S. Hrg. 111–30 

TAX HAVEN BANKS AND U.S. TAX COMPLIANCE: 

OBTAINING THE NAMES OF U.S. CLIENTS WITH 

SWISS ACCOUNTS 

HEARING 

BEFORE THE

PERMANENT SUBCOMMITTEE ON INVESTIGATIONS 

OF THE

COMMITTEE ON 

HOMELAND SECURITY AND 

GOVERNMENTAL AFFAIRS 

UNITED STATES SENATE 

OF THE

ONE HUNDRED ELEVENTH CONGRESS 

FIRST SESSION 

MARCH 4, 2009 

Available via http://www.gpoaccess.gov/congress/index.html 

Printed for the use of the 

Committee on Homeland Security and Governmental Affairs 

( 

TAX HAVEN BANKS AND U.S. TAX COMPLIANCE: 

OBTAINING THE NAMES OF U.S. CLIENTS WITH SWISS ACCOUNTS 

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49–492 PDF 2009

S. Hrg. 111–30 

TAX HAVEN BANKS AND U.S. TAX COMPLIANCE: 

OBTAINING THE NAMES OF U.S. CLIENTS WITH 

SWISS ACCOUNTS 

HEARING 

BEFORE THE

PERMANENT SUBCOMMITTEE ON INVESTIGATIONS 

OF THE

COMMITTEE ON 

HOMELAND SECURITY AND 

GOVERNMENTAL AFFAIRS 

UNITED STATES SENATE 

OF THE

ONE HUNDRED ELEVENTH CONGRESS 

FIRST SESSION 

MARCH 4, 2009 

Available via http://www.gpoaccess.gov/congress/index.html 

Printed for the use of the 

Committee on Homeland Security and Governmental Affairs 

( 

(II) 

COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS 

JOSEPH I. LIEBERMAN, Connecticut, Chairman 

CARL LEVIN, Michigan 

DANIEL K. AKAKA, Hawaii 

THOMAS R. CARPER, Delaware 

MARK PRYOR, Arkansas 

MARY L. LANDRIEU, Louisiana 

CLAIRE MCCASKILL, Missouri 

JON TESTER, Montana 

ROLAND W. BURRIS, Illinois 

MICHAEL F. BENNET, Colorado 

SUSAN M. COLLINS, Maine 

TOM COBURN, Oklahoma 

JOHN MCCAIN, Arizona 

GEORGE V. VOINOVICH, Ohio 

JOHN ENSIGN, Nevada 

LINDSEY GRAHAM, South Carolina 

MICHAEL L. ALEXANDER, Staff Director 

BRANDON L. MILHORN, Minority Staff Director and Chief Counsel 

TRINA DRIESSNACK TYRER, Chief Clerk 

PERMANENT SUBCOMMITTEE ON INVESTIGATIONS 

CARL LEVIN, Michigan, Chairman 

THOMAS R. CARPER, Delaware 

MARK L. PRYOR, Arkansas 

CLAIRE MCCASKILL, Missouri 

JON TESTER, Montana 

MICHAEL F. BENNET, Colorado 

TOM COBURN, Oklahoma 

SUSAN M. COLLINS, Maine 

JOHN MCCAIN, Arizona 

JOHN ENSIGN, Nevada 

ELISE J. BEAN, Staff Director and Chief Counsel 

ROBERT L. ROACH, Counsel and Chief Investigator 

CHRISTOPHER J. BARKLEY, Staff Director to the Minority 

TIMOTHY R. TERRY, Counsel to the Minority 

MARY D. ROBERTSON, Chief Clerk 

(III) 

C O N T E N T S 

Opening statements: Page 

Senator Levin .................................................................................................... 1 

Senator Collins ................................................................................................. 8 

Senator McCaskill ............................................................................................ 20 

WITNESSES 

WEDNESDAY, MARCH 4, 2009 

John A. DiCicco, Acting Assistant Attorney General, Tax Division, U.S. Department of Justice .............................................................................................. 10 

Hon. Douglas Shulman, Commissioner, Internal Revenue Service, U.S. Department of the Treasury .................................................................................... 13 

Mark Branson, Chief Financial Officer, Global Wealth Management and 

Swiss Businesses, UBS, Zurich, Switzerland .................................................... 27 

ALPHABETICAL LIST OF WITNESSES

Branson, Mark: 

Testimony .......................................................................................................... 27 

Prepared statement .......................................................................................... 57 

DiCicco, John A.: 

Testimony .......................................................................................................... 10 

Prepared statement .......................................................................................... 45 

Shulman, Hon. Douglas: 

Testimony .......................................................................................................... 13 

Prepared statement .......................................................................................... 51 

EXHIBITS 

1.a. Tax Haven Bank Secrecy Tricks, chart prepared by the U.S. Senate 

Permanent Subcommittee on Investigations ............................................ 61 

b. Quotation from UBS Wealth Management & Business Banking internal report: ‘‘Review of US Resident Non-W9 Business, Legal and 

Compliance,’’ page 9, December 10, 2004, chart prepared by the U.S. 

Senate Permanent Subcommittee on Investigations ............................... 62 

c. Quotation from UBS Wealth Management & Business Banking internal report: ‘‘Review of US Resident Non-W9 Business, Legal and Compliance,’’ page 3, December 10, 2004, chart prepared by the U.S. 

Senate Permanent Subcommittee on Investigations ............................... 63 

d. Quotation from UBS document: ‘‘US International Training,’’ in section subtitled: ‘‘Lessons Learned,’’ page 5, September 26, 2006, chart 

prepared by the U.S. Senate Permanent Subcommittee on Investigations ............................................................................................................. 64 

e. Quotation from UBS Memorandum: ‘‘FPWM policy for dealing with 

US persons under the QI agreement,’’ in section subtitled, ‘‘Purchase 

of alternative structures,’’ page 2, July 4, 2000, chart prepared by 

the U.S. Senate Permanent Subcommittee on Investigations ................ 65 

f. Quotation from UBS email to third-party corporate formation agents: 

‘‘Structures/Vehicles for U.S./Canadian Clients,’’ August 17, 2004, 

chart prepared by the U.S. Senate Permanent Subcommittee on Investigations ....................................................................................................... 66 

Page

IV 

2. Letter to the Permanent Subcommittee on Investigations from His Excellency Urs Ziswiler, Swiss Ambassador to the United States of America, dated February 20, 2009, declining an invitation to participate in 

the Subcommittee’s hearing ........................................................................... 67 

3. DEFERRED PROSECUTION AGREEMENT, UNITED STATES OF 

AMERICA v. UBS AG, United States District Court, Southern District 

of Florida, dated February 18, 2009 (including deferred indictment) ........ 69 

4. COMPLAINT, SECURITIES AND EXCHANGE COMMISSION v. UBS 

AG, United States District Court for the District of Columbia, dated 

February 18, 2009 ........................................................................................... 112 

5. DECLARATION OF DANIEL REEVES excerpted from EX PARTE PETITION FOR LEAVE TO SERVE ‘‘JOHN DOE’’ SUMMONS, United 

States District Court, Southern District of Florida, dated June 30, 2008 . 123 

6. DECLARATION OF BARRY B. SHOTT, excerpted from EX PARTE 

PETITION FOR LEAVE TO SERVE ‘‘JOHN DOE’’ SUMMONS, United 

States District Court, Southern District of Florida, dated June 30, 2008 . 140 

7. PETITION TO ENFORCE JOHN DOE SUMMONS, UNITED STATES 

OF AMERICA v. UBS AG, United States District Court, Southern District of Florida, dated February 19, 2009 ..................................................... 145 

8. DECLARATION OF DANIEL REEVES, excerpted from PETITION TO 

ENFORCE JOHN DOE SUMMONS, UNITED STATES OF AMERICA 

v. UBS AG, United States District Court, Southern District of Florida, 

dated February 19, 2009. [Exhibits to Declaration not attached. See 

post-hearing Exhibit No. 18, below.] ............................................................. 151 

9. DECLARATION OF BARRY B. SHOTT, excerpted from PETITION TO 

ENFORCE JOHN DOE SUMMONS, UNITED STATES OF AMERICA 

v. UBS AG, United States District Court, Southern District of Florida, 

dated February 19, 2009. [Exhibits to Declaration not attached. See 

post-hearing Exhibit No. 19, below.] ............................................................. 175 

10. BACKGROUND INFORMATION FOR THE COURT’S CONSIDERATION PRIOR TO THE SCHEDULED STATUS CONFERENCE, filed 

by UBS, and RESPONSE TO BACKGROUND FILING BY RESPONDENT, filed by the United States, UNITED STATES OF AMERICA v. 

UBS AG, United States District Court, Southern District of Florida, 

dated February 20, 2009 ................................................................................ 182 

11. EBK investigation of the cross-border business of UBS AG with its private clients in the USA, Summary Report, prepared by the Swiss Financial Market Supervisory Authority (FINMA), February 18, 2009 .............. 198 

12. Review of US Resident Non-W9 Business, Legal and Compliance, report 

prepared by UBS AG Wealth Management & Business Banking, Risk 

and Compliance, December 10, 2004 ............................................................ 215 

13. UBS document entitled, US International Training, September 26, 2006 

(protect the banking secrecy) .......................................................................... 227 

14. UBS CONTACT REPORT, November 29, 2004 (orange, green, blue, C, 

1 nut, a swan) ................................................................................................. 234 

15. UBS AG Memorandum, dated July 4, 2000, regarding IRS 2001, FPWM 

policy for dealing with US persons under the QI agreement ....................... 235 

16. UBS email to third-party corporate formation agents titled Structures/ 

vehicles for U.S./Canadian Clients, dated August 17, 2004 ....................... 237 

17. EX PARTE PETITION FOR LEAVE TO SERVICE ‘‘JOHN DOE’’ SUMMONS, United States District Court, Southern District of Florida, dated 

June 30, 2008 .................................................................................................. 238 

18. DECLARATION OF DANIEL REEVES, UNITED STATES OF AMERICA v. UBS AG, United States District Court, Southern District of 

Florida, dated February 19, 2009 .................................................................. 328 

19. DECLARATION OF BARRY B. SHOTT, UNITED STATES OF AMERICA v. UBS AG, United States District Court, Southern District of 

Florida, dated February 19, 2009 .................................................................. 633 

20. INDICTMENT, UNITED STATES OF AMERICA v. Raoul Weil, United 

States District Court, Southern District of Florida, November 6, 2008 ..... 644 

Page

V 

21. TAX CONVENTION WITH SWISS CONFEDERATION and Mutual 

Agreement of January 23, 2003, Regarding the Administration of Article 

26 (Exchange of Information) of the Swiss-U.S. Income Tax Convention 

of October 2, 1996, with Appendix of Hypotheticals .................................... 657 

22. Mutual Assistance in Criminal Matters, agreement between Switzerland 

and the United States of America ................................................................. 712 

23. Correspondence from O’Melveny & Myers LLP on behalf of their client 

UBS AG to the Permanent Subcommittee on Investigations, dated 

March 3, 2009, regarding number and types of accounts that UBS maintained for U.S. clients as part of the U.S. cross-border business ............... 872 

