Swiss bank UBS AG used coded language in internal e-mails and memos, created hundreds of sham offshore entities and lied to U.S. officials in an elaborate scheme to conceal the overseas accounts of wealthy Americans, the Internal Revenue Service claimed in federal court documents.
The IRS filed the documents this week seeking to force the bank to turn over records for an estimated 52,000 U.S customers who allegedly violated American tax laws by concealing Swiss accounts worth at least $14.8 billion.
"UBS systematically violated and circumvented its obligations .... all in order to help its U.S. clients conceal from the IRS their Swiss accounts at UBS," IRS agent Daniel Reeves said in the affidavit, which charges that the scheme ran from 2000 to 2007.
The internal bank e-mails and memos obtained by the IRS were included in the 305-page filing.
A UBS spokesman declined comment Friday, noting only that UBS has previously said it will fight the IRS effort — known as a "John Doe summons" — to learn the identities of these thousands of American clients. Earlier this week, UBS agreed to pay $780 million and disclose up to 300 UBS account holders to avoid criminal prosecution for those transactions.
Coded language
According to the IRS, UBS allegedly staged training sessions so that "client advisers" could travel frequently to consult with secret U.S. customers without attracting the attention of tax agents or law enforcement officials. They were told to keep "an irregular hotel rotation" and falsely claim on customs forms that they were in the U.S. on pleasure, not business.
UBS also maintained a 24-hour, seven-day-a-week "hot line" for advisers to call if they ran into trouble with authorities, according one UBS document filed with the court.
"Travel laptops were to have a generic UBS PowerPoint presentation to show U.S. authorities in the event of a border search," the IRS affidavit said.
The documents show UBS was worried that U.S. officials might tap their advisers' telephones or eavesdrop on cell phone conversations. No one was allowed to bring a printer to the U.S. out of fear that creation of a document might trigger criminal liability, according to one document.
At least one UBS adviser used code language in e-mails to describe his business dealings, adding that "orange" meant euros; "green" was U.S. dollars; and "blue" signified British pounds. The e-mail from this adviser, "Dieter," that a "C" was $100,000, a "nut" was $250,000 and a "swan" $1 million.
The e-mail goes on to describe a transaction involving "2.5 orange nuts" and "2.05 green nuts," ending with "all clear?"
Another method to hide dealings with U.S. account holders was to create fake entities and corporations in other countries, according to the IRS affidavit. In 2004, the IRS filing said, UBS planned to create about 900 of these "dummy" entities to conceal Americans' Swiss accounts.
"In truth, the accounts were owned and controlled by U.S. taxpayers," the IRS affidavit said.
2003 e-mail described concerns
UBS was apparently upfront at first with its rich American customers about the illegal nature of the secret accounts, according to one internal e-mail.
The IRS said a declaration that clients were asked to sign flatly stated: "I would like to avoid disclosure of my identity to the U.S. Internal Revenue Service." But that did not go over well with the Americans, according to a 2000 UBS e-mail included in the IRS filing.
"This sentence was refused by many clients, provoked angry outcries and we were being told, which if signed, fully incriminates a U.S. person of criminal wrongdoing should this document fall into the wrong hands," according to the e-mail. It said the offending language was replaced with this: "I consent to the new tax regulations."
A 2003 e-mail also describes ongoing concern at UBS about the risks the bank was taking and the possibility that an IRS amnesty program for offshore tax evaders might lead to prosecution of banks.
"The bank should be able to demonstrate that, where certain bank employees have been active in setting up offshore structures for U.S. persons, these employees have been asked to leave," said the e-mail presented by the IRS to the court. "Immediate action is required in order to build up a defence (sic) against a possible future criminal case against the bank."
U.S. District Judge Alan Gold has scheduled a hearing Monday afternoon on the IRS lawsuit. In a filing Friday, UBS lawyers asked that Gold not embark on a fast-track process sought by U.S. officials because of the "extraordinary importance, consequences and international implications of these issues."
The IRS lawsuit was filed in Miami because two criminal prosecutions of UBS executives have taken place in South Florida, including that of ex-private banker Bradley Birkenfeld. Birkenfeld, who helped a California billionaire evade taxes, has pleaded guilty and is cooperating extensively with U.S. investigators.