
Now, Exhibits 15 and 16 \1\ are UBS documents that were
filed as part of the John Doe summons enforcement petition.
Exhibit 15 is a memo to the Private Banking Business Committee
from members of the Financial Planning and Wealth Management
Department of UBS recommending how UBS should handle U.S.
client accounts under the Qualified Intermediary Program. One
part of the memo says the following: ``In the case where the
U.S. person holds his U.S. investments directly, we have been
advised by Baker & McKenzie''--the ``we'' here now being UBS;
that is the ``we''--``that we cannot recommend products (such
as the use of offshore companies, annuity, or insurance
products) to our clients as an `alternative' to filing a Form
W-9. This could be viewed as actively helping our clients to
evade U.S. tax, which is a U.S. criminal offense. Further, such
recommendations could infringe upon our Qualified Intermediary
status if, on audit in 2003, it is determined that we have
systematically helped U.S. persons to avoid the QI rules.''
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\1\ See Exhibits No. 15 and 16, which appear in the Appendix on
pages 235 and 237.
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But then they say the following: ``What we can do is to
suggest that clients seek external professional advice and
offer them a choice of approved service providers if they
request it. With this approach it seems clear that we would not
be able to share fees with, for example, an insurance
provider.''
Now, do you see much difference between recommending a
strategy to get out of complying with reporting requirements
and referring a client to someone who you know will make the
same recommendation?
Mr. DiCicco. No, Senator. I do not see any difference.
Senator Levin. Thank you. Senator McCaskill, I will be back
from voting, I hope in 10 minutes.
OPENING STATEMENT OF SENATOR McCASKILL
Senator McCaskill [presiding]. As a former prosecutor, I am
familiar with Deferred Prosecution Agreements. Frankly, in my
experience, in terms of most crime that is committed in our
country, they are generally used to get the cooperation of a
defendant in order to prosecute other defendants. I am not
aware of anyone who has been arrested--for most crimes in this
country, that get a Deferred Prosecution Agreement, and all
they have to do is what at a minimum they would have had to do
if they had been convicted.
I am curious if there is any part of this agreement that
requires the cooperation of UBS to disclose anything that they
know about other banking institutions that may be utilizing
these kinds of tactics to help citizens avoid taxes?
Mr. DiCicco. No, Senator, there is nothing like that in the
Deferred Prosecution Agreement between the United States and
UBS.
Senator McCaskill. Was there ever any consideration made of
actually putting somebody in jail?
Mr. DiCicco. Well, we have secured the conviction of one of
the UBS people, Bradley Birkenfeld; he is awaiting sentencing.
There is a criminal prosecution of Raoul Weil, who is absent
from this country. I am not going to rule out one way or the
other whether there will be prosecutions of others.
Senator McCaskill. And how far up in the UBS organization
did knowledge of these tactics, how far up did it go?
Mr. DiCicco. Well, certainly the executives in UBS knew
what was going on and failed to take action. Mr. Weil was
highly placed in UBS' wealth management sector.
Senator McCaskill. And he is evading us now?
Mr. DiCicco. He is back in Switzerland. He has been
declared a fugitive from justice.
Senator McCaskill. And is part of the negotiations with the
Swiss Government concerning cooperation on getting the names of
American citizens, does it also involve whether or not they are
going to cooperate in letting us get to him?
Mr. DiCicco. We have not had discussions regarding that. If
we have, I am not aware of that.
Senator McCaskill. And I am just curious, who within DOJ--
--
Mr. DiCicco. He was just advising me that the Swiss will
not allow extradition of somebody for tax crimes.
Senator McCaskill. They will not allow someone----
Mr. DiCicco. They do not recognize extradition for that.
Senator McCaskill. So this bank, in order to avoid
prosecution of anybody involved in this, all they have to do is
send folks back to Switzerland? That is it? They are home free,
scot-free?
Mr. DiCicco. Well, we have not made any agreements other
than with the bank itself as to its criminal behavior. I do not
know that the bank would have authority to keep somebody in
this country or in Switzerland. We would have to use normal
procedures that we would do in any circumstance where we had
somebody that we wanted to extradite, and----
Senator McCaskill. Are there other groups of people that
have been removed from the bank because of their conduct in
this case?
Mr. DiCicco. I believe that some executives have been
replaced, but I can get back to you on which ones to make sure.
Senator McCaskill. It always kind of strikes me as unfair
that so many of the large white-collar cases involve a civil
fine in lieu of prosecution or deferred prosecution and that
there are not--I look at some of the cases, the minimum
mandatories in the Federal system for a girlfriend of a guy who
is moving drugs, and I think about her culpability, which, no
question she is culpable. But there is just not a lot of
deferred prosecution on those cases. And I am trying to get at
the policy as to why this kind of massive thumbing the nose at
our laws--we have got one person who is facing prosecution out
of the whole shebang?
Mr. DiCicco. Well, there may or may not be others. I am not
at liberty to disclose that.
Senator McCaskill. OK.
Mr. DiCicco. But we entered into a Deferred Prosecution
Agreement with the bank, in exchange for which we got
significant concessions on their part. We thought that it was
in the government's best interest at the time we entered into
it, and we have made it very clear that the bank was not off
the hook for any other transgressions it might have engaged in,
and that any individual is not off the hook for any criminal
acts that they engaged in.
Senator McCaskill. How was the figure $780 million arrived
at?
Mr. DiCicco. Senator, I really cannot go into the give and
take of the negotiations, but in our judgment, that was a
significant sum and that would be a real burden on the bank to
have to make those payments.
Senator McCaskill. The reasoning behind my question is that
I am trying to figure out if there was any attempt to match up
that amount with the amount of profit that had been derived?
Mr. DiCicco. We did some of that. Some of that is
regurgitation of profits. Some of it is also paying the
withholding taxes that should have been withheld on the
accounts of the individuals involved. So there was an effort to
arrive at that.
Senator McCaskill. Mr. Shulman, how many other foreign
entities or banks or financial institutions are you currently
trying to work on with the same kind of problems that UBS had?
Mr. Shulman. Yes, I cannot disclose specifics, but we have
a robust voluntary disclosure program. We have recently
significantly expanded our whistleblower program, and so the
one thing I would say in a public setting is that individuals
who are hiding bank accounts should know that we are going to
continue to come after them, and institutions that are
facilitating that, we are not going to hesitate to go after.
Senator McCaskill. And what do whistleblowers get?
Mr. Shulman. Whistleblowers, there is a new whistleblower
statute for the IRS. They can get a range of rewards based on
their information and based on what we have at the time.
Senator McCaskill. Was there a whistleblower in this case?
Mr. Shulman. Before you came in--I am going to defer all
case-specific things to Mr. DiCicco.
Mr. DiCicco. Mr. Birkenfeld did come in and give testimony.
That is really all.
Senator McCaskill. OK. Well, I think it would be helpful if
you could be more specific about what a whistleblower could
get. This is a very public opportunity for whistleblowers to
realize that there is, as we would say at home, ``money in them
thar hills.''
Mr. Shulman. I do not want to recite the details wrong, and
I am happy to get you, for the record, the details of our
whistleblower program. People can get substantial monetary
rewards for coming in and helping us with investigations and
giving us information.\1\
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\1\ See Exhibit No. 29, which appears in the Appendix on page 919.
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Senator McCaskill. OK. I do not want to tie you down in
terms of saying ``robust,'' but could you give me some
ballpark? I mean, I do not know what to compare this to. I do
not know if UBS is the tip of the iceberg, or if UBS is a major
part of the problem. Can you be any more specific than
``robust''? Because ``robust'' is in the eye of the beholder.
Mr. Shulman. When I became Commissioner, we decided to
focus on international activities for a couple of reasons: One,
because it is a matter of fundamental fairness. The people who
have enough money to go overseas and hide their assets should
be paying taxes, and the average American--a teacher, a
policeman, a fireman who is actually paying their taxes, is
outraged at this, as are we.