24. English translation and original of Swiss Federal Administrative Court 

press release, Appellate Proceeding in the Matter of Administrative Assistance of the Confederate Tax Administration to the United States 

of America for Tax Fraud and Related Matters, March 6, 2009 ................. 876 

25. English translation and original of Swiss Federal Administrative Court 

Interlocutory Order, Supervision of banks and stock exchanges, possibly 

international administrative assistance, February 20, 2009 ....................... 881 

26. Documents associated with April 2, 2009, G-20 summit proceedings 

regarding tax havens: 

a. G-20 final communique ́, London Summit—Leaders’ Statement ............ 890 

b. Financial annex to G-20 communique ́, Declaration On Strengthening 

the Financial System ................................................................................. 899 

c. OECD list of tax havens, A Progress Report on the Jurisdictions 

Surveyed by the OECD Global Forum in Implementing the Internationally Agreed Tax Standard .............................................................. 905 

27. Swiss Government press release, Switzerland to adopt OECD standard 

on administrative assistance in fiscal matters, March 13, 2009 ................. 908 

28. Liechtenstein commits to the OECD standard in tax matters and seeks 

to conclude bilateral tax agreements with individual States, Liechtenstein press release and accompanying The Liechtenstein Declaration, 

statement of H.S.H. Heriditary Prince Alois of Liechtenstein, Liechtenstein Prime Minister Otmar Hasler, and Liechtenstein Prime Minister elect Dr. Klaus Tschutscher, March 12, 2009 ...................................... 909 

29. Response provided for the record by IRS Commissioner Douglas H. 

Shulman to a question posed at the hearing by Senator Claire McCaskill 

regarding the whistleblower award program ............................................... 919 

30. Responses to supplemental questions for the record submitted to The 

Honorable Douglas H. Shulman, Commissioner, Internal Revenue Service, U.S. Department of the Treasury ........................................................... 920 

31. Responses to supplemental questions for the record submitted to John 

A. DiCiccio, Acting Assistant Attorney General, Tax Division, U.S. Department of Justice ......................................................................................... 936 

32. Responses to supplemental questions for the record submitted to Mark 

Branson, Chief Financial Officer, Global Wealth Management & Swiss 

Bank, UBS ....................................................................................................... 939 

(1) 

TAX HAVEN BANKS AND U.S. TAX 

COMPLIANCE: OBTAINING THE NAMES OF 

U.S. CLIENTS WITH SWISS ACCOUNTS 

WEDNESDAY, MARCH 4, 2009 

U.S. SENATE,

PERMANENT SUBCOMMITTEE ON INVESTIGATIONS,

OF THE COMMITTEE ON HOMELAND SECURITY

AND GOVERNMENTAL AFFAIRS, 

Washington, DC. 

The Subcommittee met, pursuant to notice, at 2:34 p.m., in Room 

SH–216, Hart Senate Office Building, Hon. Carl Levin, Chairman 

of the Subcommittee, presiding. 

Present: Senators Levin, McCaskill, and Coburn. 

Staff Present: Elise J. Bean, Staff Director and Chief Counsel; 

Mary D. Robertson, Chief Clerk; Robert L. Roach, Counsel and 

Chief Investigator; Ross Kirschner, Counsel; Christopher J. Barkley, Staff Director to the Minority; Timothy R. Terry, Counsel to 

the Minority; and Clifford C. Stoddard, Jr., Counsel to the Minority; Adam Parks, Detailee (ICE); Rachel Siegel, Detailee (GAO); 

Marcelle John, Congressional Fellow; Kevin Wack, Congressional 

Fellow; Daniel Goshorn, Law Clerk; Ryan McElveen, Intern; Melissa Mann and Clark Porter (Senator McCaskill). 

OPENING STATEMENT OF SENATOR LEVIN 

Senator LEVIN. Good afternoon, everybody. Each year, the United States loses an estimated $100 billion 

from U.S. taxpayers using offshore tax schemes to dodge their U.S. 

tax obligations. Those offshore shenanigans cheat honest U.S. taxpayers who pay their fair share and rob the U.S. Treasury of funds 

needed for the operations of our government. 

This Subcommittee has dedicated significant effort to combating 

offshore tax abuse. We have exposed some of the facilitators—the 

lawyers, accountants, broker-dealers, company formation agents, 

trust administrators, and others—that help clients dodge their U.S. 

tax obligations. We have exposed some of the schemes, such as 

mass marketed tax shelters peddled as investment strategies, networks of offshore trusts and corporations with hidden assets, phony 

offshore stock portfolios used to offset real income, and deceptive 

offshore transactions used to recast taxable income as allegedly 

tax-free payments. 

Last July, we held hearings which focused on financial institutions which are located in offshore secrecy tax havens and use an 

array of abusive practices to help U.S. clients hide assets and inVerDate Nov 24 2008 14:11 Jul 09, 2009 Jkt 049492 PO 00000 Frm 00009 Fmt 6633 Sfmt 6633 P:\DOCS\49492.TXT SAFFAIRS PsN: PAT
2 

1See Exhibit No. 1.a., which appears in the Appendix on page 61. 

2See Exhibits No. 1.c. and 12, which appear in the Appendix on pages 63 and 215. 

come from Uncle Sam. The hearings and a staff report presented 

case histories showing how two tax haven banks used a long list 

of secrecy tricks to make it nearly impossible for U.S. tax authorities to trace funds sent offshore. Those tricks, as indicated on this 

chart,1 included using code names for clients to disguise their identities; directing personnel to use pay phones instead of business 

phones to make it harder to trace calls back to the bank; providing 

bankers with encrypted computers when traveling to keep client information out of the reach of tax authorities; funneling money 

through offshore corporations to conceal incriminating wire transfers and make audits difficult; opening accounts in the names of 

offshore shell companies to hide the real owners; and providing 

bankers with counter-surveillance training to detect and deflect inquiries from government officials. 

This kind of conduct, which actively facilitates tax evasion, 

amounts to a declaration of war by offshore secrecy jurisdictions 

against honest, hardworking taxpayers. We are determined to fight 

back and end the abuses inflicted on us by those tax havens. 

Our focus today is threefold. First, we want to understand the 

steps being taken by the U.S. Government to stop UBS, one of the 

banks we examined last July, from aiding and abetting tax evasion 

by U.S. persons. Specifically, we will examine the nature of our effort to obtain the names of U.S. clients whom the bank aided and 

abetted in the violation of U.S. tax law. Second, we want to show 

how our tax treaties are inadequate in the battle against tax 

cheats. Third, we want to get people to focus on how hard it is 

going to be to put an end to the offshore secrecy racket, and offer 

some ideas on what should be done to stop the abuses. 

First, let’s examine the UBS case. UBS is headquartered in Switzerland and is one of the largest banks in the world. During our 

July hearing, UBS admitted publicly for the first time that an estimated 19,000 U.S. clients had opened UBS accounts in Switzerland 

with nearly $18 billion in assets that were not disclosed to the U.S. 

Internal Revenue Service (IRS). 

Since then, new evidence suggests that there may be far more 

than 19,000 U.S. clients with hidden accounts at that Swiss bank. 

A 2004 UBS internal report, which was introduced in court by the 

United States and we have marked as Exhibit 12,2 analyzes the 

U.S. client accounts opened in Switzerland. It states: 

‘‘The number of account relationships in WM&BB in Switzerland 

with U.S. residents where the account holder has not provided a 

W–9 is approximately 52,000 (representing CHF 17 billion’’—which 

means 17 billion Swiss francs—‘‘in assets).’’ 

‘‘WM&BB’’ stands for the Wealth Management and Business 

Banking group at UBS in Switzerland. A ‘‘W–9’’ is the form that 

is supposed to be filed with the bank by an account holder who is 

a U.S. person. The reference to ‘‘account relationships’’ leaves it unclear whether UBS had 19,000 U.S. clients, as UBS estimated in 

July, many of whom may have had multiple accounts; or whether 

it had 52,000 U.S. clients; or some number in between. We hope 

to clear up that issue today. 

3 

1See Exhibits No. 1.b. and 12, which appear in the Appendix on pages 62 and 215. 

2See Exhibits No. 1.d. and 13, which appear in the Appendix on pages 64 and 227. 

UBS also admitted during our July hearing that, for years, its 

Swiss bankers had made a practice of traveling to the United 

States to search out new clients and service existing clients, even 

though its Swiss bankers were not licensed to provide banking or 

securities services while in the United States. 

In our July hearing, we presented an analysis of U.S. customs 

records showing that, from 2001 to 2008, about 20 UBS bankers 

made more than 300 trips to the United States. It now looks like 

the Subcommittee’s analysis was far too conservative. Listen to this 

UBS report of 2004: 

‘‘In the last year, we are advised that 32 different Client Advisers from BS NAM’’—and that is a group within UBS which targets 

business in North America, and now to continue with the UBS report—‘‘that 32 different Client Advisers have traveled to the 

United States on business. On average each Client Adviser visited 

the United States for 30 days per year, seeing 4 clients per day. 

This means that approximately 3,800 clients are visited in the US 

per year by Client Advisers based in Switzerland.’’ 

That is the UBS report which is part of that chart.1

That UBS Swiss bankers made 3,800 client visits in a single year 

in the United States is a stunning fact. 

Another striking document involves UBS efforts to train UBS 

bankers who traveled to the United States. In the last hearing, we 

released an internal UBS training document used to instruct its 

bankers on how to detect and avoid surveillance by U.S. authorities. The new document filed in the court case, which we have 

marked as Exhibit 13,2 is a 2006 internal UBS document entitled 

‘‘U.S. International Training.’’ And in a section called ‘‘Lessons 

Learned,’’ it states: 

‘‘In case of an interrogation by any authority: 

—protect the banking secrecy 

—no client respective communication/wait for assistance of a 

UBS lawyer.’’ 

Well, ‘‘protect the banking secrecy’’ says it all. 

These and other documents demonstrate the actions that UBS 

and its personnel took to help U.S. clients hide assets and income 

from Uncle Sam and preserve the secrecy needed to thwart U.S. 

tax enforcement. 

UBS has acknowledged its past conduct, promised to close the offending accounts, and announced that it would no longer open 

Swiss accounts for U.S. clients without notifying the IRS. Those announcements by UBS, made at our July hearing, were unexpected, 

they were welcome, and they sent a shock wave through the offshore bank secrecy world because they represented the first time 

that a major bank in a tax haven jurisdiction stated publicly it 

would no longer help U.S. clients escape their tax obligations. 

At the time UBS made these announcements, UBS was under 

pressure from the Justice Department. In April 2008, the Justice 

Department had indicted a former UBS private banker, Bradley 

Birkenfeld, for conspiracy to defraud the United States out of millions in taxes—specifically, $7.2 million in taxes owed by a U.S. citVerDate Nov 24 2008 14:11 Jul 09, 2009 Jkt 049492 PO 00000 Frm 00011 Fmt 6633 Sfmt 6633 P:\DOCS\49492.TXT SAFFAIRS PsN: PAT
4 

izen on $200 million in assets hidden with UBS’ help in Switzerland and elsewhere. In June 2008, Mr. Birkenfeld pled guilty, and 

it was clear from the pleadings that he was cooperating with U.S. 

prosecutors. That guilty plea also shook up the offshore secrecy 

world, since it represented the first time the United States had 

convicted a Swiss banker for helping a U.S. client cheat on his 

taxes. 

