UBS officials must have been cheering after hearing the Thursday morning testimony of Mark Branson, CFO of the bank’s global wealth management and business banking unit, to the U.S. Senate Committee on Homeland Security and Government Affairs’ Permanent Subcommittee on Investigations.
After a series of agitated statements from senators and Internal Revenue Service and Department of Justice officials lambasting foreign banks, including UBS, for the roles they’ve played in helping U.S. taxpayers shield assets in offshore accounts, Branson stepped into the fray with the perfect defense: an apology.
“I am here to make absolutely clear that UBS genuinely regrets any compliance failures that may have occurred,” said Branson, who joined the Swiss bank in 1997 and now oversees risk management as part of his duties as finance chief. “We will take responsibility for them and will not minimize them.” Branson announced that UBS would stop offering offshore accounts to U.S. citizens and fully cooperate with the efforts of U.S. regulators to get the names of its U.S. clients despite the difficulties presented by Swiss privacy laws.
To be sure, it’s unlikely Branson was surprised by the hearing’s critical tone. In June, former UBS AG banker Bradley Birkenfeld pled guilty to helping one client hide $200 million in assets in Switzerland and Liechtenstein, and implicated UBS in helping to shelter $20 billion overall.
Earlier this month, the IRS won court authority to compel UBS to provide the names of all its clients in the US, a list that could exceed 19,000, according to a reportreleased by the subcommittee today.
The report describes, in scathing detail, how UBS and LGT, a Liechtenstein bank, have helped U.S. citizens avoid reporting taxable income through minimizing written records of their accounts, restructuring their assets, and, in some cases, setting up sham accounts. Hundreds of pages of internal bank documents helped to back up the assertions.
Prior to Branson’s testimony, new IRS commissioner Doug Shulman said he has been “outraged” by the money-hiding practices federal investigations have turned up so far. Since 2001, the IRS has required foreign banks to register as “qualified intermediaries” and annually report the offshore accounts of U.S. citizens and corporations that contain $10,000 or more. However, Shulman and others acknowledged that many loopholes have allowed banks and their clients to avoid taxes.
No one seems to know exactly how much money the U.S. Treasury is losing in taxes to sheltered offshore accounts–except that it’s a lot. The Senate report estimated the loss at $100 million, but Shulman shied away from confirming that figure or even affirming Michigan Democratic Senator Carl Levin’s guess that it was in the “tens of billion.” Shulman said only that he is “comfortable in saying it’s in the billions of dollars, involving thousands of taxpayers.”
No doubt the notable lack of response from others helped heighten Levin’s ire prior to Branson’s appearance. Of the nine people requested to appear, three did not show up and another three, including Martin Liechti, the head of UBS Wealth Management Americas, asserted their Fifth Amendment rights to remain silent until they were dismissed.
But Branson’s answer clearly appeased Levin, the chair of the subcommittee. “If anyone ever suggests Congressional oversight does not have an impact, I hope they will read this hearing. We’ve put a lot of time into this investigation and it has already paid off,” the senator said in response to the bank’s plans to make amends.
This isn’t the first time UBS has taken a conciliatory tone in recent days. Earlier this week, the bank agreed to buy back up to $3.5 billion in auction-rate securities from its customers in an effort to stem numerous lawsuits claiming it sold the once-conservative investments on false information. In April, UBS issued a 50-page report detailing the internal failings that led to $38 billion in subprime-related