TOPICS > Economy

IRS Deal Pierces Veil of Swiss Banking Secrecy

August 19, 2009 at 12:00 AM EST
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A New York Times reporter assesses the impact of Swiss banking giant UBS agreeing to give the U.S. Internal Revenue Service names of some account holders.
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JIM LEHRER: Now, a major settlement with a Swiss bank and that connection with tax evasion overseas. Gwen Ifill has our story.

GWEN IFILL: Swiss banking has long been associated with secrecy, but a new settlement between the IRS and Swiss banking giant UBS may be opening that door. The IRS said today that UBS has agreed to turn over the names of more than 4,400 Americans tied to accounts held at the bank.

Lynnley Browning has been covering the story for the New York Times, and she joins me now.

Welcome, Lynnley.

LYNNLEY BROWNING: Thank you.

GWEN IFILL: We have always heard about this mysterious, secret Swiss bank accounts. Why no longer secret?

LYNNLEY BROWNING: Well, I wouldn’t say that they’re no longer secret. I would say that the veil of Swiss banking secrecy has been pierced, but not lifted. The IRS and the Justice Department have ramped up their investigations of off-shore tax evasion in recent years, and it led them to UBS.

GWEN IFILL: Will we ever — or do we know the names of the people who are holding these accounts, these accountholders’ names, 4,400 names?

LYNNLEY BROWNING: The only concrete identities we have are for the four individuals who in recent months have pleaded guilty to tax evasion and who, of course, were UBS clients. Will we ultimately know the names of these 4,000-plus individuals? Probably not, unless charges are brought against them and made public.

GWEN IFILL: How much money are we talking about stashed away, Lynnley?

LYNNLEY BROWNING: Well, for the 4,450 American clients of UBS who will have their names and identities and account details turned over, the IRS commissioner estimated today that those accounts at their peak held $18 billion. That’s, obviously, a fraction of the whole universe of assets stashed off-shore.

GWEN IFILL: Well, is it — I know there was a time when there was, I guess, an amnesty offer to people who had been holding these bank accounts, to voluntarily disclose whether they actually have these funds there. Is that over now?

Voluntary disclosure to IRS

LYNNLEY BROWNING: It is not over, and it's not quite an amnesty. It's a program of voluntary disclosure promulgated by the IRS, in this particular case that ends September 23rd, that encourages Americans who have hidden assets over shore and not paid taxes on them to come forward to the IRS, declare the assets, pay up, and, quote, unquote, "get right with the IRS."

UBS clients and other American clients of other banks have been doing that in droves in recent weeks because of fears that their names could potentially be turned over.

GWEN IFILL: How did this all begin? Surely, the Swiss government didn't just say, "Here."

LYNNLEY BROWNING: It absolutely did not. There was an extremely protracted legal and diplomatic battle between Switzerland and the United States over this matter. It really began last February, when UBS averted criminal indictment over this matter and instead agreed to pay a fine of $780 million to the Justice Department.

One day later, the IRS filed what is known as a John doe summons against UBS, asking it to disclose the names and account details of 52,000 American clients. That definitely surprised UBS and definitely opened up a new front in the battle.

GWEN IFILL: And there was a whistleblower involved, as well, right?

LYNNLEY BROWNING: There are several whistleblowers involved. Some of them are true whistleblowers who come to the IRS in secret. Others are people who have gotten caught up in this, most notably a former UBS private banker named Bradley Birkenfeld, who was indicted and has cooperated extensively with the government and its investigation.

GWEN IFILL: Is there a distinction between the tax-shielded money that is in these accounts which was earned legally and just not paid taxes on or -- and tax-shielded money which was laundered or was drug money? Is that being treated differently?

Targeting off-shore tax evasion

LYNNLEY BROWNING: You know, there's not. And, really, the conversation and debate haven't focused on that distinction, which is interesting, because previously when we thought of the goings-on -- the negative goings-on at Swiss banks, we think of drug-running, money-laundering, gun-running, et cetera.

Now the debate has moved to just plain, good, old, off-shore tax evasion. Some of these accounts may, indeed, involve criminal matters, such as the kind you have mentioned, but we don't know, and it certainly hasn't been a point of discussion at the Justice Department and the IRS.

GWEN IFILL: Are any of these accountholders being investigated independent of this agreement for tax evasion or any other crimes?

LYNNLEY BROWNING: Absolutely, yes. The Justice Department is investigating more than 150 American clients of UBS that it suspects of tax evasion. It is not clear whether all of these names came from an initial batch of about 285 that UBS turned over in February as part of its deferred prosecution agreement.

In some cases, Justice and the IRS have gotten information and data from other sources. We don't know who those sources are, whether they're Swiss-based financial intermediaries, private bankers at other private banks.

GWEN IFILL: And is Switzerland the only target? Are there other off-shore tax havens which we can expect to see the similar kinds of disclosures, negotiated agreements come to light?

LYNNLEY BROWNING: That's an excellent question. Certainly, the agreement today focused solely on Switzerland. And when we think of off-shore tax havens, we tend to think of the Caribbean -- Grand Cayman, British Virgin Islands, Bermuda -- and the IRS has long had an initiative to target off-shore evasion there.

It comes -- "it" being off-shore tax evasion -- comes in all sorts of different flavors and varieties. And right now, the flavor of the month is Swiss private banking.

GWEN IFILL: Lynnley Browning of the New York Times, thank you so much.

LYNNLEY BROWNING: Thank you.