Later in June, the United States opened up a second front in the 

UBS matter by initiating what is known as a John Doe summons 

proceeding in Federal court. In that civil proceeding, the United 

States asked a U.S. court for permission to serve a summons on 

UBS seeking the names and account information for all U.S. clients 

who had opened UBS accounts in Switzerland from 2002 to 2007, 

without notifying the IRS as required by our law so that the IRS 

could evaluate their tax liability. The summons is called a John 

Doe summons because it seeks information about persons for whom 

the United States does not have names. On July 1, 2008, the court 

issued an order allowing the IRS to serve the summons on UBS. 

Two weeks ago, the Department of Justice confronted UBS itself 

by instituting criminal action charging the bank with defrauding 

the IRS. UBS decided not to dispute the facts, but to acknowledge 

that it had violated U.S. law and had defrauded the United States 

of America. It entered into a Deferred Prosecution Agreement with 

the United States which provides that if UBS takes certain steps, 

the prosecution will be dismissed. 

What steps did the agreement require UBS to take? First, UBS 

agreed to close all of the Swiss accounts it had opened for U.S. clients without notifying the IRS and to put an end to that line of 

business. Second, UBS agreed to pay a fine of $780 million. That 

fine requires UBS to disgorge the profits obtained from opening 

Swiss accounts for U.S. clients from 2001 to 2008—that is, some 

$380 million. The remaining $400 million represents some of the 

back taxes, with interest, that UBS should have withheld from 

those accounts and paid to the IRS but did not. 

Next, UBS agreed to immediately turn over the names of a tiny 

subset of its U.S. clients. The President of Switzerland has said 

publicly that UBS provided the United States with the names of 

250 to 300 such clients. 

Finally, the Deferred Prosecution Agreement addressed the John 

Doe summons proceeding. While the agreement explicitly acknowledged that UBS would contest in court U.S. efforts to obtain the 

names of all U.S. clients with Swiss accounts that were not disclosed to the IRS, the agreement also specified that if UBS loses 

that case on appeal, it either must turn over all of the requested 

client names to the IRS or face the possibility that the United 

States would resume the prosecution and use UBS’ factual admissions in a criminal proceeding against the bank. A trial is now 

scheduled for July to determine whether UBS has to turn over the 

names. 

The basic focus in that trial will be Swiss secrecy laws. Today, 

Switzerland is one of the most vocal supporters of bank secrecy in 

the world. The Swiss hold out bank secrecy as a national value, in 

the same way Americans prize freedom and democracy. The Swiss 

claim that bank secrecy is essential to protecting individual privacy 

5 

and is more important than any law in the United States requiring 

the payment of taxes. The Swiss explain that tax evasion is not a 

crime in their country; it is only a civil matter that can be remedied by the payment of back taxes and a fine. They say that only 

one narrow type of tax misconduct, which they call tax fraud and 

which requires deceptive conduct such as the filing of a false document, can justify disclosing client information from a Swiss bank. 

Switzerland and the United States disagree on whether tax evasion should be a crime. That has been true for decades. But here, 

Swiss bankers aided and abetted violations of U.S. tax law by traveling to this country, with client code names, encrypted computers, 

counter-surveillance training, and all the rest of it, to enable U.S. 

residents to hide assets and money in Swiss accounts. The bankers 

then returned to Switzerland and treated their conduct as blameless since Swiss law says tax evasion is no crime. The Swiss bank 

before us deliberately entered the United States, actively sought 

U.S. clients, and secretly helped those U.S. clients defraud the 

United States of America. Bank secrecy under those conditions is 

not a value to be protected; it is part and parcel of a conspiracy 

to commit a crime under U.S. law. 

UBS has specifically acknowledged wrongdoing and admitted in 

court that it ‘‘participated in a scheme to defraud the United States 

and its agency, the IRS.’’ 

I want to read that again, because I think those words are so 

compelling. UBS has specifically acknowledged wrongdoing and admitted in court that it ‘‘participated in a scheme to defraud the 

United States and its agency, the IRS.’’ But the Swiss Government, 

instead of condemning UBS’ misconduct, is trying to thwart our efforts to get the names of all of the bank’s U.S. clients with hidden 

Swiss accounts. Switzerland characterizes our effort as a ‘‘unilateral measure’’ that is contrary to Swiss law. According to the press, 

the President of Switzerland insists that, in his country, ‘‘Bank secrecy remains intact.’’ 

I am not surprised the Swiss Government is opposing UBS’ compliance with the John Doe summons and has directed the bank not 

to provide all the names, or that it refused to show up at this hearing. They make a living off secrecy. Bank secrecy is a cash cow in 

Switzerland. 

The Swiss Government argues that, instead of the John Doe 

summons, the United States ought to be using the procedures set 

up under the U.S.-Swiss tax treaty. But that tax treaty, like other 

tax treaties and tax information exchange agreements that the 

United States has in place around the world, is not designed to 

handle inquiries for information on taxpayers whose names are unknown. As the IRS explained in a court pleading, the Swiss have 

consistently applied the tax treaty ‘‘to provide the [IRS] assistance 

only in response to specific requests that name a particular taxpayer.’’ 

When we don’t have specific taxpayer names, our tax treaties 

have proven to be of little use. In the UBS case, for example, 7 

months ago at the urging of the Swiss, the United States made a 

request under the treaty to get information about unnamed U.S. 

clients with UBS accounts in Switzerland. Out of the 52,000 UBS 

account relationships and estimated 19,000 U.S. clients, guess how 

6 

many U.S. clients the Swiss have determined can be provided to us 

under the tax treaty? 

Twelve out of either 19,000 or 52,000, or the number that we will 

make clear today. Twelve U.S. clients out of a universe of tens of 

thousands. 

To make matters worse, the Swiss Government notified the 12 

that they could appeal the determination, and lengthy appeals are 

now underway in Swiss courts. The IRS stated in a court pleading 

that, 7 months after making its request, ‘‘the Swiss Government 

has not provided any records sought under the Treaty Request, and 

it is not clear when, if ever, it will.’’ 

So here is the bottom line about the failure of our tax treaty with 

Switzerland to get us needed information in order to go after U.S. 

tax cheats. UBS has accepted ‘‘responsibility for the violation of 

[U.S.] law.’’ UBS has admitted that it referred U.S. clients who 

wanted to hide their assets to outside firms ‘‘with the understanding that these outside advisers would help such U.S. clients 

form offshore companies in order to enable such clients to evade’’ 

U.S. law. UBS also admitted that its bankers and managers took 

a range of other actions which ‘‘actively assist[ed] or otherwise 

facilitate[d]’’ U.S. taxpayers who were evading U.S. taxes, such as 

having their bankers travel to the United States to service those 

clients in ways that would conceal their account transactions. And, 

again, UBS specifically agreed in the court case that, acting 

through certain of its bankers and managers, it ‘‘participated in a 

scheme to defraud the United States and its agency, the IRS.’’ 

Despite those admitted facts, UBS refuses to turn over the vast 

majority of the names of the U.S. persons with whom they schemed 

to defraud the United States. UBS and Switzerland justify that refusal by invoking Swiss secrecy laws. They say the United States 

should use the tax treaty process instead, but that is not going to 

help because the Swiss have interpreted the treaty to deny information requests about potential tax cheats whose names are unknown. And why are those names unknown? Because of Swiss secrecy laws. 

Too many countries are using our treaties as a shield to deny us 

tax information instead of using those treaties as a sword to expose 

tax cheats as was intended. The result is a cynical charade in 

which tax havens like Switzerland try to have it both ways—claiming to be a cooperative partner in the international fight against 

tax abuse, while providing a safe haven and promising ironclad secrecy laws for tax evaders. 

We cannot rely on our tax treaties with secrecy tax havens to 

protect us from offshore tax abuse. We have to rely on our own 

laws instead, and we need to strengthen those laws if we want to 

put an end to offshore tax haven abuses against Uncle Sam and 

against honest, taxpaying Americans. 

As a first step, Congress should enact the Stop Tax Haven Abuse 

Act, S. 506, which I and a number of my colleagues introduced earlier this week and which the Obama Administration endorsed yesterday through Treasury Secretary Geithner. 

This bill offers powerful new tools to detect and stop offshore tax 

offenders, including by ending the Ugland House scam that allows 

phony offshore shell corporations operated from the United States 

7 

to dodge U.S. taxes, permitting the establishment of legal presumptions that can be used to combat offshore secrecy, authorizing special measures—these are all the things our bill would do—authorizing special measures against financial institutions or countries 

that impede U.S. tax enforcement, requiring third-party disclosures 

of offshore transactions, extending the deadline for assessing taxes 

in offshore cases from 3 to 6 years, and closing a raft of offshore 

tax loopholes. 

Now, there are also actions that the Obama Administration can 

take to clamp down on offshore tax abuses, without waiting for legislation. The Administration could, for example, establish a special 

enforcement unit to handle the hundreds if not thousands of prosecutions likely to result from the UBS case alone and to initiate 

proceedings against other tax haven banks. That enforcement unit 

would send the message that the UBS tax scofflaws are not going 

to get off scot free, and no tax haven bank account is free from risk. 

The Administration could also become an active participant in 

ongoing international efforts to penalize offshore jurisdictions that 

facilitate tax evasion. Efforts by the G20 group of nations to coordinate action against offshore tax havens are gaining steam in anticipation of the G20 meeting in April, but the United States has so 

far been largely silent. It is time for the United States to become 

a leader, not a follower, in international efforts to develop a list of 

uncooperative tax havens and to develop a toolbox of penalties to 

be imposed on those who impede tax enforcement. 

Another step the Administration could take is to continue the efforts of the Bush Administration to strengthen the Qualified Intermediary Program that determines what information foreign banks 

give to the IRS. Right now, these QI Agreements between the IRS 

and foreign banks require the foreign banks to report to the IRS 

only those foreign accounts containing U.S. securities. At a minimum, QI Agreements should require foreign banks to report all 

foreign accounts with U.S. account holders, whether those accounts 

contain securities, cash, or other assets. In addition, QI Agreements should make it clear that foreign banks have to disclose to 

the IRS accounts held by a foreign entity, such as an offshore corporation, that is beneficially owned by a U.S. person. 

A longer-range project is for the United States to strengthen its 

tax treaties and tax information exchange agreements. New provisions are needed to ensure that information can be obtained for 

unnamed U.S. taxpayers associated with entities suspected of tax 

misconduct, and to eliminate the tax fraud distinction which has 

become a barrier to effective tax information exchange. 

Finally, the Administration should consider finalizing a regulation proposed by the Clinton Administration years ago. That regulation would allow the United States to engage in automatic information exchanges of account information with countries on a reciprocal basis for tax enforcement purposes. Right now, the only automatic tax information exchanges we engage in are with Canada. A 

lot more countries may be willing to participate. The resulting account data could produce new information identifying U.S. tax 

dodgers. 