We have been shifting resources to the area of
international. This is just one segment of where we are
focusing, people hiding assets offshore, using financial
institutions to do so. As I mentioned to the Ranking Member, we
are also very active in the international arena where people
are pushing the envelope, transferring intangibles, setting up
corporations that do not have substance beneath them.
I would say that given the global economy, given that
international commerce is increasing significantly, in the last
5 years there has been a 70-percent increase in foreign tax
credits claimed by corporations in the United States and a 170-
percent increase of foreign tax credits being claimed by
individuals in the United States. So, not speaking to this
case, we think this is a major issue that we are going to
continue to focus on over the next several years. The
President's budget has made it clear that this is something the
whole Administration is committed to and is behind.
Senator McCaskill. Has there been any analysis done of how
much of this money that is being hidden overseas is, in fact, a
result of criminal activity?
Mr. Shulman. Not that I am aware of. I mean, estimating how
much money that is overseas and not being paid to the
government. As far as I am aware, there is no credible estimate
out because it is kind of a chicken and egg. If it is over
there and we have not found it, it is hard to estimate what is
there. And all estimates that I have seen have not broken down
criminal versus civil because, again, until we see the cases,
it is hard to say.
Senator McCaskill. Well, I am trying to--there are lots of
reasons people hide money, and one of the major reasons people
hide money is because they got that money in a way they cannot
explain to anyone.
Mr. Shulman. Yes.
Senator McCaskill. Obviously, tracking money laundering is
a huge part of any large criminal investigation that I have
ever been aware of that is trying to follow the money, the ill-
gotten gains of that crime. Can you give the Subcommittee any
information from the Department of Justice as to are you all
merging your tracking assets of criminals with the work that
you have done in this regard as it relates to monies held
overseas?
Mr. DiCicco. Well, certainly during the course of our
investigations, if we become aware of money overseas and the
like, I mean, that is taken into account, and it is usually a
factor that is used in the prosecution of tax evasion itself.
Just regular prosecutions of money being overseas alone, there
are not very many stand-alone investigations of that. But it is
just part of the broader investigation that you have when you
are trying to determine whether somebody violated tax laws.
Mr. Shulman. Senator, if I could add to that?
Senator McCaskill. Yes.
Mr. Shulman. At the IRS, our Criminal Investigation Unit
actively coordinates with other Federal law enforcement
agencies. We pitch in with our accounting forensic teams, etc.,
on money-laundering cases, and on terrorist financing. Often
there is a tax crime involved. FinCEN information and SARs
reports are available to our Criminal Investigation Unit. I
would say over the last several years there has been an effort
to coordinate these cases. I think one of our beliefs is, going
forward, we are stepping up that coordination of Federal
agencies for our purposes of finding criminal tax evasion and
making sure we use all the information that is out there and
make sure there are good cooperative relationships.
Senator McCaskill. I think that is really important because
sometimes it is the folks that you catch in a criminal
investigation that are the most willing to give information
concerning where they have placed their money. Usually somebody
cornered is the most willing to give good information. So I
hope that you are coordinating that.
Mr. Chairman, are you ready for the next panel, or do you
have another round?
Senator Levin. I have another round.
Senator McCaskill. OK.
Senator Levin. Commissioner, let me ask you a question
about some declarations which the IRS filed from Barry Shott,
who is titled ``the U.S. Competent Authority who oversees the
international exchange of information between the U.S. and
foreign countries pursuant to tax treaties.'' Exhibit 9 \1\ is
one of those declarations, and this is what Mr. Shott said in
that declaration: ``The Swiss Treaty does not provide an
alternative way to obtain the information sought in the John
Doe summons at issue in this case.''
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\1\ See Exhibit No. 9, which appears in the Appendix on page 175.
---------------------------------------------------------------------------
Is that correct? Is that an accurate reading of what he
said? Do you have it in front of you? It is Exhibit 9.
Mr. Shulman. Let me say, if Mr. Shott said it as head of
the agency, I fully support it.
Senator Levin. In paragraph 16, he goes on to say the
following: ``The Swiss Treaty has been strictly applied by the
Swiss Competent Authority to provide the IRS assistance only in
response to specific requests that name a particular taxpayer.
As a consequence, it had also been the IRS' experience that the
Swiss Competent Authority would only provide the IRS with
information for an examination or investigation that concerns a
specifically identified taxpayer. The current IRS investigation
is focused on learning the identities of U.S. taxpayers not
known to the IRS.''
So, unless the U.S. Government already knows the names of
specific taxpayers, the Swiss treaty generally cannot be used
to get information in Switzerland about a U.S. person. Is that
correct?
Mr. Shulman. Yes, generally it is correct. As you stated
earlier, most of these treaties were designed to get
information from taxpayers who we can identify by name.
Senator Levin. All right. Now, in the UBS case, the
government does not have the names, and that is what we are
trying to find out. The Shott declaration states, however, that
despite the treaty history requiring specific names, the Swiss
urged the United States to make a treaty request in the UBS
case, anyway. So on July 16, 2008, the United States did
formally seek information; they made a Treaty Request--seeking
information about U.S. clients with UBS accounts in
Switzerland. And the declaration says that 6 months after that
request, so as of January 21, 2009, ``the Swiss Government had
made final determinations to provide the requested records for
only twelve accounts. The Swiss Government will not, however,
provide records to the IRS about those twelve accounts until
after the account holders have been given an opportunity to
litigate in a Swiss court the Swiss Government's decision to
turn their records over to the IRS.''
Is that litigation going on now, do you know?
Mr. Shulman. I would defer to Mr. DiCicco.
Mr. DiCicco. Senator, yes, it is. That is the summons
enforcement action that is going forward in Florida.
Senator Levin. It says here that the 12 accounts I am
talking about in the Swiss court, is that litigation, as far as
you know, going on in the Swiss court now?
Mr. DiCicco. I believe so.
Senator Levin. Now, the declaration says the following:
``In sum, the Swiss Government has not provided any records
sought under the Treaty Request, and it is not clear when, if
ever, it will.''
Do you agree with that declaration, Commissioner Shulman?
Mr. Shulman. Again, I will support what Mr. Shott put in
there, and I will also just say that is a big reason, based on
what he said, that we are aggressively requesting the Justice
Department to pursue the summons.
Senator Levin. Now, the Shott declaration raises a second
problem as well. On page 5, in paragraph 15, it says that even
if the United States had the name of specific taxpayers, ``the
Swiss Government will not exchange information about a taxpayer
unless the taxpayer committed an affirmative act of deception
(such as falsifying a document), above and beyond a mere
failure to report the existence of an account, or income earned
in that account. But for now,'' Mr. Shott writes, ``the IRS is
investigating U.S. taxpayers who failed to report the existence
of Swiss bank accounts--or income earned on those accounts.
Absent additional facts, those failures do not enable the IRS
to obtain from the Swiss Government the information demanded in
the John Doe summons issued to UBS.''
So now let me summarize this. U.S. tax law requires U.S.
taxpayers to disclose the existence of any foreign bank account
in which they have an interest. If a U.S. taxpayer fails to do
that, that taxpayer has violated U.S. tax law and is subject to
penalty. The Swiss tax treaty says that it is not enough to
require a Swiss bank to produce information about an individual
even if we have the name of the individual. The individual has
to do more than conceal the existence of a Swiss bank account
from us. He would have to have committed an affirmative action
of deception before the treaty kicks in, as the Swiss define
``affirmative action of deception.'' And that is the tax fraud
issue that we have heard so much about. Is that correct? Have I
summarized the situation correctly?
Mr. Shulman. It sounds right.
Senator Levin. Do you know, Mr. DiCicco?
Mr. DiCicco. That is correct.
Senator Levin. That is correct. All right. So even if we
had the names of 19,000 U.S. persons with Swiss bank accounts
that were not disclosed to the IRS, we could not get their
account information under the Swiss tax treaty unless we could
show that they did more than simply conceal the account and
fail to pay taxes owed to Uncle Sam. Is that right, Mr.
