 Cracking
Down on Tax Evaders
(Time Magazine) -
The global sport of
tax evasion has its
moments of intrigue,
but it's usually
well worth playing,
as trillions of
dollars in assets
find their way to
Caribbean shores and
Alpine enclaves,
safely hidden from
the world's tax
authorities by
no-tell bankers. Or
so many ultra-rich
Americans have long
assumed.
But that may be
changing. Bradley
Birkenfeld, a former
UBS private banker,
now sits in his
brother's house in
Boston, wearing an
electronic
monitoring device
and waiting to be
sentenced for his
role in helping one
client, California
real estate
billionaire Igor
Olenicoff, hide some
$200 million in
assets, skirting
more than $7 million
in income taxes. UBS
has shuttered its
cross-border banking
business for U.S.
customers and has
advised bankers who
worked in that
division not to
travel to America
for one important
reason: they might
be arrested.
Birkenfeld is caught
up in the latest in
a series of efforts
by the feds to crack
down on wealthy tax
cheats and the
bankers, accountants
and lawyers who help
— and in fact, often
convince — them to
set up offshore
accounts not
properly reported to
the IRS. (It is
legal to have an
offshore account;
hiding it is the
no-no.) On Thursday
the Senate's
Permanent
Subcommittee on
Investigations will
hold a hearing on
how banks in
offshore tax havens
may be helping
Americans evade
taxes. The hearing
adds momentum to
efforts already
under way at the IRS
and Department of
Justice, and by
authorities in a
number of other
countries, including
France, Germany and
the U.K.
The feds are
squeezing UBS for
the names of other
clients. More Swiss
and Liechtenstein
banks might be next
in line for a
federal look-see,
their vaunted
secrecy laws
notwithstanding. In
light of
Birkenfeld's arrest,
private bankers from
Zurich and Geneva to
the Isle of Jersey
off the coast of
England are assuming
a bunker mentality.
One private banker
in London, caught up
on events at UBS,
responded, "My God,
we're doomed." Says
Reuven Avi-Yonah, a
professor and
director of the
international tax
program at
University of
Michigan Law School:
"The whole world of
private banking is
full of this stuff.
In some ways, UBS
has been singled out
unfairly."
The feds are
disrupting one of
the great niche
businesses. As a
private banker at
UBS, Birkenfeld
traveled from his
home in Switzerland
to the U.S. to court
ultra-wealthy
American clients at
tennis tournaments
and art fairs. He
would explain, among
other things, how to
buy jewels and
artwork using funds
from their secret
Swiss bank accounts
while they were
overseas. Once, at
the request of a
client, he bought
diamonds with money
from an offshore
account and smuggled
them into the States
in a toothpaste
tube.
Starting in 2000,
the IRS went after
records from
American Express,
MasterCard and Visa
to track the
spending of U.S.
citizens using
credit cards issued
in Antigua, the
Bahamas and the
Cayman Islands,
leading to hundreds
of audits and
criminal
investigations. In a
landmark 2005 case,
the accounting firm
KPMG admitted its
employees had
criminally generated
at least $11 billion
in phony tax losses,
often routed through
the Cayman Islands,
which cost the U.S.
$2.5 billion in tax
revenue.
The current wave of
prosecutorial zeal
kicked off in
February when German
authorities arrested
Klaus Zumwinkel, the
CEO of Deutsche Post
and one of the
country's most
prominent
businessmen, for
allegedly evading
some $1 million in
taxes by funneling
money through
foundations in
Liechtenstein. The
German tax cops got
the goods on
Zumwinkel with their
own bit of
skulduggery: they
bought records
stolen by a former
employee of the
Liechtenstein bank
LGT Group, owned by
that Alpine nation's
royal family. Other
tax authorities
piled on, including
the IRS. In
February, the IRS
said it was
investigating more
than 100 Americans
with bank accounts
in Liechtenstein, a
15-mile-long country
sandwiched between
Switzerland and
Austria, where
financial services
account for 30% of
the economy, thanks
to some of the
world's tightest
bank-secrecy laws.
"It certainly has
gotten a lot of
people energized,"
says Michael
McIntyre, a
professor of law and
an expert on
international
taxation at Wayne
State University Law
School.
Liechtenstein also
figures in the UBS
case. In addition to
Birkenfeld, the
Department of
Justice has charged
Mario Staggl, a
banker in
Liechtenstein, who
remains in that
country and at work.
In his guilty plea,
Birkenfeld said he,
Staggl and others
helped create sham
entities in tax
havens like
Switzerland, Panama,
the British Virgin
Islands, Hong Kong
and Liechtenstein to
conceal the fact
that U.S. citizens
owned accounts.
According to an
agreement UBS and
other banks signed
with the U.S.
government in 2001,
UBS should have
insisted its clients
file ownership forms
with the IRS but in
many cases the bank
did not, afraid of
losing business from
people whose very
reason to have
offshore accounts is
to avoid divulging
their identities.
The IRS is now
asking to see
records of all
accounts — the first
time such a broad
legal tactic has
been used on an
international bank.
That puts UBS in
another bind,
because Swiss
banking laws, in
most cases, require
that secrecy be
preserved.
What's at stake is
billions of dollars
in lost tax revenue.
According to the
Senate, experts
estimate that the
total loss to the
Treasury from
offshore tax evasion
could be as high as
$100 billion a year,
including $40
billion to $70
billion from
individuals and some
$30 billion from
corporations. Of
course, there are
legitimate reasons
to have offshore
accounts. "The
super-rich aren't
born into the
category of being
tax evaders," points
out John Christensen
of the Tax Justice
Network. In the
coming months,
however, we're
likely to find out a
lot more about the
ones who learned
how.
---
BARBARA KIVIAT,
Time.com
Published July 17,
2008 10:22 am EST
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