Offshore tax abuses are burning a $100 billion hole in the U.S. 

budget. While the Justice Department and the IRS are to be comVerDate Nov 24 2008 14:11 Jul 09, 2009 Jkt 049492 PO 00000 Frm 00015 Fmt 6633 Sfmt 6633 P:\DOCS\49492.TXT SAFFAIRS PsN: PAT
8 

mended for their creative and tenacious efforts in the UBS case, 

nobody should think for a moment that the offshore tax battle is 

over, even if the IRS wins that lawsuit. Despite UBS being caught 

red-handed and admitting wrongdoing, the Swiss Government is 

fighting the John Doe summons and defending Swiss secrecy. The 

president of the Swiss Bankers Association told the press, ‘‘The 

large majority of foreign investors with money placed in Switzerland evade taxes’’—his words—but he showed no regret that the 

Swiss financial institutions are facilitating that tax evasion—quite 

the contrary since tax evasion is not a violation of law in Switzerland. And Switzerland is just one of 50 tax havens battling to keep 

offshore secrecy laws in place. 

The rest of the world is getting fed up with offshore tax havens 

that turn a blind eye to tax evasion and allow their financial institutions, lawyers, accountants, and others to profit from tax dodging. Countries victimized by offshore tax abuses are losing billions 

of dollars per year. We cannot afford to ignore those offshore tax 

losses any longer. And it is way past due that we act to end the 

offshore tax-dodging drain on our treasury. 

Let me now turn to my Ranking Member, Senator Coburn, for 

his opening statement. This is the first Subcommittee hearing in 

which he is participating in that new role. I welcome him. I look 

forward to working with him in the Subcommittee’s ongoing efforts 

to combat offshore tax abuse and in so many other joint endeavors. 

Senator Coburn. 

OPENING STATEMENT OF SENATOR COBURN 

Senator COBURN. Thank you, Mr. Chairman, and let me tell you 

how much I appreciate what you and your staff and the staff on 

PSI Subcommittee have done. We have before us significant problems. There is no question there has been fraud. There is no question there have been violations of U.S. law. But there is also no 

question that the origin of these problems is a very complex Tax 

Code in the United States, and it is up to us to simplify it, make 

it fair, make it more straightforward. 

I will have a very limited statement and then put something into 

the record. 

It is just simply a matter of fairness that if you owe taxes in the 

country, you ought to pay them, because if you do not, you are 

stealing money from somebody less fortunate. You are not just protecting your assets; you are actually taking assets from somebody 

who is much less fortunate than you are. 

Today’s hearing presents us with an opportunity today to get a 

little further along in terms of the facts of this case. I am reviewing 

Senator Levin’s bill. I do have one central concern: That we not 

drive capital out of this country. But one of the things we want to 

do is have a Tax Code that rewards capital investment and capital 

formation in this country, and I will be working with Senator Levin 

in that regard. 

I look forward to hearing our witnesses and questioning them, 

and I would yield back. 

9 

PREPARED OPENING STATEMENT OF SENATOR COBURN 

Mr. Chairman, I want to thank you for continuing this important inquiry into how 

certain foreign banks and their American clients have flouted U.S. tax laws. I truly 

appreciate what you and the Subcommittee staff have accomplished. 

We have before us significant problems. There is no question there has been 

fraud. There is no question there have been violations of U.S. law. But, let us be 

clear: there is also no question that the root of many of these problems is our country’s very complex Tax Code. We need to simplify it, make it fair, make it straightforward. 

Of course, I don’t mean to minimize the effrontery of the individuals involved in 

these schemes. Though I am no fan of the U.S. tax code, fraud of any kind deeply 

offends me. As a fundamental matter of fairness, if you owe taxes to your government, you ought to pay them. When you fail to do so, you are literally robbing your 

honest neighbors. You are not merely ‘‘protecting your assets;’’ you are actually 

stealing the assets of the less fortunate. It is a shameful crime. But today I would 

like to make a larger point . . . 

This country has the world’s largest economy as well as the world’s largest equity 

market. We are leaders in commodity and debt markets, as well. But our lead has 

definitely been shrinking as countries with more favorable tax rates and more sensible regulatory regimes attract capital that used to flow to our shores. The Cato 

Institute’s Chris Edwards and Dan Mitchell recently described the myriad ways 

that U.S. tax policy puts this county’s economy at a competitive disadvantage. For 

example, the U.S. boasts the following dubious distinctions: 

• The 2nd-highest corporate tax rate in the world at 40 percent, which includes the 35 percent Federal rate plus the average state rate. By contrast, 

the average corporate rate in Asia is 29 percent, in Latin America 27 percent, and in Europe 24 percent. 

• Complex and uncompetitive business taxation. The World Bank ranks the 

U.S. 76th on having a low burden of business taxes and tax compliance 

costs. 

• The 8th-highest dividend tax rate in the OECD. 

• The 3rd-highest estate or inheritance tax rate in the OECD. 

• One of the highest tax rates in the world on corporate capital gains. 

• Tax rates on individual income, capital gains, dividends, and estates that 

are scheduled to rise in 2011 when current tax cuts expire. 

• State-level corporate tax rates that have not been cut in decades. 

With such albatrosses around our neck, it is no wonder that America’s share of 

global equities market capitalization has plummeted from one-half in 1997 to just 

one-third in 2007; that our share of world gross domestic product has also declined; 

that our leading role in initial public offerings has vanished; and that we are well 

below our potential when it comes to transactions in interest-rate products and foreign-exchange trading. 

The world is, as they say, ‘‘flat,’’ and global competition for capital has become 

more fierce than ever before. The United States, with its draconian tax code, is losing this competition to countries like Singapore, Luxembourg, Hong Kong, and especially the U.K. Nations such as these are making smarter tax and regulatory policies, and these decisions are paying great dividends in the form of increased jobs 

and investment. These countries understand that financial activity—especially those 

relating to derivatives and money management—crosses international borders with 

the greatest of ease, and they have rolled out the welcome mat. 

Consider how the U.K., with just a 5 percent share of world gross domestic product, boasts a 40 percent share of daily foreign exchange trading and interest rate 

derivatives trading and is a leader in metals and oil trading. Even more impressive 

has been the Irish experience: Ireland reduced its capital gains tax rate from 40 percent to 20 percent in 1980 and later slashed its corporate tax rate to 12.5 percent— 

decisions that gave birth to the Celtic Tiger. Such smart tax policies transformed 

Ireland into an industrial and financial hub, and Irish incomes rose from 30 percent 

below the European average in the 1980s to 40 percent above the average in 2004. 

Clearly, we need a tax code that rewards capital investment and capital formation 

in this country, but we do not yet have one. Instead, we have a tax code that stands 

athwart the salutary, twin trends of global capitalization and increasing international tax competition. We need a flatter, simpler, fairer tax code and not the skyhigh rates and convoluted provisions that are making the U.S. a less hospitable investment environment. 

I look forward to working with our witnesses and with Chairman Levin to create 

a more sensible tax and regulatory regime. 

10 

1The prepared statement of Mr. DiCicco appears in the Appendix on page 45. 

Senator LEVIN. Thank you so much, Senator Coburn. 

And now let me welcome our first panel of witnesses for this 

afternoon’s hearing: John DiCicco, Acting Assistant Attorney General for the Tax Division of the Department of Justice; and we are 

delighted that we have with us Doug Shulman, the Commissioner 

of the Internal Revenue Service. We know how busy your schedule 

is, Commissioner Shulman, we are delighted you were able to get 

here today. 

Mr. DiCicco, I believe this is your first appearance before the 

Subcommittee. We welcome you. Commissioner Shulman, again, 

thank you for being here. You have testified before the Subcommittee in the past, so we welcome you back. And as you know, 

pursuant to Rule 6, all witnesses who testify before this Subcommittee are required to be sworn, and I would ask you now both 

to stand and raise your right hand. 

Do you swear that the testimony you are about to give before 

this Subcommittee will be the truth, the whole truth, and nothing 

but the truth, so help you, God? 

Mr. DICICCO. I do. 

Mr. SHULMAN. I do. 

Senator LEVIN. We will use a timing system today—a minute before the red light comes on, you will see the lights change from 

green to yellow, which will give you an opportunity to conclude 

your remarks. Your written testimony will be printed in the record 

in its entirety, and we would appreciate your using up to 10 minutes for your oral testimony. 

Apparently, the order of our witnesses has been decided upon in 

advance with your mutual understanding, so, Mr. DiCicco, we will 

have you go first, followed by Commissioner Shulman. 

TESTIMONY OF JOHN A. DiCICCO,1 ACTING ASSISTANT ATTORNEY GENERAL, TAX DIVISION, U.S. DEPARTMENT OF JUSTICE 

Mr. DICICCO. Chairman Levin, Acting Ranking Member Coburn, 

and Members of the Subcommittee, thank you for the opportunity 

to appear before you this afternoon to discuss the Department of 

Justice’s efforts to combat the use of banks and offshore entities by 

U.S. taxpayers to evade income taxes. 

The Department greatly appreciates the extraordinary commitment that the Chairman, Members of the Subcommittee, and staff 

have made to investigate the often arcane world of offshore tax 

evasion and avoidance. Your tireless work over the last several 

years has brought attention to serious misconduct that threatens 

to undermine the fundamental integrity of our tax system. Although we stand ready to enforce the tax laws whenever and wherever necessary, enforcement is only one element of successful tax 

administration. Thanks to your efforts, taxpayers have a greater 

understanding of their obligations and the consequences of noncompliance. You have also put tax professionals and financial advisers on notice that their efforts to design, market, and facilitate 

tax evasion schemes will not be tolerated. 

11 

In conducting law enforcement investigations, the Department 

goes to great lengths to ensure that the government’s inquiry is 

complete and that testimony and evidence are gathered and fully 

analyzed outside of the public arena. Our policy of not disclosing 

non-public information about ongoing matters protects the rights of 

individuals who may be assisting in the investigation, protects the 

rights of criminal defendants, as well as the integrity of the investigation itself. Our ability to comment is also circumscribed by Federal Rule of Criminal Procedure 6(e), which protects the disclosure 

of grand jury information. In a tax case, the tax privacy statute, 

Section 6103 of the Internal Revenue Code, further limits the government’s disclosure of tax information. Although certain aspects of 

the UBS matter are public, both the civil and the criminal matters 

are ongoing, and certain documents relating to the criminal matter 

remain under court seal. Therefore, my remarks today will be 

strictly limited to positions the Department has taken on the public 

record. 

As the Chairman has mentioned, on February 28, 2009, the district court in Florida accepted a Deferred Prosecution Agreement 

between the government and UBS. Under the terms of that agreement, UBS waived indictment and consented to the filing of a onecount criminal information charging UBS in a conspiracy to defraud the United States and the Internal Revenue Service, in violation of U.S. criminal law. As part of the Deferred Prosecution 

Agreement, UBS also agreed to pay $780 million in fines, penalties, 

interest, and restitution. If UBS carries out its obligations under 

the Deferred Prosecution Agreement, the government will recommend dismissal of the charge. The Deferred Prosecution Agreement is a product of UBS’ willingness to cooperate thus far with 

our investigation. The Government of Switzerland has also endeavored to provide significant assistance and cooperation. We appreciate the Swiss Government’s efforts and those of its finance and 

banking regulator who assisted in expediting the production of the 

records that we have secured and that we are in the process of securing. 