DiCicco?
Mr. DiCicco. That is correct.
Senator Levin. That is a pretty high bar between the
requirement for specific names and proof of affirmative
deceptive acts, the way the Swiss define it. It is no wonder
that the Swiss treaty does not produce much information of use
to U.S. tax investigations.
Now, is the Swiss treaty unique in this regard, Mr.
DiCicco, or is it the general rule that tax treaties and tax
information exchange agreements that the United States has in
place around the world, that we are required to provide the
names of specific individuals before information will be
supplied about those individuals?
Mr. DiCicco. I will have to defer a treaty question----
Senator Levin. All right. Do you know the answer to that
question, Commissioner Shulman?
Mr. Shulman. Yes, if you do not mind, I will give kind of a
general statement----
Senator Levin. Is that the general rule?
Mr. Shulman. Yes. Treaties--the model treaty has 30
articles, and it is everything from art to pension and
annuities, a lot of issues around mutual tax treatment. There
is one article, Article 26, which is enforcement related, and
it is about exchange of information. Generally it can be
helpful. Generally it needs to have a specific taxpayer.
Senator Levin. That we identify.
Mr. Shulman. That we identify, and in a lot of cases,
sovereign law actually trumps the treaty. And so the issue you
are pointing out, I think that is what you are pointing out.
I would not say that all treaties are ineffective because
they are not just about tax, but in cases where sovereign law
trumps it, they can be limited in our ability to go after
taxpayers who we find and, therefore, we use tools like the
John Doe summons and others.
Senator Levin. And would welcome the tools that we have in
our bill?
Mr. Shulman. Absolutely.
Senator Levin. The G20 group of countries is planning a
meeting in London on April 2, 2009, to address a host of
financial regulatory issues, and one likely topic to be
addressed is whether the international community should clamp
down on tax havens with secrecy laws that facilitate tax
evasion by persons from other countries. I believe the British
Prime Minister spoke about the importance of that in his speech
to the Congress this morning about taking a leadership role in
getting the G20 group of countries to come together to take on
these secrecy laws.
Can you tell us whether or not we will be--presumably, the
President--taking a leadership role at the G20 meeting in this
area that Prime Minister Brown described this morning?
Mr. Shulman. I cannot tell you specifically about G20
plans. I can tell you, as you know, this President is very
focused on shutting down tax abuses and that these discussions
are ongoing.
Senator Levin. All right. Can you give us the name of the
Treasury official or officials, other than Mr. Geithner, who
would be involved in the negotiations which would precede the
G20? Is there one person yet identified?
Mr. Shulman. I cannot give you that name.
Senator Levin. OK. Thank you both. You have been very
helpful.
We will now call as a witness Mark Branson, the Chief
Financial Officer of UBS Global Wealth Management and Swiss
Bank of Zurich, Switzerland.
Mr. Branson, we welcome you back to the Subcommittee. You
testified before us last July. We thank you for traveling here
today, and pursuant to Rule VI, all witnesses, as you know, who
testify before the Subcommittee are required to be sworn. At
this time, I would ask you to please stand and raise your right
hand.
Do you swear that the testimony you are about to give
before this Subcommittee will be the truth, the whole truth,
and nothing but the truth, so help you, God?
Mr. Branson. I do.
Senator Levin. Thank you. We understand that you do have a
prepared statement today, I believe, and you may proceed with
that statement.
TESTIMONY OF MARK BRANSON,\1\ CHIEF FINANCIAL OFFICER, GLOBAL
WEALTH MANAGEMENT AND SWISS BUSINESSES, UBS, ZURICH,
SWITZERLAND
Mr. Branson. Thank you, Chairman Levin, Senator McCaskill.
My name is Mark Branson. I am the Chief Financial Officer of
the Global Wealth Management and Swiss businesses of UBS. I am
based in Zurich. I am responsible for the financial and risk
control of that division.
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\1\ The prepared statement of Mr. Branson appears in the Appendix
on page 57.
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When I testified before your Subcommittee last summer, I
described our efforts to investigate and correct problems with
the bank's provision of cross-border financial services to U.S.
residents. At the hearing, we committed to cooperate with the
U.S. Government's investigations, to exit the cross-border
business for U.S. residents, and to take corrective measures to
ensure that such problems cannot reoccur. I am pleased to say
that we are making good on each of those commitments.
First, we recently entered agreements with the U.S. Justice
Department and the Securities and Exchange Commission that
resolve their investigations of our cross-border business.
Through these agreements, UBS has delivered on its promise to
cooperate with the various investigations of the bank, accept
responsibility for its unlawful conduct, and remedy that
misconduct.
As part of these settlements, we agreed to disgorge profits
from the U.S. cross-border business. We also agreed to pay back
taxes, interest, and substantial civil penalties. In addition,
following an emergency order from the Swiss financial
regulator, we disclosed on an expedited basis the name and
account information of certain U.S. clients who appear to have
engaged in ``tax fraud or the like'' within the meaning of the
Double Taxation Treaty between the U.S. and Switzerland. Those
clients misused the confidentiality protection of Swiss law.
Second, following my testimony before the Subcommittee last
summer, we began the process of exiting the U.S. cross-border
business. Since then, we have closed more than 14,000
individual relationships. Going forward, U.S. residents will
only be permitted to maintain accounts that are fully disclosed
to the IRS, with UBS affiliates that are SEC registered.
Our exit plan is also designed to encourage our cross-
border U.S. clients to make voluntary disclosures to the IRS,
where appropriate. Our communications to affected clients
clearly encourage them to disclose their accounts to the IRS,
if they have not already done so. We also guarantee our exiting
U.S. clients that we will provide them with the documentation
necessary to file amended U.S. tax returns.
As part of the recent settlements, the U.S. Government has
authorized our exit plan, and we will now complete the exit in
accordance with those agreements. Progress will be reviewed by
an independent auditor who will periodically report to the U.S.
Government.
Third, UBS will implement an enhanced control framework
around our compliance with the Qualified Intermediary (QI)
Agreement. This new framework will include the appointment of a
senior executive to supervise QI compliance across UBS.
Through all these actions, UBS is making good on the
commitments that I gave to the Subcommittee last summer.
Mr. Chairman, we deeply regret our breaches of U.S. law. I
can honestly say that what took place in one small part of our
business is not representative of the firm's culture nor the
values of the 78,000 UBS employees around the world. Those
employees, including over 25,000 employees here in the United
States, and roughly the same number in Switzerland, have
suffered as they have seen the reputation of their firm harmed.
That is very painful to me, as is the fact that the bank's
behavior has brought international criticism to the country of
Switzerland.
Before I conclude, I would like to address the recent civil
action filed by the IRS. That action asks a U.S. court to
compel UBS to disclose the names and account information of
thousands of U.S. clients who maintained cross-border accounts
with UBS in Switzerland and did not provide the bank with a
Form W-9. Because Swiss law prohibits UBS from producing
responsive information located in Switzerland, UBS has sought
to work cooperatively with the IRS to identify information
responsive to the summons that is located in the United States.
We undertook substantial efforts over many months to collect
and produce such U.S.-based information. This was information
that we could provide to the IRS without violating Swiss law,
and this process is continuing. We took these steps in a good-
faith effort to cooperate with the summons. But we believe that
UBS has now complied with the summons to the fullest extent
possible without subjecting its employees to criminal
prosecution in Switzerland.
Mr. Chairman, the John Doe summons is fundamentally a
dispute between the IRS and the Swiss Government. UBS believes
this dispute should be resolved through diplomatic discussions
between the two governments, and we will continue to support
actively such discussions. But we respectfully submit that the
IRS is attempting to resolve this diplomatic dispute in a
courtroom, which is neither productive nor proper.
The QI Agreement that UBS entered with the IRS in 2001
expressly recognized that UBS would open and maintain accounts
covered by Swiss financial privacy laws for U.S. clients who
chose not to provide a Form W-9, as long as those accounts held
no U.S. securities. The Swiss accounts that are potentially
subject to the summons do not contain U.S. securities. UBS
legitimately maintained those accounts consistent with the QI
Agreement signed by the IRS. The summons, therefore, seeks
client information that the IRS itself agreed would be kept
confidential.
