Video: Offshore banks accused of aiding tax evasion

updated 7/17/2008 2:55:03 PM ET 2008-07-17T18:55:03

A man wanted by Liechtenstein for leaking secret bank records that identified millionaire tax cheats told lawmakers on Thursday about elaborate sham transactions and code words used to outsmart the IRS.

A Senate panel heard Henrich Kieber’s testimony by videotape; lawmakers said he is living under a new name in an undisclosed witness protection program. Kieber appeared only as a silhouette against a white screen, with eyeglasses and a balding head apparent. It was the first time he has spoken publicly about his role in exposing tax shelters Kieber says were used by Liechtenstein’s LGT group, lawmakers said.

In the videotaped interview with congressional investigators, he described ruses that he saw while working at the bank, which he said were used to cover the tracks of money moved into accounts in Liechtenstein.

The video was played at a hearing in which the Senate Homeland Security and Governmental Affairs investigations subcommittee highlighted offshore tax abuses that lawmakers believe cost the government about $100 billion a year.

A day earlier the panel had released a 109-page report that took aim at LGT, owned by Liechtenstein’s royal family, and Switzerland’s UBS AG, one the world’s largest wealth managers.

Mark Branson, chief financial officer of UBS’ global wealth management, said at the hearing that the bank regrets “any compliance failures that may have occurred” and will now provide banking or security services to U.S. citizens only through companies licensed in the United States. He said the bank also is working with authorities to identify clients involved in U.S. tax fraud.

LGT refused to send a representative but said in a statement that it had cooperated by sending a senior official for a lengthy interview and providing all the documents requested by the panel.

Both LGT and UBS came under withering criticism from the lawmakers.

“Tax havens are engaged in economic warfare against the United States and honest, hardworking American taxpayers,” said Sen. Carl Levin, D-Mich., chairman of the subcommittee. He said the two banks “relied on secrecy and deception to hide, not just the tax avoidance schemes of their clients but the actions they themselves took to facilitate U.S. tax evasion.”

A federal judge ruled this month that the Internal Revenue Service could serve legal papers to UBS in an expanding probe of taxpayers who may have used overseas accounts to hide assets and avoid taxes. UBS has said it is cooperating with Swiss and American investigations and will disclose records involving U.S. clients who might have broken tax laws. It also has banned its Swiss bankers from traveling to the United States.

The IRS also has asked the Swiss government to help in its investigation.

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Finance Ministry spokesman Jean-Michel Treyvaud said that Swiss tax authorities received the IRS’ official request for “administrative assistance” on Thursday.

He said the request would now be analyzed, but he said nothing further.

The subcommittee report said that UBS bankers searched out wealthy U.S. clients and aggressively marketed services to taxpayers who otherwise would not have opened Swiss account. It said the bank’s practices resulted in billions of dollars of U.S. taxpayer money in accounts that were not disclosed to the IRS. The report said UBS has estimated that it has 1,000 declared accounts in Switzerland for U.S. clients against 19,000 undeclared, with a combined value of $17.9 billion.

Investigations linked to LGT have been launched in a number of countries since German authorities obtained in February the CD-ROM of some 1,400 alleged tax cheats with accounts at the bank that Liechtenstein says Kieber leaked. Germany has since passed the file to other countries, including the United States.

In his videotaped testimony, Kieber described shell companies used as “high grade camouflage.” Money was often transferred through bank-controlled legal entities registered in numerous countries with lax regulations, including Panama, the British Virgin Islands and Nigeria, he said.

“The only purpose of all of this is to make it extremely complicated for law enforcement agencies to follow the trail,” he said.

He said that clients were advised how to avoid scrutiny and not to tell anyone, including lawyers and family members, about hidden money. Clients were also encouraged to use pay phones to contact bank representatives and to use code words in communications.

LGT questions Kieber’s objectivity and accuses him of stealing the information, according to Michael Robinson, a spokesman for the bank. It says that much of the information that Kieber has provided involves records going back to the 1970s and 1980s.

“LGT’s practices were consistent with accepted industry standards of the time and do not reflect the way in which LGT conducts business today,” he said.

Copyright 2008 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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