Fundamental to the agreement is UBS’ acceptance of responsibility for violating U.S. law. As set forth in detail in the Deferred 

Prosecution Agreement, UBS acknowledged that, beginning in 2002 

and continuing through 2007, UBS private bankers and managers 

actively facilitated the creation of accounts in the names of offshore 

companies, allowing U.S. taxpayers to conceal their ownership or 

beneficial interest in those accounts in an effort to evade U.S. tax 

reporting and payment requirements and in violation of a qualified 

intermediary agreement UBS had entered into with the Internal 

Revenue Service. UBS also admitted that certain UBS executives 

and managers were aware of the misconduct, and UBS agreed that 

it failed to implement effective controls to detect and prevent the 

unlawful activity, that it failed to initiate an effective investigation 

into credible allegations of such unlawful activity, and that it failed 

to take effective action to stop such activities. 

UBS bankers routinely traveled to the United States to market 

Swiss bank secrecy to U.S. clients interested in attempting to 

evade U.S. income taxes. An internal UBS memorandum filed with 

the court demonstrates that, in 2004 alone, UBS bankers traveled 

12 

to the United States where they held approximately 3,800 separate 

meetings with U.S. clients to discuss their clients’ Swiss accounts. 

UBS used a variety of strategies to conceal their cross-border activities. They instructed their bankers who traveled to the United 

States to falsely represent to Customs that they were traveling for 

pleasure. They also recommended that bankers rotate hotel accommodations in the United States to avoid detection. UBS bankers 

used counter-surveillance techniques, including encrypted spread 

sheets, designed to help prevent the detection of their marketing 

efforts, as well as the identities and undeclared assets of their U.S. 

clients. 

U.S. clients in turn filed false tax returns with the Internal Revenue Service which omitted the existence of and the income earned 

on the UBS accounts. UBS bankers advised U.S. clients to misrepresent the receipt of funds in the United States from their UBS 

accounts as loans from UBS. U.S. clients were also advised to destroy all U.S.-based records of their offshore accounts. 

With the assistance of UBS bankers and managers, the U.S. taxpayers have used Swiss bank secrecy laws and sham entities to 

conceal from the IRS approximately $20 billion in assets. For the 

period 2000 through 2007, UBS failed to withhold approximately 

$120 million in income taxes on income earned in those accounts. 

As part of the Deferred Prosecution Agreement, UBS has agreed 

to provide the United States with voluminous and detailed records 

concerning accounts held directly or through beneficial arrangements by U.S. taxpayers. UBS has also undertaken a continuing 

obligation to cooperate with the criminal investigation and any resulting prosecutions. UBS has further agreed to search for and 

turn over any additional records found concerning such accounts. 

The specific criteria for account records disclosed and the number 

of such accounts as to which records have been disclosed to date 

are set forth in a document that the district court has ordered 

sealed. 

UBS has also agreed to pay the United States $780 million and 

that it will terminate its U.S. cross-border business. And as mentioned in the prosecution agreement, while they will litigate in Federal court the government’s motion to enforce the John Doe summons, in the event that they are ordered to comply with the summons and they refuse to do so, the United States can determine 

that a breach of the Deferred Prosecution Agreement has occurred 

and can take appropriate action. 

UBS’ failure to comply with the terms of the Deferred Prosecution Agreement may, in the sole discretion of the United States, be 

deemed a material breach, permitting the United States to proceed 

with the criminal prosecution of UBS. If UBS fully complies with 

the Deferred Prosecution Agreement, then the criminal information 

will be dismissed. 

It is important that the Deferred Prosecution Agreement only applies and provides protection for the bank as to the specific conduct 

set forth in the Deferred Prosecution Agreement. It does not provide any protection for any conduct or as to any matter or proceeding outside the scope of the agreement. 

It is also important to emphasize that under U.S. law, U.S. taxpayers are subject to taxation on their worldwide income. Although 

13 

1The prepared statement of Mr. Shulman appears in the Appendix on page 51. 

a U.S. taxpayer is free to hold accounts offshore or in a foreign 

bank, a U.S. taxpayer must report information about those assets 

and must pay the tax on the income generated. Taxpayers who fail 

to make disclosure or to report their income are potentially subject 

to civil penalties and in appropriate circumstances criminal prosecution. 

As noted in the Deferred Prosecution Agreement, in addition to 

addressing UBS’ role in designing and facilitating this scheme, the 

Department is also assisting the Internal Revenue Service in determining the identities of the U.S. taxpayers involved. We are presently involved in a proceeding to enforce the John Doe summons 

pending in the Southern District of Florida, and we have a schedule there which would allow for a hearing on, I think, July 13 of 

this year. 

In closing, I think it is important to remember that the vast majority of Americans voluntarily pay their taxes on time and in full. 

And at a time when millions of Americans are losing their jobs, 

their homes, and their health care, it is deeply troubling that thousands of the wealthiest among us have actively sought to evade 

their civic and legal duty to pay taxes. The Department of Justice 

is committed to doing all that it can to aid the Internal Revenue 

Service in locating those who would seek to hide behind secret accounts and to hold them accountable under the Federal tax laws. 

And we greatly appreciate your interest in our efforts. 

Thank you for this opportunity to testify before the Subcommittee, and I am happy to take your questions, within the parameters that I have outlined. 

Senator LEVIN. Thank you very much, Mr. DiCicco. Mr. Shulman. 

TESTIMONY OF HON. DOUGLAS SHULMAN,1 COMMISSIONER, 

INTERNAL REVENUE SERVICE, U.S. DEPARTMENT OF THE 

TREASURY 

Mr. SHULMAN. Mr. Chairman, Ranking Member Coburn, and 

Senator McCaskill, I want to thank you for the opportunity to testify today on the Internal Revenue Service’s ongoing efforts to detect and stop unlawful offshore tax avoidance. 

Mr. Chairman, I am pleased to be here today to tell you about 

the unprecedented focus that the IRS has placed on detecting and 

bringing to justice those who unlawfully hide assets overseas to 

avoid paying tax. In today’s economic environment, where the Federal Government is necessarily running deficits to restore economic 

growth, it is more important than ever that citizens feel confident 

that individuals and corporations are playing by the rules and paying the taxes that they owe. 

When the American public is confronted with stories of financial 

institutions helping American citizens maintain secret overseas accounts involving sham trusts to improperly avoid U.S. tax, they 

should be outraged, as I am and I know you are. But they should 

also know that the U.S. Government is taking unprecedented 

measures, and there is much more in the works. 

14 

I can assure you that the President and the Treasury Secretary 

are committed to taking aggressive action on offshore tax abuse. 

Over the next several months, the Administration intends to propose a series of legislative and enforcement measures to reduce 

U.S. tax evasion and avoidance. 

While I am proud of the progress we have made at the IRS since 

I have become Commissioner, we are only at the beginning. You 

can expect to see a multi-year effort to beef up our resources and 

the tools that we have to address international tax abuse. 

In the wake of publicity around the recent case that my colleague 

Mr. DiCicco discussed, the press has been full of speculation from 

those who are advising U.S. taxpayers who have undeclared offshore accounts and income. My advice to those taxpayers who are 

hiding accounts still is very simple: The IRS has been steadily increasing pressure on offshore financial institutions that facilitate 

concealment of taxable income by U.S. citizens. That pressure will 

only increase under my watch. Those who are unlawfully hiding assets should come and get right with their government through our 

voluntary disclosure process. 

Mr. Chairman, there is no silver bullet or one strategy that will 

alone solve the problems of offshore tax avoidance. Rather, an integrated approach is needed, made up of separate but complementary 

programs that will tighten the net around tax cheats. 

My written testimony today explores elements of these strategies 

in more detail, but let me highlight a couple of them here today. 

First, the IRS is devoting significant and ever increasing resources to international issues. I have both increased the number 

of audits and increased hiring in the area of offshore tax abuse, 

hiring international experts and investigators. Indeed, over the last 

5 months, when we have essentially been in a hiring freeze because 

of the continuing resolution, I have shifted resources to make sure 

we can keep hiring people for international issues. 

The President’s 2010 budget will allow us to increase our resources in the international area as well by including funding for 

a robust portfolio of IRS international tax compliance initiatives. 

The IRS is also looking closely at how to continue to improve our 

Qualified Intermediary Program, or QI program for short. Let me 

just say that the QI program gives us a very important line of sight 

into banks that service U.S. and foreign taxpayers, and that is a 

line of sight that we did not have before. But as I have said before, 

with any large and complex program, we have to strive to continuously improve the QI system and address weaknesses as they become apparent. 

Accordingly, the IRS and the Treasury Department are considering enhancements to strengthen the QI program, including: First, 

expanding information reporting requirements to include more 

sources of income for U.S. persons with accounts at QI banks; second, strengthening documentation rules to look through trusts and 

private corporations to their beneficial owners and requiring withholding for accounts with documentation that is considered insufficient. Additionally, we have already proposed changes that would 

shore up the independent review by outside auditors of the QI program in substantial ways. 

15 

As you can see, the IRS and Treasury Department are considering a range of measures to ensure that the QI program is working as intended. However, there will always be instances where the 

IRS discovers a potential violation of the tax law after the fact. In 

these cases, there are administrative and legislative changes that 

would be helpful to the IRS as we investigate potential wrongdoing. 

Secretary Geithner stated during his confirmation process that 

he will treat offshore tax abuse issues as a high priority and will 

examine a range of policy issues, including changing presumptions 

for transactions in tax secrecy jurisdictions and other ideas that 

are included in your legislation. That dialogue is underway at the 

Treasury Department. 

Additionally, Mr. Chairman, I want to applaud the work of you, 

Senator Whitehouse, Senator McCaskill, Senator Nelson, as well as 

the work of your staff in producing the Stop Tax Haven Abuse Act. 

I look forward to working with you to put a halt to offshore tax 

haven and tax shelter abuses. 

Mr. Chairman, these are important steps forward, but much 

more will come. The President’s budget committed to identifying 

$210 billion in savings over the next decade from international enforcement and reforming deferral and other tax reform policies. 

The Administration will have more detailed and specific announcements in the near future. 

Thank you for this opportunity to provide an update on our activities to combat illegal tax avoidance schemes relating to offshore 

accounts and transactions. Because this is a global problem, it will 

require closely coordinated strategy among nations dedicated to 

ending abusive practices that deprive our country of precious resources and erode confidence in the fairness of our tax administration system. 

I want to compliment the work that you and this Subcommittee 

have done to bring to light offshore tax abuse. I have enjoyed working together on these issues, and I look forward to continuing to 

work together with this Subcommittee in the future. And I am 

happy to respond to questions. 

Senator LEVIN. All right. Now, Dr. Coburn has a couple of 

amendments of his own on the floor, so he is going to need to leave 

when the votes have started. So I am going to yield to him to go 

first. 

Senator COBURN. Thank you, Mr. Chairman. I appreciate that. I 

will go very quickly. 

First, to Mr. DiCicco, if you can, what is your estimated timeline 

on the Deferred Prosecution Agreement? At what time will you all 

say they are not complying, we are going to drop this? 