In addition, Switzerland and the United States are
signatories to treaties that specify the circumstances under
which client names and account information located in
Switzerland can be shared with U.S. authorities. We believe
that the John Doe summons is inconsistent with those
longstanding treaties.
When I was last before the Subcommittee, I promised that
UBS would cooperate with the IRS, and I believe that we have.
We made a good-faith effort to produce responsive information
available in this country that could be disclosed without
violation of Swiss law. The bank has now done all that it can
do to cooperate with the John Doe summons. But UBS cannot
disclose information to the IRS that would put its employees at
serious risk of criminal prosecution under Swiss law.
Mr. Chairman, these are challenging times for my firm. But
everyone at the bank is now dedicated to one goal: Fixing UBS,
its finances, and the problems we have created here in the
United States.
Thank you for this opportunity to address the Subcommittee
again, and I am happy to answer your questions.
Senator Levin. Thank you very much, Mr. Branson.
First, there are different numbers that have been presented
about how many Swiss accounts are held by U.S. clients. One
number we had last time from you, I believe, was 19,000. Then
there was a number in a document which has been made part of
the record, which I believe was 52,000.
Yesterday, UBS provided the Subcommittee with its current
best estimate that at the end of July 2008, there were about
46,000 U.S. client accounts in Switzerland for which no W-9 was
filed. Is that correct?
Mr. Branson. I have that information with me that was
provided to your staff over the last couple of days. We
provided you with a total number of accounts as of September
30, 2008, of some 48,000 accounts.
Senator Levin. Forty-eight thousand.
Mr. Branson. That is 47,760----
Senator Levin. Let's call it 48,000. Apparently, 1,000 of
those had W-9s, so that now it is roughly 47,000.
Mr. Branson. That is correct.
Senator Levin. Let's talk then about 47,000. Thirty
thousand-plus of those accounts are accounts of U.S. clients
who reside in the United States, and the remaining 17,000
accounts that you have not closed are held by U.S. clients who
do not live in the United States. Is that correct?
Mr. Branson. I am not sure about those exact numbers, but
these numbers, the 47,000, cover U.S. clients both resident in
the United States and outside the United States.
Senator Levin. Well, our estimate is about 17,000 of those
accounts, using your numbers or your figures, are held by
clients that are American citizens who do not live in the
United States. Is that consistent with what your document
shows?
Mr. Branson. I am not familiar with that exactly.
Senator Levin. All right. We will assume it is accurate. It
is your document we are working from, so let me ask you this
question: Are you going to close the accounts of U.S. citizens
or only U.S. residents?
Mr. Branson. What we have concluded since running through
the exit program since the time we were here last is that our
focus should not just be on U.S. residents with securities
accounts, but it should include non-resident U.S. citizens with
securities accounts.
Senator Levin. Well, you are not going to close 17,000
accounts apparently. You have acknowledged there are 47,000
accounts. You testified 30,000 of them you have exited. Are you
going to exit out of the balance? And if not, why not?
Mr. Branson. So there is, I think, just over 14,000 that we
have exited so far. The only category of these accounts that we
will not exit are those held by non-residents and banking
accounts only. And the vast majority of those will be located
in Switzerland, provided to residents of Switzerland.
Senator Levin. All right. Are you going to be closing the
accounts of U.S. citizens who are not residents of the United
States?
Mr. Branson. With that one exception.
Senator Levin. And that exception is?
Mr. Branson. That exception is non-residents who have
banking accounts only, no securities accounts. All securities
accounts of residents and non-residents will be closed.
Senator Levin. All right. And so why are you not dealing
also with bank accounts that do not have securities in them but
only cash, or something other than securities?
Mr. Branson. The reason for that is there is only one place
in the world where we provide banking-only services as a matter
of course to our client base, and that is in Switzerland. There
are obviously a very large number of U.S. expatriates, U.S.
dual citizens, green card holders, U.S. persons resident in
Switzerland. It would be simply impractical for us, as the
largest bank in Switzerland, not to be able to offer very
simple day-to-day banking services to that clientele.
Senator Levin. And are you going to notify the IRS?
Mr. Branson. There is no explicit mechanism in place for
notification around those types of accounts right now.
Senator Levin. Why? Shouldn't they be notified? Those
clients are supposed to notify the IRS, are they not, with a W-
9?
Mr. Branson. The W-9 is a securities-based concept. The QI
Agreement is a securities-based concept. So there is no
explicit mechanism for banking-only clients.
Senator Levin. But they are supposed to notify--they are
supposed to pay taxes on those revenues, are they not?
Mr. Branson. That is correct. That is correct.
Senator Levin. But you are not going to notify the IRS or
require a W-9 for those non-residents that have cash in
Switzerland. Is that correct?
Mr. Branson. What we will make sure--as we examine that
population that will remain with UBS, we will make sure that we
have the appropriate controls and will evaluate what those
appropriate controls are.
Senator Levin. Well, that is something you will do. I want
to know whether or not you will require that U.S. citizens who
are not residents of the United States but are citizens that
they take steps to notify the IRS of that revenue. Will you
take those steps?
Mr. Branson. We will evaluate what the proper----
Senator Levin. You will evaluate. But is your intent to
include that group? Is that your intent?
Mr. Branson. Our intent is to make sure we have got the
right controls over that population to make sure that we----
Senator Levin. And you do not know whether that is a right
control or not? You are not committing here today to make sure
that you take the steps to make sure that those hidden accounts
that are secret from the IRS are now disclosed to the IRS. You
are not flat out committing to do that. You are just saying you
will take whatever is the appropriate steps.
Mr. Branson. We will make sure that there are the
appropriate controls around that.
Senator Levin. Does that mean that you will make sure that
those citizens of the United States notify the IRS one way or
another, or that you do, of that account? Is that what you are
saying? Is that appropriate?
Mr. Branson. We are going to make sure that we evaluate
what is the most appropriate way of putting controls around
that limited remaining population.
Senator Levin. Controls so that there is no tax evasion?
Mr. Branson. All appropriate controls.
Senator Levin. Will you let this Subcommittee know what you
decide is appropriate?
Mr. Branson. Yes, I am sure that we can report back.
Senator Levin. UBS has committed wrongdoing by its own
acknowledgment by referring U.S. clients who wanted to hide
their assets to outside firms, ``with the understanding that
these outside advisers would help such U.S. clients form
offshore companies in order to enable such clients to evade''
U.S. law.
So when UBS managers referred U.S. clients to those
advisers to create those shell corporations and to form those
offshore companies, your folks knew that those advisers were
going to help those clients do what your lawyers said you could
not do directly. Is that correct?
Mr. Branson. There are many references in the statement of
facts connected with the Deferred Prosecution Agreement of the
kind of misconduct that we have admitted as part of that
process, which includes, as you have identified, the use of
sham offshore structures. I think that the behavior you are
referencing is consistent with what we see in that statement of
facts.
Senator Levin. Well, it is not just consistent. I want you
to say that is, in fact, what you have acknowledged, because it
is.
Mr. Branson. We have acknowledged----
Senator Levin. It is not just that it is consistent with
what you have acknowledged. It is what you have acknowledged.
Is that not true?
Mr. Branson. We have acknowledged that there are clients
who used inappropriately offshore structures which the----
Senator Levin. And that your private bankers and managers
knew or should have known that the purpose of that referral to
the outside advisers was to create the sham corporations. Is
that correct? You have acknowledged that in that proceeding?
Mr. Branson. We have acknowledged in the statement of facts
inappropriate use of offshore structures and inappropriate
behavior of UBS employees in connection with the creation of
those structures, yes.
Senator Levin. I know it is inappropriate, but I am being
very precise here. It is not just inappropriate behavior, but
that they knew or should have known that, in fact, the people
to whom they were referring your clients were going to create
those corporations. Is that true, that you have acknowledged
that?
