UBS Case Update: Judge Turns Heat Up on UBS to Get Disclosure

On Monday, July 13, 2009 we will know the Swiss response to the US governments demand to obtain approximately 52,000 Swiss Bank account holders names, that the IRS is accusing of skirting taxes and not reporting accurate financial information in violation of federal law.

The IRS believes that Americans shelter approximately 15 billion dollars in UBS Swiss Bank accounts, who have a strong US presence which the government argues subjects UBS to American law.

In February, the DOJ sued UBS for access to some 52,000 accounts belonging to it U.S. clients, widening a probe that initially had targeted an estimated 19,000 accounts.

A day earlier, the agency announced a settlement with UBS in which the bank agreed to pay $780 million in fines and give names and account information for a group of clients to avoid prosecution. Swiss authorities said that group numbers between 250 and 300 clients.

On Monday, the U.S. government is likely to make it clear that it expects UBS to comply with the summons, and that in the event they don't, a very hard line stance will follow.

The options available to the Government are: seizure of property, staggering fees, or potential arrests and imprisonment of UBS decision makers.

UBS might reach a settlement with U.S. regulators on the turning over of confidential client data, even as public positions harden between the Swiss and U.S. government days before the landmark court case begins in Florida.

Arguments between the parties and government have intensified this past week as reported in the media.

The chief executive of UBS, Oswald J. Grubel, sent a memo on Thursday to the bank's top executives saying that disclosing the names of the account holders would require UBS to violate Swiss criminal law, and that it couldn't comply.

On Wednesday, the Swiss government said it would block any move by UBS to turn over the names.

Meanwhile, Swiss bank account holders have been turning themselves in to the Internal Revenue Service in the past months, in hopes of finding leniency under a voluntary disclosure program at the agency. This is true especially since the IRS has a civil penalty deal on the table right now that for some people may be too good to pass up, and it expires in nine weeks.

The IRS is cracking down on people who hold U.S. securities in offshore accounts but don't declare the accounts or pay taxes on income from the securities.

http://online.wsj.com/article/BT-CO-20090710-712796.html

http://www.thisislondon.co.uk/standard-business/article-23717478-details/US+judge+turns+up+the+heat+in+UBS+disclosure+case/article.do

http://www.bloomberg.com/apps/news?pid=20601085&sid=a5YQivGDnNjA

Former Promoter of Abusive Trusts Pleads Guilty To Tax Evasion

Roderick Prescott, the former principal of National Trust Services (NTS) in San Jose, Calif., and later Selma, Ore., pleaded guilty today to tax evasion. Prescott admitted to evading at least $550,000 in personal income taxes for 1998 and 1999.

Prescott was scheduled to begin trial on July 7, 2009, before Chief U.S. District Judge Ann Aiken in Eugene, Ore.

According to the indictment, the plea agreement and the government’s trial brief, Prescott and his former business partner Leroy Fritts (now deceased) earned significant income from the nationwide promotion and sale of abusive trusts through NTS, which they founded in 1988.

Prescott and Fritts deposited approximately $3.5 million into various bank accounts through the sale of such trusts. They also earned income from recruiting clients of NTS to invest in Fountainhead Global Trust (FGT), a purported offshore investment that promised returns as high as 50 percent per year.

According to the government’s trial brief, FGT was a Ponzi scheme which collected approximately $20 million in investors’ funds from 1995 through 1999.

FGT transferred some of the money to an offshore account in the Cayman Islands at the Bank of Bermuda, ostensibly to be invested in high-interest debt through a Florida entity called “Cash 4 Titles.”

Prescott and Fritts then funneled part of the money in the account back to themselves. They also took large sums of investors’ funds without ever sending the money offshore.

The government asserts that instead, they spent the funds often by direct payments from FGT bank accounts on luxury goods and real estate. Eventually the scheme broke down and the vast majority of investors lost their full investments.

According to the government’s trial brief, despite making significant income from NTS and FGT, neither Prescott nor Fritts filed any individual federal income tax returns for 1998 or 1999. Prescott last filed a tax return in 1991.

Prescott and Fritts used FGT money to purchase, among other items, a nearly $3 million ranch near Grants Pass, Ore., on which they began construction of two custom-built luxury log homes.

The construction budget was approximately a combined $2 million, and they spent over $465,000 before halting construction in 1999.

Prescott and Fritts also purchased solar panels for the ranch for over $328,000, frozen food in anticipation of a year 2000 apocalypse for over $1.1 million and numerous vehicles and other personal items.

According to the government’s trial brief, Prescott and Fritts used an array of purported trusts and related bank accounts, including numerous offshore bank accounts at the Bank of Bermuda in the Cayman Islands, to conceal their income from the IRS. Prescott and Fritts also used false or fictitious taxpayer identification numbers and offshore credit cards in fake names issued to them by the Bank of Bermuda in the Cayman Islands.

Judge Aiken scheduled sentencing for Sept. 9, 2009. Prescott faces a maximum sentence of five years in prison and a maximum fine of $250,000.

Acting Assistant Attorney General John A. DiCicco commended the IRS-Criminal Investigation special agents who investigated the case, as well as Tax Division trial attorneys Jay Nanavati and Timothy Stockwell who prosecuted the case.

Source: Department of Justice


http://www.usdoj.gov/tax/Aldridge_PermInj.pdf


http://www.usdoj.gov/tax/RRenfrow_Memo_and_Recommend.pdf