Mr. DICICCO. Well, at any time during the process, if we see a 

material breach and it is not corrected, I think we can take action 

at that time. Right now the Deferred Prosecution Agreement is to 

come to an end at the later of—I think it is 18 months or when 

the summons enforcement action is concluded. 

Senator COBURN. Right. 

Mr. DICICCO. But at any place along the line if there is a significant breach or material breach, then we have the option to conclude the agreement and to go back and institute—— 

16 

Senator COBURN. So it would be safe to say 18 months from now, 

if we do not have the information, it is going to get dropped and 

the prosecution will commence? 

Mr. DICICCO. Well, Senator, I would have to see how— 

Senator COBURN. I am not going to hold you to it. I am just trying to get a timeline. 

Mr. DICICCO. I would think, Senator, that the timeline for getting the John Doe summons matter resolved would probably be 

more than 18 months, more likely could be as long as a couple 

years because I suspect that appeals will be taken, and it takes 

time for that process. 

Senator COBURN. Well, is there any provision agreement if UBS 

is obstructing through the courts? 

Mr. DICICCO. Well, one of the conditions of the Deferred Prosecution Agreement and what we agreed to was that we would proceed—both parties agreed that we would proceed in the district 

court and have a court decide whether we would get that information or not. So as long as that is going forward—— 

Senator COBURN. So if, in fact, that is delayed, what we would 

extend to is outside the bounds of that 18 months. 

Mr. DICICCO. That is right. 

Senator COBURN. Can you tell me what are the circumstances for 

criminal prosecution of offshore accounts? You mentioned offshore 

accounts and that some of them are prosecuted on a criminal basis. 

What would make them a criminal—set them up for a criminal 

prosecution? 

Mr. DICICCO. Well, there are a lot of factors that go into making 

that determination, including the intent, the amount involved, the 

circumstances surrounding how the account was opened, whether 

it was the result of criminal proceeds, drug trafficking, stolen 

money, or whether it was perhaps just a simple inherited account. 

I mean, all these factors would be weighed before a decision really 

can be made. 

Senator COBURN. OK. Commissioner Shulman, in your statement 

you included individuals and corporations. Do we have evidence 

that there are corporations involved in this process or are you 

mostly talking about LLC’s and other such personal investment vehicles? 

Mr. SHULMAN. Just speaking as the Commissioner, I would defer 

any discussion about specifics to my colleague. 

Senator COBURN. Well, it is very important because in your 

statement you implied individuals and corporations. 

Mr. SHULMAN. Yes. Generally, since I became IRS Commissioner, 

I made international issues one of my top issues that we are going 

to pursue, dedicate resources to, focus on, both from a policy perspective and administrative perspective. The big issue we are focusing on today in the hearing is offshore accounts, wealthy individuals hiding money overseas. 

We also have a lot of major initiatives around corporations using 

the vagaries of international commerce and international tax laws 

to avoid taxes in a civil matter. So that is what I was referring to. 

Senator COBURN. But avoidance is very different from evasion. 

Mr. SHULMAN. Absolutely. 

17 

Senator COBURN. OK. And so the implication is what we are 

talking about here was not meant to include corporate accounts in 

what we have seen thus far. Is that true? 

Mr. DICICCO. Well, Senator, we have not gotten the information 

yet, and we have not been able to analyze it. 

Senator COBURN. It is possible, but that is not what we have 

seen, that is not what we have heard about. Most of these, at least 

what we have been told, of somewhere between 19,000 and 52,000 

accounts, are probably individual accounts. 

Mr. DICICCO. I think that is correct, but I do not know the answer to that. 

Senator COBURN. I am intrigued by your voluntary disclosure 

process. I think that is a message that needs to go out to this country. We are going to help you become more aggressive in going 

after this avoidance and evasion. But I would think that we would 

want to signal loud and clear, Mr. Chairman, that there is a way 

to avoid some of the pitfalls of pain if you are one of those who is 

illegally evading taxes in this country, and that is through your 

voluntary disclosure program. 

Mr. SHULMAN. Absolutely. It is a longstanding program. People 

who come in voluntarily before we found them. So, if we found you 

already or we have an active, ongoing investigation, you are not eligible. But people who come in voluntarily, truly voluntarily, usually avoid criminal prosecution as long as they get right with taxes, 

interest, and the penalties that will apply. And I cannot say strongly enough, people who are out there, we are continuing to put pressure and dedicate resources. This Subcommittee and others are 

going to continue to focus on this, and the best thing people can 

do is come in through the voluntary disclosure process and avoid 

criminal prosecution in most cases. 

Senator COBURN. We are going to find you, in other words. 

How can you see, Commissioner, tax simplification aiding this? 

In other words, if we had a much simpler Tax Code, if we had a 

Tax Code, for example, that was based on a national sales tax, 

would we see this kind of movement to foreign tax shelters that we 

see today? 

Mr. SHULMAN. Well, let me not speak to flat tax or any specific 

proposal. 

Senator COBURN. Just a simplified, straightforward, easy—everybody can calculate it. You do not need a CPA to do your taxes. If 

we had that kind of tax program, what would be the benefit of 

some of these shelters? 

Mr. SHULMAN. As Commissioner of the Internal Revenue Service, 

who has to implement a very complicated Tax Code, I am a big fan 

of simplification. There are a lot of U.S. citizens who get caught up 

in mistakes because they are confused. I think the folks we are 

talking about today, generally it is not mistakes. They are actively 

avoiding tax. I am a fan in general of simplification. 

Senator COBURN. And you would agree that probably we would 

have less incentive to do this if we had a simple, more straightforward, fairer tax code? 

Mr. SHULMAN. I am not sure about incentive, but certainly I 

think there would be a lot fewer mistakes in preparing taxes and 

18 

1See Exhibit No. 3, which appears in the Appendix on page 69. 

it would be easier for the American citizen. So I am a big fan of 

simplification. 

Senator COBURN. All right. Let me go the other way. You do not 

think people would lessen their desire for tax shelters if we had a 

straightforward, simple, fair tax system? 

Mr. SHULMAN. Well, certainly the complexity of the Tax Code 

and then you add to it the complexity of crossing the border and 

sovereign laws creates loopholes and opportunities for people who 

want to push the envelope. So I certainly think it would certainly 

help with tax enforcement. 

Senator COBURN. Thank you, Mr. Chairman. 

Senator LEVIN. Thank you very much. 

Let me start, Mr. DiCicco, with you. In the Deferred Prosecution 

Agreement,1 UBS acknowledged ‘‘participating in a scheme to defraud the United States of America.’’ Among the facts that UBS acknowledged and accepted as part of the filing entitled ‘‘Acceptance 

of Responsibility for Violation of Law’’ is the following: ‘‘Private 

bankers and managers would actively assist or otherwise facilitate 

certain undeclared U.S. taxpayers who such private bankers and 

managers knew or should have known they were evading U.S. 

taxes by meeting with such clients in the United States and communicating with them via jurisdictional means on a regular and recurring basis with respect to their UBS undeclared accounts. This 

enabled the U.S. clients to conceal from the IRS the active trading 

of securities held in such accounts and/or the making of payments 

and/or asset transfers to and from such accounts. Certain UBS executives and managers who knew of the conduct described in this 

paragraph continued to operate and expand the U.S. cross-border 

business because of its profitability.’’ 

Now, what this paragraph shows, does it not, is that the evasion 

facilitated by UBS goes to all kinds of U.S. account holders? It does 

not make any difference whether they held cash, securities, or 

other assets in those accounts. The critical fact is that they did not 

report those accounts and income to the IRS, and UBS, by coming 

to this country and engaging in practices that helped the U.S. account holders to conceal those accounts and income, was part of the 

alleged conspiracy. Is that correct? 

Mr. DICICCO. That is correct, Senator. 

Senator LEVIN. Now, Commissioner, yesterday Secretary Geithner stated that he fully supports my bill, S. 506, a bill which has 

a number of cosponsors, which is called the ‘‘Stop Tax Haven Abuse 

Act.’’ Is that good news in terms of enforcement for the IRS? 

Mr. SHULMAN. Yes. 

Senator LEVIN. When I say ‘‘good news,’’ I mean the support of 

the Administration for our bill. Is that good news to the IRS? 

Mr. SHULMAN. Yes. 

Senator LEVIN. It is good news for American taxpayers, too, and 

we very much welcome that support. And I mentioned this to the 

President this morning, by the way. He also happened to be a cosponsor of this bill when he was a Senator. I did not draw any connection between the two. 

19 

1See Exhibits No. 15 and 16, which appear in the Appendix on pages 235 and 237. 

Mr. DiCicco, do you think UBS is the only tax haven bank that 

is facilitating tax evasion by U.S. clients or are there more out 

there? 

Mr. DICICCO. I do not think they are the only one. 

Senator LEVIN. UBS has said in court, Mr. DiCicco, that it cannot provide the information sought in the John Doe summons because it is bound by Swiss secrecy laws not to disclose client-specific information outside of Switzerland. Can you explain how UBS 

can invoke Swiss secrecy laws to refuse compliance with U.S. requests for information about U.S. clients? 

Mr. DICICCO. Senator, I have to be a little careful about what I 

say because the matter is pending, but what I will—— 

Senator LEVIN. All right. Then let me ask you the question this 

way: How big a barrier are secrecy laws to tax investigations by 

the United States? 

Mr. DICICCO. I think they are a significant barrier, but what I 

would say about the UBS matter, the approach that we are taking 

is this is a dispute between the United States and UBS. We are 

not going head to head with the Swiss Government, but UBS 

which, as the Chairman has pointed out, came into this country, 

systemically violated its laws, subjected itself to the jurisdiction of 

U.S. courts, and we are using U.S. remedies to get the information 

that we believe we are entitled to. 

Senator LEVIN. Now, that may not be the purpose of the case, to 

go head to head with the Swiss Government, but we are going head 

to head with tax secrecy jurisdictions. We are, and this bill, and I 

think this Congress, and now this Administration; we are going 

head to head with those tax havens that help American taxpayers 

who owe taxes avoid paying their fair share. 

Is it your belief, Mr. DiCicco, that the UBS and the Swiss understood at the time the Deferred Prosecution Agreement was signed 

that the U.S. Government planned to seek enforcement of the summons? 

Mr. DICICCO. No question about that, Senator. Discussions had 

taken place over a period of time which made it very clear that is 

what we would be doing, and in the Deferred Prosecution Agreement itself, it says very explicitly that we will bring an enforcement action. It does not say ‘‘we may,’’ ‘‘we are thinking about it.’’ 

It says very specifically ‘‘we will be,’’ and that is what we did. 

Senator LEVIN. All right. So it was not a surprise to them when 

you proceeded? 

Mr. DICICCO. It should not have been. 

Senator LEVIN. In the Deferred Prosecution Agreement, UBS acknowledged and accepted that some of its private bankers and 

managers ‘‘facilitated the creation of accounts in the names of offshore companies, allowing the U.S. taxpayers to evade reporting requirements and to trade in securities as well as other financial 

transactions.’’ 