Mr. Branson. We have acknowledged that such referrals did
take place, that such inappropriate structures were set up, and
that UBS employees knew about that. That is all set out in the
admission in the statement of facts.
Senator Levin. And that the UBS employees knew that was the
purpose of the referal? I just want to know whether you are
willing to acknowledge what you have already acknowledged. It
is very simple. Have you acknowledged that?
Mr. Branson. What is in the statement, set out in the
statement of facts is the complete record of what we have
admitted connected to the behavior around the offshore
structures, and the exact formulation of that is not something
I have in hand, but certainly the inappropriate use of offshore
structures, referrals, and the involvement of UBS advisers and
management in that is a topic that is covered within there. It
is acknowledged within there. It is part of the misconduct that
we have admitted.
Senator Levin. I am going to read something to you and just
ask you whether or not you still acknowledge it, whether you
are backing away from this statement in any way:
``Notwithstanding the warnings, certain managers in the U.S.
cross-border business thereafter authorized''--I am reading
from paragraph 11--``UBS private bankers to refer those U.S.
clients who did not wish to comply with the new requirements of
the QI Agreement to certain outside lawyers and consultants,
and did so''--and here are the key words--``with the
understanding that those outside advisers would help such U.S.
clients form offshore companies in order to enable such clients
to evade the U.S. securities investment restrictions in the QI
Agreement.''
Is that an accurate reading of that acknowledgment? And do
you still acknowledge it?
Mr. Branson. Absolutely. That is from the statement of
facts. That is our acknowledgment of what went on within UBS.
Senator Levin. OK. Why would it take me four questions to
get you to just say ``yes, we have acknowledged that,'' instead
of wrapping it around generalities, like ``we have acknowledged
inappropriate conduct''? I mean, I was giving you specific
words from an acknowledgment, and it took me 3 minutes to get
from you a very simple statement, ``Yes, we acknowledged it,
and it is an accurate acknowledgment.'' And that is something
which is very troubling to me, that it should take that long to
get you to say something that you have already acknowledged.
But it is a very important acknowledgment because it means your
folks knew that they were participating in this violation of
U.S. law. They knew it when they referred folks to these
advisers who created these sham corporations for them and other
tax havens.
I am going to go now and vote, and then I will be back. I
think Dr. Coburn would be--have you voted?
Senator Coburn. Yes, I have. And vote yes, by the way.
Senator Levin. You can be sure I----
Senator Coburn. It is my amendment.
Senator Levin. I know, yes. [Laughter.]
Senator Levin. You do not want to hear this, folks.
Senator McCaskill. I voted yes.
Senator Levin. All right. Well, then it is one to two.
Senator Coburn. Maybe it will be three to zero by the time
you get down there and think about it.
Senator Levin. Doctor, well, I have thought a lot about
this amendment, as a matter of fact, believe me. First Dr.
Coburn, then Senator McCaskill.
Senator Coburn. Thank you, Mr. Chairman.
Through your admission of fact and statement, we know that
you chose to send bankers on hundreds of trips to the United
States to do things in violation of American law. What are we
to understand that UBS is doing now to make sure that you are
complying with U.S. law as we move forward?
Mr. Branson. Well, the No. 1 action, obviously, is to exit
the business completely and, therefore, not to provide services
to U.S. residents going forward. And as we said today, we are
making steady, strong progress on exiting that business, and
that will be completed as soon as it possibly can be. That is a
major program involving the recruitment of a large number of
staff, project management, and governance. We are putting a
huge amount of effort into getting that exit done and right.
In terms of travel specifically, in the interim period,
obviously we have got a complete ban in place that stops any
client advisers making travel to the United States for any
reason connected with visiting of those clients. It just simply
cannot happen anymore. So the business is being exited, and
that particular aspect in the meantime is strictly controlled.
Senator Coburn. And this is a small portion of UBS'
business in this country, correct?
Mr. Branson. This is a minute portion of UBS' business
overall.
Senator Coburn. Right.
Mr. Branson. This was some 60 client advisers, about 0.3
percent of the population of client advisers we have. And we
have some 26,000, 27,000 employees located here in the United
States. This is a very small part of our business where things
went badly wrong.
Senator Coburn. So this is a compliance failure in one
segment of your business. What is the assurance that UBS is in
compliance in the other segments of your business in this
country?
Mr. Branson. This is the top priority of UBS right now, is
to make sure that nothing like this can happen in any other
business within UBS, I mean that this just cannot reoccur. I
mean, this particular business is finished, we are exiting it,
that cannot reoccur. I can only re-emphasize to you what I know
about the culture of our firm, which is that compliance with
all the applicable laws and regulation in every jurisdiction in
which we operate, keeping that compliance is a No. 1 priority.
Senator Coburn. So that is part of the corporate culture at
UBS today?
Mr. Branson. Yes, that is.
Senator Coburn. Thank you. Can you describe for me maybe a
legitimate reason why someone might want to--other than
business--might want to have an offshore account with UBS?
Mr. Branson. There are many reasons, and if we are talking
particularly about Switzerland, which is the focus of this
hearing, then Switzerland is a well-renowned financial center
with a huge amount of expertise, particularly in the management
of private wealth. It is the world's greatest center for that,
so there is a delivery of expertise and service which you can
get in Switzerland which is not available everywhere else.
There are other aspects--diversification of jurisdictions,
stability of the financial, political, legal systems of
Switzerland which are attractive to people from outside
Switzerland who want to hold their assets somewhere other than
their home country. So there are many legitimate reasons why
offshore banking exists and will continue to exist.
Senator Coburn. So let us say I had a significant amount of
money, and I initiated--you did not initiate, but I initiated
going to your company and, without evidence of giving you a
1099 or any other thing, are you going to take my money?
Mr. Branson. If you are a U.S. resident, no.
Senator Coburn. You are not?
Mr. Branson. We are exiting that business, U.S. residents--
--
Senator Coburn. Even if I initiate that I want to put a
deposit in your bank?
Mr. Branson. We will not--if it was a deposit that fell
within the small exception that Chairman Levin was talking
about earlier, if you happened to be living in Switzerland as
an expatriate and needed day-to-day banking services, then we
would consider that, but in no other circumstances.
Senator Coburn. So if I live in Muskogee, Oklahoma, and I
want to send you half a million dollars, you do not want my
money?
Mr. Branson. No way.
Senator Coburn. And why not?
Mr. Branson. That is the business we have chosen to exit.
We do not want to continue to operate that business.
Senator Coburn. Because of the compliance?
Mr. Branson. Because of the fact that the particular nature
of operating in the United States is extremely complicated.
There is no way, with the SEC restrictions around that
business, that we can provide the kind of service that we would
consider would be a good service for you, and we have
operations here in the United States that those 30,000 people
are operating which would be much better suited for your needs.
Senator Coburn. Let us say I am an expatriate living in
Zurich, and I want to put a million dollars in your bank, and I
am not going to give you a 1099 or anything else. Are you going
to take my million dollars?
Mr. Branson. Obviously, there would be a number of checks
around any account opening and any large amounts that come in--
--
Senator Coburn. But there is no requirement for you to
check on whether or not I am supplying a 1099 or any other
compliance fact that I have paid taxes on that money that I am
depositing?
Mr. Branson. There is currently no formal treaty mechanism
or any kind of bilateral agreement in place that would force
that check on UBS or any other bank in Switzerland or anywhere
else.
Senator Coburn. Well, let me ask you this: Should there be?
Mr. Branson. And that is what we said, we will evaluate
what the proper controls will be around that small exception.
Senator Coburn. Is it UBS' position that there should be an
enhancement in the treaty obligations between Switzerland and
the United States for such a thing like that?
Mr. Branson. Obviously, I am not here to talk about the
Swiss Government's position----
Senator Coburn. No, I am just saying, as a business
decision for UBS, would you see that as advantageous for your
business model for expatriates living in Switzerland?
