As a Senate subcommittee and the Internal Revenue Service probe the use of Swiss bank accounts as tax havens by UBS, Sen. Carl Levin, D-Mich., has called for revoking the U.S. banking license of UBS.
"I don't think that any bank that goes to the extent that UBS has gone through to avoid doing what their agreements with the United States require them to do, should be allowed to continue to do business unless they clean up their act," Levin (pictured) told ABC News.
The Senate's Permanent Subcommittee on Investigations, chaired by Levin, held a hearing Thursday on tax haven banks and U.S. tax compliance. The committee has produced a report on its six-month-long investigation.
The investigation examined LGT Bank in Lichtenstein and UBS in Switzerland to expose how tax haven banks are helping U.S. taxpayers evade taxes by urging U.S. clients to open accounts in their offshore jurisdictions, assisting them in structuring those accounts to avoid disclosure to U.S. authorities, and providing financial services in ways that do not alert U.S. authorities to the existence of the foreign accounts.
A UBS executive said at the hearing that the bank would stop offering offshore banking services to U.S. residents. UBS Global Wealth Management and Business Banking CFO Mark Branson said the bank was also working on providing U.S. authorities with the names of U.S. clients who may have committed tax fraud.
The IRS has been looking into the possibility of closing tax loopholes that allow clients of foreign banks to avoid the Qualified Intermediary rules for reporting their holdings in the accounts. Banks have been setting up sham transfer companies and foundations to help customers hide their assets.
In reviewing a variety of case histories, the investigation found that from at least 2000 to 2007, LGT and UBS employed banking practices that facilitated tax evasion by their U.S. clients, including assisting clients to open accounts in the names of offshore entities; advising clients on complex offshore structures to hide ownership of assets; using client code names; and disguising asset transfers into and from accounts.
Since 2001, LGT and UBS have collectively maintained thousands of U.S. client accounts with billions of dollars in assets that have not been disclosed to the IRS, according to the report. UBS alone has an estimated 19,000 accounts in Switzerland for U.S. clients with assets valued at $18 billion, and the IRS has identified at least 100 U.S. taxpayers with accounts at LGT.
The Levin-Coleman report recommends reining in tax haven abuses by strengthening QI reporting of foreign accounts held by U.S. persons. The report says the IRS should also close the "QI-KYC Gap" by expressly requiring QI participants to apply to their QI reporting obligations all the information they have obtained through their "know your customer" procedures to identify the beneficial owners of accounts.
The report also recommends that Congress should strengthen the statutory 1099 reporting requirements by requiring any domestic or foreign financial institution that obtains information that the beneficial owner of a foreign-owned financial account is a U.S. taxpayer to file a 1099 form reporting that account to the IRS. In addition, the report recommends that the IRS should broaden QI audits to require bank auditors to report evidence of fraudulent or illegal activity.
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