Now, Exhibits 15 and 16 1 are UBS documents that were filed as 

part of the John Doe summons enforcement petition. Exhibit 15 is 

a memo to the Private Banking Business Committee from members 

of the Financial Planning and Wealth Management Department of 

20 

UBS recommending how UBS should handle U.S. client accounts 

under the Qualified Intermediary Program. One part of the memo 

says the following: ‘‘In the case where the U.S. person holds his 

U.S. investments directly, we have been advised by Baker & 

McKenzie’’—the ‘‘we’’ here now being UBS; that is the ‘‘we’’—‘‘that 

we cannot recommend products (such as the use of offshore companies, annuity, or insurance products) to our clients as an ‘alternative’ to filing a Form W–9. This could be viewed as actively helping our clients to evade U.S. tax, which is a U.S. criminal offense. 

Further, such recommendations could infringe upon our Qualified 

Intermediary status if, on audit in 2003, it is determined that we 

have systematically helped U.S. persons to avoid the QI rules.’’ 

But then they say the following: ‘‘What we can do is to suggest 

that clients seek external professional advice and offer them a 

choice of approved service providers if they request it. With this approach it seems clear that we would not be able to share fees with, 

for example, an insurance provider.’’ 

Now, do you see much difference between recommending a strategy to get out of complying with reporting requirements and referring a client to someone who you know will make the same recommendation? 

Mr. DICICCO. No, Senator. I do not see any difference. 

Senator LEVIN. Thank you. Senator McCaskill, I will be back 

from voting, I hope in 10 minutes. 

OPENING STATEMENT OF SENATOR McCASKILL 

Senator MCCASKILL [presiding]. As a former prosecutor, I am familiar with Deferred Prosecution Agreements. Frankly, in my experience, in terms of most crime that is committed in our country, 

they are generally used to get the cooperation of a defendant in 

order to prosecute other defendants. I am not aware of anyone who 

has been arrested—for most crimes in this country, that get a Deferred Prosecution Agreement, and all they have to do is what at 

a minimum they would have had to do if they had been convicted. 

I am curious if there is any part of this agreement that requires 

the cooperation of UBS to disclose anything that they know about 

other banking institutions that may be utilizing these kinds of tactics to help citizens avoid taxes? 

Mr. DICICCO. No, Senator, there is nothing like that in the Deferred Prosecution Agreement between the United States and UBS. 

Senator MCCASKILL. Was there ever any consideration made of 

actually putting somebody in jail? 

Mr. DICICCO. Well, we have secured the conviction of one of the 

UBS people, Bradley Birkenfeld; he is awaiting sentencing. There 

is a criminal prosecution of Raoul Weil, who is absent from this 

country. I am not going to rule out one way or the other whether 

there will be prosecutions of others. 

Senator MCCASKILL. And how far up in the UBS organization did 

knowledge of these tactics, how far up did it go? 

Mr. DICICCO. Well, certainly the executives in UBS knew what 

was going on and failed to take action. Mr. Weil was highly placed 

in UBS’ wealth management sector. 

Senator MCCASKILL. And he is evading us now? 

21 

Mr. DICICCO. He is back in Switzerland. He has been declared 

a fugitive from justice. 

Senator MCCASKILL. And is part of the negotiations with the 

Swiss Government concerning cooperation on getting the names of 

American citizens, does it also involve whether or not they are 

going to cooperate in letting us get to him? 

Mr. DICICCO. We have not had discussions regarding that. If we 

have, I am not aware of that. 

Senator MCCASKILL. And I am just curious, who within DOJ—— 

Mr. DICICCO. He was just advising me that the Swiss will not 

allow extradition of somebody for tax crimes. 

Senator MCCASKILL. They will not allow someone—— 

Mr. DICICCO. They do not recognize extradition for that. 

Senator MCCASKILL. So this bank, in order to avoid prosecution 

of anybody involved in this, all they have to do is send folks back 

to Switzerland? That is it? They are home free, scot-free? 

Mr. DICICCO. Well, we have not made any agreements other than 

with the bank itself as to its criminal behavior. I do not know that 

the bank would have authority to keep somebody in this country 

or in Switzerland. We would have to use normal procedures that 

we would do in any circumstance where we had somebody that we 

wanted to extradite, and—— 

Senator MCCASKILL. Are there other groups of people that have 

been removed from the bank because of their conduct in this case? 

Mr. DICICCO. I believe that some executives have been replaced, 

but I can get back to you on which ones to make sure. 

Senator MCCASKILL. It always kind of strikes me as unfair that 

so many of the large white-collar cases involve a civil fine in lieu 

of prosecution or deferred prosecution and that there are not—I 

look at some of the cases, the minimum mandatories in the Federal 

system for a girlfriend of a guy who is moving drugs, and I think 

about her culpability, which, no question she is culpable. But there 

is just not a lot of deferred prosecution on those cases. And I am 

trying to get at the policy as to why this kind of massive thumbing 

the nose at our laws—we have got one person who is facing prosecution out of the whole shebang? 

Mr. DICICCO. Well, there may or may not be others. I am not at 

liberty to disclose that. 

Senator MCCASKILL. OK. 

Mr. DICICCO. But we entered into a Deferred Prosecution Agreement with the bank, in exchange for which we got significant concessions on their part. We thought that it was in the government’s 

best interest at the time we entered into it, and we have made it 

very clear that the bank was not off the hook for any other transgressions it might have engaged in, and that any individual is not 

off the hook for any criminal acts that they engaged in. 

Senator MCCASKILL. How was the figure $780 million arrived at? 

Mr. DICICCO. Senator, I really cannot go into the give and take 

of the negotiations, but in our judgment, that was a significant sum 

and that would be a real burden on the bank to have to make those 

payments. 

Senator MCCASKILL. The reasoning behind my question is that I 

am trying to figure out if there was any attempt to match up that 

amount with the amount of profit that had been derived? 

22 

1See Exhibit No. 29, which appears in the Appendix on page 919. 

Mr. DICICCO. We did some of that. Some of that is regurgitation 

of profits. Some of it is also paying the withholding taxes that 

should have been withheld on the accounts of the individuals involved. So there was an effort to arrive at that. 

Senator MCCASKILL. Mr. Shulman, how many other foreign entities or banks or financial institutions are you currently trying to 

work on with the same kind of problems that UBS had? 

Mr. SHULMAN. Yes, I cannot disclose specifics, but we have a robust voluntary disclosure program. We have recently significantly 

expanded our whistleblower program, and so the one thing I would 

say in a public setting is that individuals who are hiding bank accounts should know that we are going to continue to come after 

them, and institutions that are facilitating that, we are not going 

to hesitate to go after. 

Senator MCCASKILL. And what do whistleblowers get? 

Mr. SHULMAN. Whistleblowers, there is a new whistleblower statute for the IRS. They can get a range of rewards based on their 

information and based on what we have at the time. 

Senator MCCASKILL. Was there a whistleblower in this case? 

Mr. SHULMAN. Before you came in—I am going to defer all casespecific things to Mr. DiCicco. 

Mr. DICICCO. Mr. Birkenfeld did come in and give testimony. 

That is really all. 

Senator MCCASKILL. OK. Well, I think it would be helpful if you 

could be more specific about what a whistleblower could get. This 

is a very public opportunity for whistleblowers to realize that there 

is, as we would say at home, ‘‘money in them thar hills.’’ 

Mr. SHULMAN. I do not want to recite the details wrong, and I 

am happy to get you, for the record, the details of our whistleblower program. People can get substantial monetary rewards for 

coming in and helping us with investigations and giving us information.1

Senator MCCASKILL. OK. I do not want to tie you down in terms 

of saying ‘‘robust,’’ but could you give me some ballpark? I mean, 

I do not know what to compare this to. I do not know if UBS is 

the tip of the iceberg, or if UBS is a major part of the problem. Can 

you be any more specific than ‘‘robust’’? Because ‘‘robust’’ is in the 

eye of the beholder. 

Mr. SHULMAN. When I became Commissioner, we decided to 

focus on international activities for a couple of reasons: One, because it is a matter of fundamental fairness. The people who have 

enough money to go overseas and hide their assets should be paying taxes, and the average American—a teacher, a policeman, a 

fireman who is actually paying their taxes, is outraged at this, as 

are we. 

We have been shifting resources to the area of international. 

This is just one segment of where we are focusing, people hiding 

assets offshore, using financial institutions to do so. As I mentioned 

to the Ranking Member, we are also very active in the international arena where people are pushing the envelope, transferring 

intangibles, setting up corporations that do not have substance beneath them. 

23 

I would say that given the global economy, given that international commerce is increasing significantly, in the last 5 years 

there has been a 70-percent increase in foreign tax credits claimed 

by corporations in the United States and a 170-percent increase of 

foreign tax credits being claimed by individuals in the United 

States. So, not speaking to this case, we think this is a major issue 

that we are going to continue to focus on over the next several 

years. The President’s budget has made it clear that this is something the whole Administration is committed to and is behind. 

Senator MCCASKILL. Has there been any analysis done of how 

much of this money that is being hidden overseas is, in fact, a result of criminal activity? 

Mr. SHULMAN. Not that I am aware of. I mean, estimating how 

much money that is overseas and not being paid to the government. As far as I am aware, there is no credible estimate out because it is kind of a chicken and egg. If it is over there and we have 

not found it, it is hard to estimate what is there. And all estimates 

that I have seen have not broken down criminal versus civil because, again, until we see the cases, it is hard to say. 

Senator MCCASKILL. Well, I am trying to—there are lots of reasons people hide money, and one of the major reasons people hide 

money is because they got that money in a way they cannot explain 

to anyone. 

Mr. SHULMAN. Yes. 

Senator MCCASKILL. Obviously, tracking money laundering is a 

huge part of any large criminal investigation that I have ever been 

aware of that is trying to follow the money, the ill-gotten gains of 

that crime. Can you give the Subcommittee any information from 

the Department of Justice as to are you all merging your tracking 

assets of criminals with the work that you have done in this regard 

as it relates to monies held overseas? 

Mr. DICICCO. Well, certainly during the course of our investigations, if we become aware of money overseas and the like, I mean, 

that is taken into account, and it is usually a factor that is used 

in the prosecution of tax evasion itself. Just regular prosecutions 

of money being overseas alone, there are not very many standalone investigations of that. But it is just part of the broader investigation that you have when you are trying to determine whether 

somebody violated tax laws. 

Mr. SHULMAN. Senator, if I could add to that? 

Senator MCCASKILL. Yes. 

Mr. SHULMAN. At the IRS, our Criminal Investigation Unit actively coordinates with other Federal law enforcement agencies. We 

pitch in with our accounting forensic teams, etc., on money-laundering cases, and on terrorist financing. Often there is a tax crime 

involved. FinCEN information and SARs reports are available to 

our Criminal Investigation Unit. I would say over the last several 

years there has been an effort to coordinate these cases. I think one 

of our beliefs is, going forward, we are stepping up that coordination of Federal agencies for our purposes of finding criminal tax 

evasion and making sure we use all the information that is out 

there and make sure there are good cooperative relationships. 

Senator MCCASKILL. I think that is really important because 

sometimes it is the folks that you catch in a criminal investigation 

24 

1See Exhibit No. 9, which appears in the Appendix on page 175. 

that are the most willing to give information concerning where they 

have placed their money. Usually somebody cornered is the most 

willing to give good information. So I hope that you are coordinating that. 