Mr. Branson. I mean, this is not a major part of our
business model. It is not something that we are seeking to
market as a big part of our business. As the biggest, by far
the biggest bank in Switzerland, it seems impractical to us not
to be able to offer those kind of services. And to the extent
we need to put controls around those services to make sure
everybody is comfortable, that we continue to operate that,
that is what we will be evaluating.
Senator Coburn. Of those accounts that are there now, if a
person's account was nothing but cash, no securities or
anything else, would UBS have any reason to know or not know
whether or not the earnings off that cash account had been
reported to the IRS?
Mr. Branson. We would not as a bank--UBS or any other bank
would not have a reason to know.
Senator Coburn. And you would not attempt to know?
Mr. Branson. We would have no reason to know, no.
Senator Coburn. Because the QI between UBS and the IRS is
about stocks only.
Mr. Branson. It is about stocks, and it is, in fact----
Senator Coburn. American stocks.
Mr. Branson. American stocks only.
Senator Coburn. Right.
Mr. Branson. Not non-U.S. stocks.
Senator Coburn. All right. I will have additional questions
to submit, if you would not mind responding to them in writing.
I will not take additional time.
The Senator from Missouri is recognized.
Senator McCaskill [presiding]. You say that UBS will
continue to keep open the Swiss accounts of U.S. citizens who
are not residents in the United States as long as these
accounts do not hold securities. Could you give us an estimate
of how many accounts that is?
Mr. Branson. It is certainly a minor amount of that
population. The amount of assets in there is certainly well
below $1 billion. I do not have the exact number at hand.
Senator McCaskill. OK. If you could try to get that for the
Subcommittee, we would appreciate it.\1\
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\1\ See Exhibit No. 32, which appears in the Appendix on page 939.
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The good news is that Switzerland has a reputation for
secrecy; the bad news is Switzerland has a reputation for
secrecy. I understand that this is causing quite an uproar in
the banking community in Switzerland, and I would like you to
speak to that.
You are trying to compete with other banks in what I think
we need to acknowledge today, in fairness to UBS and to every
other banking institution, could not be a more difficult
climate right now. I know that the financial sector is taking a
pounding for a variety of reasons, some self-inflicted, some a
matter of confidence right now in terms of the perception of
investors and people engaged in the financial sector about what
is out there that we do not know about.
I am trying to figure out how in this global economy we are
going to effectively get at this problem. Clearly, you guys got
caught big time, but I realize there are many other banks that
are crossing the line on a daily basis because a whole lot of
people do not want to pay taxes and a whole lot of people have
money they do not want other people to know about.
Could you speak to how you think the laws in Switzerland
could possibly evolve to at least acknowledge that the kind of
secrecy that you all have branded yourself with is going to be
counterproductive in a global economy when you run into
problems like this?
Mr. Branson. Obviously, I cannot speak on behalf of the
Swiss Government, and it is a Swiss Government/Swiss people
issue. But I think the most important thing as far as we are
concerned is that discussions about that, bilateral discussions
are taking place, should be taking place, those diplomatic
discussions which we think are a more appropriate way of
working on that evolution than through the courtroom. We are
very happy to see those discussions have started. The Swiss
Justice Minister was here in Washington visiting her
counterpart on Monday. They discussed this topic. Those
discussions have started and should be ongoing, and only
through those kinds of discussions can you get the evolution in
these kinds of legal frameworks which will result in a
satisfactory outcome for the parties involved.
Senator McCaskill. What is the most likely place--if
Switzerland changes its very bright lines of financial secrecy
and begins to become more of a cooperative world player, where
is the next likely place that people are going to try to park
money?
Mr. Branson. I could not comment on other people's
motivation.
Senator McCaskill. No, not motivations. I am just talking
about your knowledge of the banking world. I know this is
uncomfortable for you because this is not your nature to give
an opinion about this. But you are a businessman in this sector
of the economy. You are someone who is involved in global
banking. I am trying to predict, if we work on this problem
with Switzerland and we resolve this issue about whether or not
we are entitled to these names and entitled to get our pound of
flesh from these Americans who have broken the law with the aid
and assistance of your bank, I am trying to get at the issue of
where is the next place that we need to be looking where this
is going to continue to go on.
Mr. Branson. There are many financial centers in the world
that run big offshore businesses. Switzerland is obviously well
known for that. In terms of the size of assets in offshore
centers, you have centers in the United States; you have
centers in the U.K. and their dependencies; you have centers in
Asia. So there are many different offshore jurisdictions in the
world that have a different overlapping network of bilateral
treaties between them and the destination countries. So I think
it is impossible to single out one location or the other, but
offshore banking is regulated generally through these kind of
double taxation treaties.
It is clear that in the case of Switzerland and the United
States that treaty is going to be discussed as part of these
diplomatic contacts between the governments. We think that is
right, proper. We are going to actively support those
discussions. And then for Switzerland, if that framework
adapts, then the new framework is the one we comply with, and
that is the way things move forward.
Senator McCaskill. Are there middlemen in this business?
Mr. Branson. I am not quite sure I understand.
Senator McCaskill. Brokers or people who actually deal with
wealthy people to try to help find places they can park money
and avoid taxes, that they help locate folks for them, someone
who is a go-between--back when you did this business, between
your bank and the person who holds the monies or securities. Is
there an industry there?
Mr. Branson. There is a part of the wealth management
industry which would be referred to as ``financial
intermediaries,'' where advisory firms look after the clients'
interests, but maybe the assets are booked elsewhere.
Senator McCaskill. Are they, in your opinion, sufficiently
regulated?
Mr. Branson. That is not something I have a clear opinion
on. There is a mosaic of those kind of intermediaries in many
different jurisdictions around the world.
Senator McCaskill. We are not going to get you to offer
opinions on much outside your lane, are we? I think I am
beginning to get that. Have the deposits in your bank dropped
since this controversy?
Mr. Branson. Yes.
Senator McCaskill. And how much of that do you attribute to
this controversy as opposed to the economic climate?
Mr. Branson. That is impossible to tell. UBS has been faced
with a number of problems, as you said, many of them self-
inflicted, many of them connected to the global meltdown in the
financial sector. As a result of that, we have seen outflows of
client assets. There is no way of pinning each of those onto a
specific reason. But each and every client that leaves the bank
is a problem for us. It is painful for us, and that is clearly
why re-establishing trust in UBS is absolutely the No. 1
priority, and getting these issues behind us is absolutely
critical to re-establishing trust in UBS.
Senator McCaskill. And it is my understanding you have a
new CEO?
Mr. Branson. That is correct, yes.
Senator McCaskill. And his name is?
Mr. Branson. Oswald Gruebel.
Senator McCaskill. And is he Swiss?
Mr. Branson. He is German.
Senator McCaskill. I know I will not get you to give an
opinion of your competitors, but you are the largest bank in
Switzerland?
Mr. Branson. That is correct.
Senator McCaskill. Who is No. 2?
Mr. Branson. Credit Suisse.
Senator McCaskill. Credit Suisse. And No. 3?
Mr. Branson. Three, single bank, it may be one of the
cantonal banks, so the Zurich Cantonal Bank.
Senator McCaskill. And how much bigger are you than Credit
Suisse?
Mr. Branson. In terms of market capitalization, not
tremendously bigger now.
Senator McCaskill. So you are the two big ones.
Mr. Branson. We are the two big multinational banks based
in Switzerland. That is correct.
Senator McCaskill. And I do not even need to ask because
you would not offer an opinion, as to whether or not Credit
Suisse has been involved in the same kind of activity.
Mr. Branson. I would have no knowledge.
Senator McCaskill. OK. That is all, Mr. Chairman. I will
have further questions for the record.
Senator Levin [presiding]. Thank you.
Just going back to this 47,000 number again, is that
estimate, that approximation, the number of accounts or clients
or both?
Mr. Branson. That is the number of accounts.
Senator Levin. And how close would that be to the number of
U.S. clients?
