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UBS Settlement Not a Complete Victory for Feds, Says Tax Lawyer
The American Lawyer
February 20, 2009
Clarke says that the decision by the Justice Department to file suit against UBS on Thursday in Miami is evidence of this.
Despite forking over $780 million in penalties as part of its deferred prosecution agreement, UBS, represented by Wachtell, Lipton, Rosen & Katz litigation partner John Savarese, managed to secure a pretty good deal for itself, Clarke says.
The Am Law Daily caught up with Clarke to discuss the merits of the UBS agreement and its potential ramifications for U.S. tax law:
George, thanks for taking the time. So I take it this deal isn't the home run the government is making it out to be?
If you look at paragraph 13 of the DPA and what the IRS commissioner said Wednesday night, coupled with the DOJ's news release Thursday saying they are moving to enforce the John Doe summons in Florida, you can see [the government] still has a long way to go. If they had this information they wouldn't be moving to enforce this summons in Florida and you wouldn't have that paragraph 13 in the DPA that basically says, "the DPA is still good even if UBS defends its rights under the John Doe summons." And you certainly wouldn't have the IRS commissioner encouraging people to come forward.
The IRS wouldn't be asking folks to make voluntary disclosures if they already knew who they were?
Precisely. If they already have your name, you can't do voluntary disclosure. After I read the DPA, saw that paragraph 13 and thought about it, I thought it was unusual. And there's also some stuff that the Swiss authorities have released Thursday saying that they've authorized a limited set of materials to be released. So all these pieces start coming together and it looks better and better for UBS.
The Swiss president is saying that UBS will disclose between 250 and 300 client names but that the country's bank secrecy laws won't be lifted. How is that possible?
I think the only thing you can conclude is that maybe these clients committed tax fraud in Switzerland -- so that's going to be a very narrow group, even for Swiss purposes. Those people's information might be released but outside of that group, nobody else's has been. Now that's speculation, but I think it's pretty reasonable that that's what it is.
Is it possible that U.S. authorities already have some of these names?
Yes, a lot of what's going to be disclosed is old news. The government had some of that stuff before. Now there's a hearing that [Sen. Carl Levin of the Permanent Subcommittee on Investigations] is doing soon on this entire investigation. [T]he last time the IRS got yelled at in some respects, with [committee members] asking them how "they let this happen" and why they weren't "enforcing the rules" and things like that.
It wasn't very comfortable for them. The IRS commissioner isn't really used to getting grilled. So maybe this [agreement] was disclosed to let everybody know where things are at and to show that they were getting somewhere as a means of ensuring less heat being brought by the subcommittee.
Nobody likes to get called on the carpet, I guess.
Sure. And the investigators that work for the permanent subcommittee are really bright. So it will be interesting to see if they pick up on all of this and say, "Look, you guys are nowhere. All you've got is the stuff that [the Swiss Financial Markets Supervisory Authority] said they would release to you." And now [prosecutors] are still left fighting it out with UBS in the Southern District of Florida over this John Doe summons.
Now this John Doe summons pertains to this request by prosecutors for the 17,000 to 20,000 names of individuals that allegedly hold Swiss bank accounts with UBS?
Correct. [The government] basically says they're moving to enforce the summons in that case and putting pressure on UBS by claiming they're in contempt for not providing that information.
And the case against Raoul Weil, UBS' former head of global wealth management, hasn't been dropped either as part of the DPA?
That's right and I doubt that [prosecutors] will drop it. I think he's extradition-proof. Or at least he thinks he is. His lawyers are probably taking the view that there's no dual criminality under [the extradition treaty]. And Switzerland is not going to give him up.
Have any potential UBS clients reached out to you or your firm to try and figure out where they should be in all of this?
We have had clients in this area before but I'm not going to talk about any specific clients. People are obviously very concerned about how to deal with this. I think anyone in our area would tell you that.
How would you rate this agreement on UBS' part? Do you think this is a good outcome for them?
Oh yeah, it's a very good outcome. They're now essentially clean. Really the only thing that's teed up in the John Doe summons case is Swiss law and the question of whether a U.S. court can compel a third party to essentially violate its own law -- in this case Swiss law -- to comply with a U.S. court proceeding. And there's case law on this. So that's really optimal for UBS and I think their counsel did a great job in getting them to where they are.
It seems that if the government didn't get the bulk of these alleged UBS account holders, the only thing prosecutors can really hold up is the $780 million they got from the bank.
That's the way I'm looking at it. Maybe there was some negotiation about the scope of disclosure and it's not 250 people but 400 people, I don't really know. It's not a big win. Unless they've got some kind of wink-and-a-nod that UBS isn't going to fight the John Doe summons, which I'm sure they don't have. For anybody who's been following this case, it's not all that new news. We're still kind of where we were before.
Do you think the UBS agreement will have any ramifications for tax law here in the U.S. or how you advise clients?
I think certainly with respect to anyone who is caught up in this thing, they need to talk to a lawyer and figure out the best way to move forward. If the John Doe summons is enforced and a Swiss bank is made to breach Swiss bank secrecy by providing materials to the Justice Department, that will be big news. It will be another development in that strain of case law and I think it will be telling with respect to some of the other banks out there who may have similar issues.
Where do we go from here?
All eyes should be on this Joe Doe summons action in Florida and we'll see what the court does with it.
This article first appeared on The Am Law Daily blog on AmericanLawyer.com.