Mr. Branson. It would be relatively close.
Senator Levin. You do not have a better number for the
clients than that?
Mr. Branson. Not today. There are a number of reasons why.
Obviously, clients can hold multiple accounts or accounts can
have multiple clients behind them. So there is not a one-to-one
mapping. But there is no reason to think you would get
something of a grossly different order of magnitude.
Senator Levin. All right. So it is somewhere in the mid-
40s, probably, the number of clients?
Mr. Branson. I would not like to hazard an exact number,
but I think----
Senator Levin. Well, that is not an exact number. That is
an approximation. I am just saying would it be in the area of
the mid-40s, probably.
Mr. Branson. I do not have that level of precision today.
Senator Levin. OK. Is it as good a number as you got in
terms of clients?
Mr. Branson. Well, we can pull that number out of our
systems if we----
Senator Levin. Well, that would be great.
Mr. Branson [continuing]. Go back and do that.
Senator Levin. Would you do that?
Mr. Branson. I can make sure that we work on that.\1\
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\1\ See Exhibit No. 32, which appears in the Appendix on page 939.
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Senator Levin. OK. Mr. Branson, this is kind of a summary
as to what has happened here recently in the last 2 weeks. You
have entered into a Deferred Prosecution Agreement with the
United States in which it admitted facts, the bank, that
related to past conduct, accepted responsibility for a
violation of U.S. law, paid a $780 million fine, and turned
over the names of a very tiny subset of U.S. clients. The
President of Switzerland estimated that number was 250 to 300,
and that is, if it is 40,000 clients--and you do not want to
hazard a number, but it is the best number we have got--that
would be less than half of 1 percent of those clients' names so
far.
Now, you have agreed that you have committed wrongdoing by
referring U.S. clients who wanted to hide their assets to
outside firms because you had the understanding that these
outside advisers would help those clients form offshore
companies in order to enable the clients to evade--those are
your words--U.S. law.
UBS also admitted that its bankers and managers took a
range of other actions which actively assisted or otherwise
facilitated U.S. taxpayers--again, your words--``actively
assisted or otherwise facilitated''--U.S. taxpayers who were
evading U.S. taxes. You agreed in court that, acting through
your bankers and managers, you ``participated in a scheme to
defraud the United States of America.''
Now, you have acknowledged that you schemed with people.
Why won't you give us the names of the people with whom you
schemed to commit violations of American law?
Mr. Branson. The issue with the John Doe summons and the
production of those names is to go beyond what we have done
already, which is to produce information located here in the
United States and to move to information located in
Switzerland, and to produce would be a breach of Swiss client
confidentiality laws.
Senator Levin. All right. So the short answer is that Swiss
law in your judgment does not allow you to produce more than
that small subset of names which you have already produced. Is
that the short answer?
Mr. Branson. Yes.
Senator Levin. And if it were not for Swiss law, would you
do it?
Mr. Branson. We can only live within the legal framework we
have today.
Senator Levin. If there were no prohibition in Swiss law,
would you then give the IRS the names since you have
acknowledged that you participated in a scheme with a large
number of people to defraud the United States? If it were not
prohibited by Swiss law, would your bank give us those names?
Mr. Branson. If there was a framework and these frameworks
will evolve--and if the frameworks evolve, then we will comply
with however that framework evolves. So if the framework
evolves to make that appropriate, that would happen. If it
doesn't, then it wouldn't.
Senator Levin. All right. I do not know why I cannot get
direct answers here. Your answers are needlessly evasive, it
seems to me. If it were not for the Swiss prohibition, would
you be willing to provide those names to the IRS when you have
agreed that you participated in a scheme with people to defraud
our government? Would you then be willing to supply the names?
Mr. Branson. If there is a treaty framework----
Senator Levin. No treaty framework. No treaties. You have
agreed you participated in a fraud with certain people. Since
you have agreed that you have done that, if it were not for a
prohibition in law and there is no treaty involvement, would
you be willing as a bank to give us the names so we could
enforce our laws? Would that be something you would be willing
to do, do you think?
Mr. Branson. Well, with respect to all kinds of exchange of
information across borders are always going to be subject to a
treaty framework or some other bilateral or multilateral
framework. And it is only within that framework--
Senator Levin. Would you be willing to enter into an
agreement to give us those names?
Mr. Branson. We believe that the discussions between the
governments is the right way to look at those agreements, and
we are very happy that those discussions are underway. We are
very supportive of those discussions, and whatever framework
evolves out of those discussions will be the one that we comply
with.
Senator Levin. The last discussion I have heard is a
unilateral statement on the part of the President of
Switzerland or the head of the banking industry in Switzerland
saying that you are going to continue Swiss secrecy. That is
the last so-called discussion that we have heard.
I think the document we have made reference to indicated--
it is a UBS document--that during the period in question, 32
UBS bankers made 3,800 client visits to the United States. Your
bankers chose to come to this country and to conduct business
here voluntarily. Is that correct?
Mr. Branson. That is correct.
Senator Levin. Now, since you have acknowledged
participating in a scheme to defraud the government, why didn't
you consider that before you sent your bankers over here? Or
did you? Were there discussions inside UBS about, hey, wait a
minute, if we have our bankers go over there and carry out all
these shenanigans, then that would be participating in a scheme
to defraud the U.S. Government. Were there any discussions
about that and any urging not to do that, that you know of?
Mr. Branson. Not that I am aware of, but everything about
this inappropriate travel is acknowledged within the statement
of facts. It is something we acknowledged. The way that travel
was done and the use of U.S. jurisdictional means should not
have happened.
Senator Levin. No, we understand that, but were there
conversations prior to those bankers and employees of UBS
coming here as to the propriety of their coming to the United
States and engaging in those activities?
Mr. Branson. I would not have knowledge of the
conversations. My responsibility, as you know, for the business
is limited to last year, so I am not privy to the conversations
there may have been.
Senator Levin. All right. Now, we have been informed by the
Swiss Government that it has identified 12 U.S. clients whose
names and account information can be supplied under the treaty.
So that is 12 out of somewhere in the area of 40,000 persons.
Why is there only 12 when you have acknowledged in this
statement, this joint statement, that you have helped to hide
thousands of accounts from the IRS? Why only 12?
Mr. Branson. Well, I believe the number of 12 is probably
superseded by the production of client data pursuant to the
settlement agreement that was reached with the Department of
Justice.
Senator Levin. And that is 250, roughly?
Mr. Branson. It is a number I am not at liberty to confirm
exactly, but----
Senator Levin. I have made reference to a UBS memo, and it
is on a chart \1\ which says that, ``In the case where the U.S.
person holds his U.S. investments directly, we have been
advised by Baker & McKenzie that we cannot recommend products .
. . to our clients as an `alternative' to filing a Form W-9.
This could be viewed as actively helping our clients to evade
U.S. tax, which is a U.S. criminal offense.''
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\1\ See Exhibits No. 1.e. and 15, which appear in the Appendix on
pages 65 and 235.
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``What we can do is to suggest that clients seek external
professional advice and offer them a choice of approved service
providers, if they request it.''
Do you agree--again, I want to be very clear on this
point--that your folks knew when they--that you understood from
Baker & McKenzie that you could recommend your clients to
outside professional advisers who you knew would offer them
advice on how to create shell corporations and tax havens? Is
that what you understood the advice to mean?
Mr. Branson. I think this is the point we covered earlier
about what was in the statement of----
Senator Levin. It is not quite the same point. I am asking
about did you understand that Baker & McKenzie were advising
you that you could seek external professional advice knowing
that advice would be the same as your bank could not directly
recommend? Is that what you understood the Baker & McKenzie
advice to be? Or did you ignore the Baker & McKenzie advice in
going to these outside advisers--or having these clients go to
the outside advisers?
Mr. Branson. I do not have a knowledge of the Baker &
McKenzie advice or what was or was not done with that. But that
behavior or that memo that you have referred to there does seem
to be consistent to the quick review with what we have referred
to in the statement of facts earlier, part of this misconduct
related to the sham offshore structures and the referral to
outside advisers.
Senator Levin. Did Baker & McKenzie tell you you could go
to an adviser who would recommend the creation of a sham
corporation?
Mr. Branson. I have no knowledge of that.
Senator Levin. Are you familiar with your own document
which says that, ``We have been advised by Baker & McKenzie we
cannot recommend products . . . to our clients as an
`alternative' to filing a Form W-9,'' that would be ``viewed as
actively helping our clients to evade U.S. tax. What we can
do''--presumably referring to Baker & McKenzie--``is to suggest
that clients seek external professional advice and offer them a
choice of approved service providers.''\1\
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\1\ See Exhibits No. 1.e. and 15, which appear in the Appendix on
pages 65 and 235.
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Did you understand from that document, which is UBS' own
memo, that Baker & McKenzie was telling you that you could do
indirectly and knowingly what you could not do directly?
Mr. Branson. I think it is really impossible for me to
impute a motive of Baker & McKenzie.
Senator Levin. It is not the motive; it is the words. Did
you understand, did UBS understand from those words that you
could recommend to your clients that they go to external
professional advice and have the same effect as if you directly
referred them to the creation of a sham corporation offshore?
Is that what you understood that advice to mean?
Mr. Branson. I think the result of this----
Senator Levin. The words. I am asking about did you
understand those words to mean--not motive, not intent. Those
words.
Mr. Branson. I think the result of this is the creation of
the sham offshore structures that we have acknowledged this
misconduct. We are not trying to minimize it. We are not trying
to run away from it. We have acknowledged it. We have paid for
it. It is acknowledged, set out there in the statement of
facts.
Senator Levin. Maybe you have paid for it, but 40,000
American tax evaders have not.
Do you have the exhibits in front of you? If you take a
look at Exhibit 16,\2\ this is an internal UBS e-mail. These
are not just 40,000 American citizens who have avoided paying
taxes. These are folks that you aided and abetted in that
process.
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\2\ See Exhibit No. 16, which appears in the Appendix on page 237.
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Anyway, take a look at Exhibit 16. It says here that you
contacted in this e-mail some of the company formation agents
that have been opening accounts at UBS in the name of offshore
shell companies at the request of U.S. clients. Here is the
message from you: ``We invite you to make a short presentation
on the structures/vehicles that you recommend to U.S. and
Canadian clients who do not appear to declare income/capital
gains to their respective tax authorities.''
So when you were asking these folks to make a short
presentation to UBS, you were aware that these folks were
providing these structures and vehicles to your clients who
were not apparently declaring their income to their
governments' tax authorities. Is that correct?
Mr. Branson. I have no personal knowledge of that e-mail or
any of the details around it. It does appear to be conduct
consistent with what we have discussed from the statement of
facts and that acknowledged pattern of misconduct around
offshore structures.
Senator Levin. And, again, these structures were being set
up for the purpose of hiding who the true owner or beneficiary
of the accounts were. Is that correct?
Mr. Branson. On all of these topics, Chairman Levin, it is
difficult for me to have any knowledge of the exact
conversations. I have been in my job less than a year. I do not
have a personal knowledge of the way----
Senator Levin. Well, is it your understanding--I mean, this
is based on the documents that you folks have signed. Is it
your understanding that these structures that I have been
referring to were being set up for the purpose of trying to
hide who the true beneficial owner was of these accounts?
Mr. Branson. The sham use of offshore structures is part of
the misconduct that we have identified and acknowledged.
Senator Levin. And was the purpose of those sham structures
to hide who the true owner of the accounts were? Was that the
purpose?
Mr. Branson. Yes.
Senator Levin. Now, that message that I made reference to
went to four companies. I am not sure I am pronouncing their
names correctly. Quadris, Sinco Treuhand, Rickenbach & Partner,
and MMG Panazur. You asked those companies to come in, in 2004,
and they actually had started forming offshore shell
corporations for U.S. persons in 2000 when the QI Program was
set up for the first time. Is that correct?
Mr. Branson. I have no knowledge of the activities of those
firms.
Senator Levin. OK. Well, at our request, your company
estimated that about 81 non-U.S. entities were established in
2000 to open accounts for U.S. clients, and your company, your
bank provided estimates for the number of entities created by
three companies named in that e-mail. This is what UBS told us:
Sinco formed 26 entities, Rickenbach formed 10 entities, MMG
Panazur formed 12 entities, for a total of 48.
Do you know whether there were other companies that were
establishing these type of entities for U.S. clients with UBS
accounts in Switzerland?
Mr. Branson. I do not know, no.
Senator Levin. A recent press article quoted your new CEO,
Mr. Gruebel, as follows. He said, ``It is questionable whether
we can continue to hide tax evaders behind banking secrecy.''
Is your bank going to recommend to the Swiss Government that
they drop their strict secrecy requirements and cooperate with
law enforcement in friendly countries such as ours to go after
people who violate our laws? Is that what UBS is going to
recommend to the Swiss authorities?
Mr. Branson. We are going to actively support the
discussions between the Swiss Government and your government.
We think that is the right way for this to evolve and this to
develop, and that will create a framework which will be the one
with which we would comply in the future.
Senator Levin. What is going to be your recommendation in
terms of any shift in Swiss policy so that bank secrecy is no
longer used to protect tax avoiders?
Mr. Branson. I cannot speak today to a position the bank
may develop on that topic.
Senator Levin. Is that the bank's official position, that
it is questionable whether we can continue to hide tax evaders
behind banking secrecy? Is that what you understand when Mr.
Gruebel made that statement? Or is that just kind of an off-
the-cuff kind of statement?
Mr. Branson. I am not aware that the bank has an official
publicly stated position on the issue.
Senator Levin. Mr. Branson, thank you for being here today.
Needless to say, we and I hope most of the rest of the world
that loses tax revenues to your secrecy policies will come
together and jointly determine to end those policies. When you
say that our problem is with the law of Switzerland, we have
problems with, obviously, your bank. That is why you are
involved in a criminal proceeding. But we also have very
serious problems with the Swiss secrecy laws because of what
they lead to, which is the kind of participation, the aiding
and abetting in tax evasion which has taken place so
prominently in this situation.
We now have a President of the United States who
cosponsored my bill last Congress to go after these secrecy
jurisdictions with all of our might. It is absurd that any
country wants to make money off our loss of tax revenues,
particularly friends. And we consider the Swiss our friends. It
offends our people who are in very stressful economic times,
but even before that. It is offensive to us that our laws are
being circumvented with the assistance of tax havens in secrecy
jurisdictions.
We may not be able to change your law, but we are going to
do everything we can to pass a law here which is going to make
it difficult, if not impossible, for American citizens, whether
they are residents or non-residents, to use tax havens offshore
that maintain the secrecy of bank accounts in order, obviously,
to make our law enforcement more difficult since that is the
purpose of so many of these account holders.
So I hope you will take that message back to your bank. I
hope your bank will not just say you will follow the law. It is
a law which has created real harm in terms of other countries'
tax revenues, and I do not know why any country would want to
benefit from that kind of behavior. I do not know why any
country that genuinely cares about values would want to be in a
position where its entities, its businesses are operated in
such a way that other countries which have legitimate tax laws
are the losers.
You may be the gainers so far, but we are going to do
everything we can to take away that ill-begotten gain because
that is the way we view it, and I think that is the way the
world more and more views it. Prime Minister Brown today made
that very clear in his speech to the Congress of the United
States. And I know our President--and I have spoken to him
personally about this today at the White House--and I know that
his heart is exactly in making sure that we do not lose
revenues to these offshore secrecy jurisdictions.
Again, I hope you will take back the message. I will give
you a chance if you want to say anything, obviously, but I want
to thank you for being here today. Do you want to say anything?
Mr. Branson. I have nothing further to add.
Senator Levin. Thank you.
[Whereupon, at 5:03 p.m., the Subcommittee was adjourned.]
A P P E N D I X
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