Mr. Chairman, are you ready for the next panel, or do you have 

another round? 

Senator LEVIN. I have another round. 

Senator MCCASKILL. OK. 

Senator LEVIN. Commissioner, let me ask you a question about 

some declarations which the IRS filed from Barry Shott, who is titled ‘‘the U.S. Competent Authority who oversees the international 

exchange of information between the U.S. and foreign countries 

pursuant to tax treaties.’’ Exhibit 9 1 is one of those declarations, 

and this is what Mr. Shott said in that declaration: ‘‘The Swiss 

Treaty does not provide an alternative way to obtain the information sought in the John Doe summons at issue in this case.’’ 

Is that correct? Is that an accurate reading of what he said? Do 

you have it in front of you? It is Exhibit 9. 

Mr. SHULMAN. Let me say, if Mr. Shott said it as head of the 

agency, I fully support it. 

Senator LEVIN. In paragraph 16, he goes on to say the following: 

‘‘The Swiss Treaty has been strictly applied by the Swiss Competent Authority to provide the IRS assistance only in response to 

specific requests that name a particular taxpayer. As a consequence, it had also been the IRS’ experience that the Swiss Competent Authority would only provide the IRS with information for 

an examination or investigation that concerns a specifically identified taxpayer. The current IRS investigation is focused on learning 

the identities of U.S. taxpayers not known to the IRS.’’ 

So, unless the U.S. Government already knows the names of specific taxpayers, the Swiss treaty generally cannot be used to get information in Switzerland about a U.S. person. Is that correct? 

Mr. SHULMAN. Yes, generally it is correct. As you stated earlier, 

most of these treaties were designed to get information from taxpayers who we can identify by name. 

Senator LEVIN. All right. Now, in the UBS case, the government 

does not have the names, and that is what we are trying to find 

out. The Shott declaration states, however, that despite the treaty 

history requiring specific names, the Swiss urged the United States 

to make a treaty request in the UBS case, anyway. So on July 16, 

2008, the United States did formally seek information; they made 

a Treaty Request—seeking information about U.S. clients with 

UBS accounts in Switzerland. And the declaration says that 6 

months after that request, so as of January 21, 2009, ‘‘the Swiss 

Government had made final determinations to provide the requested records for only twelve accounts. The Swiss Government 

will not, however, provide records to the IRS about those twelve accounts until after the account holders have been given an opportunity to litigate in a Swiss court the Swiss Government’s decision 

to turn their records over to the IRS.’’ 

Is that litigation going on now, do you know? 

Mr. SHULMAN. I would defer to Mr. DiCicco. 

25 

Mr. DICICCO. Senator, yes, it is. That is the summons enforcement action that is going forward in Florida. 

Senator LEVIN. It says here that the 12 accounts I am talking 

about in the Swiss court, is that litigation, as far as you know, 

going on in the Swiss court now? 

Mr. DICICCO. I believe so. 

Senator LEVIN. Now, the declaration says the following: ‘‘In sum, 

the Swiss Government has not provided any records sought under 

the Treaty Request, and it is not clear when, if ever, it will.’’ 

Do you agree with that declaration, Commissioner Shulman? 

Mr. SHULMAN. Again, I will support what Mr. Shott put in there, 

and I will also just say that is a big reason, based on what he said, 

that we are aggressively requesting the Justice Department to pursue the summons. 

Senator LEVIN. Now, the Shott declaration raises a second problem as well. On page 5, in paragraph 15, it says that even if the 

United States had the name of specific taxpayers, ‘‘the Swiss Government will not exchange information about a taxpayer unless the 

taxpayer committed an affirmative act of deception (such as falsifying a document), above and beyond a mere failure to report the 

existence of an account, or income earned in that account. But for 

now,’’ Mr. Shott writes, ‘‘the IRS is investigating U.S. taxpayers 

who failed to report the existence of Swiss bank accounts—or income earned on those accounts. Absent additional facts, those failures do not enable the IRS to obtain from the Swiss Government 

the information demanded in the John Doe summons issued to 

UBS.’’ 

So now let me summarize this. U.S. tax law requires U.S. taxpayers to disclose the existence of any foreign bank account in 

which they have an interest. If a U.S. taxpayer fails to do that, 

that taxpayer has violated U.S. tax law and is subject to penalty. 

The Swiss tax treaty says that it is not enough to require a Swiss 

bank to produce information about an individual even if we have 

the name of the individual. The individual has to do more than 

conceal the existence of a Swiss bank account from us. He would 

have to have committed an affirmative action of deception before 

the treaty kicks in, as the Swiss define ‘‘affirmative action of deception.’’ And that is the tax fraud issue that we have heard so much 

about. Is that correct? Have I summarized the situation correctly? 

Mr. SHULMAN. It sounds right. 

Senator LEVIN. Do you know, Mr. DiCicco? 

Mr. DICICCO. That is correct. 

Senator LEVIN. That is correct. All right. So even if we had the 

names of 19,000 U.S. persons with Swiss bank accounts that were 

not disclosed to the IRS, we could not get their account information 

under the Swiss tax treaty unless we could show that they did 

more than simply conceal the account and fail to pay taxes owed 

to Uncle Sam. Is that right, Mr. DiCicco? 

Mr. DICICCO. That is correct. 

Senator LEVIN. That is a pretty high bar between the requirement for specific names and proof of affirmative deceptive acts, the 

way the Swiss define it. It is no wonder that the Swiss treaty does 

not produce much information of use to U.S. tax investigations. 

26 

Now, is the Swiss treaty unique in this regard, Mr. DiCicco, or 

is it the general rule that tax treaties and tax information exchange agreements that the United States has in place around the 

world, that we are required to provide the names of specific individuals before information will be supplied about those individuals? 

Mr. DICICCO. I will have to defer a treaty question—— 

Senator LEVIN. All right. Do you know the answer to that question, Commissioner Shulman? 

Mr. SHULMAN. Yes, if you do not mind, I will give kind of a general statement—— 

Senator LEVIN. Is that the general rule? 

Mr. SHULMAN. Yes. Treaties—the model treaty has 30 articles, 

and it is everything from art to pension and annuities, a lot of 

issues around mutual tax treatment. There is one article, Article 

26, which is enforcement related, and it is about exchange of information. Generally it can be helpful. Generally it needs to have a 

specific taxpayer. 

Senator LEVIN. That we identify. 

Mr. SHULMAN. That we identify, and in a lot of cases, sovereign 

law actually trumps the treaty. And so the issue you are pointing 

out, I think that is what you are pointing out. 

I would not say that all treaties are ineffective because they are 

not just about tax, but in cases where sovereign law trumps it, they 

can be limited in our ability to go after taxpayers who we find and, 

therefore, we use tools like the John Doe summons and others. 

Senator LEVIN. And would welcome the tools that we have in our 

bill? 

Mr. SHULMAN. Absolutely. 

Senator LEVIN. The G20 group of countries is planning a meeting 

in London on April 2, 2009, to address a host of financial regulatory issues, and one likely topic to be addressed is whether the 

international community should clamp down on tax havens with 

secrecy laws that facilitate tax evasion by persons from other countries. I believe the British Prime Minister spoke about the importance of that in his speech to the Congress this morning about taking a leadership role in getting the G20 group of countries to come 

together to take on these secrecy laws. 

Can you tell us whether or not we will be—presumably, the 

President—taking a leadership role at the G20 meeting in this area 

that Prime Minister Brown described this morning? 

Mr. SHULMAN. I cannot tell you specifically about G20 plans. I 

can tell you, as you know, this President is very focused on shutting down tax abuses and that these discussions are ongoing. 

Senator LEVIN. All right. Can you give us the name of the Treasury official or officials, other than Mr. Geithner, who would be involved in the negotiations which would precede the G20? Is there 

one person yet identified? 

Mr. SHULMAN. I cannot give you that name. 

Senator LEVIN. OK. Thank you both. You have been very helpful. 

We will now call as a witness Mark Branson, the Chief Financial 

Officer of UBS Global Wealth Management and Swiss Bank of Zurich, Switzerland. 

Mr. Branson, we welcome you back to the Subcommittee. You 

testified before us last July. We thank you for traveling here today, 

27 

1The prepared statement of Mr. Branson appears in the Appendix on page 57. 

and pursuant to Rule VI, all witnesses, as you know, who testify 

before the Subcommittee are required to be sworn. At this time, I 

would ask you to please stand and raise your right hand. 

Do you swear that the testimony you are about to give before 

this Subcommittee will be the truth, the whole truth, and nothing 

but the truth, so help you, God? 

Mr. BRANSON. I do. 

Senator LEVIN. Thank you. We understand that you do have a 

prepared statement today, I believe, and you may proceed with 

that statement. 

TESTIMONY OF MARK BRANSON,1 CHIEF FINANCIAL OFFICER, 

GLOBAL WEALTH MANAGEMENT AND SWISS BUSINESSES, 

UBS, ZURICH, SWITZERLAND 

Mr. BRANSON. Thank you, Chairman Levin, Senator McCaskill. 

My name is Mark Branson. I am the Chief Financial Officer of the 

Global Wealth Management and Swiss businesses of UBS. I am 

based in Zurich. I am responsible for the financial and risk control 

of that division. 

When I testified before your Subcommittee last summer, I described our efforts to investigate and correct problems with the 

bank’s provision of cross-border financial services to U.S. residents. 

At the hearing, we committed to cooperate with the U.S. Government’s investigations, to exit the cross-border business for U.S. 

residents, and to take corrective measures to ensure that such 

problems cannot reoccur. I am pleased to say that we are making 

good on each of those commitments. 

First, we recently entered agreements with the U.S. Justice Department and the Securities and Exchange Commission that resolve their investigations of our cross-border business. Through 

these agreements, UBS has delivered on its promise to cooperate 

with the various investigations of the bank, accept responsibility 

for its unlawful conduct, and remedy that misconduct. 

As part of these settlements, we agreed to disgorge profits from 

the U.S. cross-border business. We also agreed to pay back taxes, 

interest, and substantial civil penalties. In addition, following an 

emergency order from the Swiss financial regulator, we disclosed 

on an expedited basis the name and account information of certain 

U.S. clients who appear to have engaged in ‘‘tax fraud or the like’’ 

within the meaning of the Double Taxation Treaty between the 

U.S. and Switzerland. Those clients misused the confidentiality 

protection of Swiss law. 

Second, following my testimony before the Subcommittee last 

summer, we began the process of exiting the U.S. cross-border business. Since then, we have closed more than 14,000 individual relationships. Going forward, U.S. residents will only be permitted to 

maintain accounts that are fully disclosed to the IRS, with UBS affiliates that are SEC registered. 

Our exit plan is also designed to encourage our cross-border U.S. 

clients to make voluntary disclosures to the IRS, where appropriate. Our communications to affected clients clearly encourage 

them to disclose their accounts to the IRS, if they have not already 

28 

done so. We also guarantee our exiting U.S. clients that we will 

provide them with the documentation necessary to file amended 

U.S. tax returns. 

As part of the recent settlements, the U.S. Government has authorized our exit plan, and we will now complete the exit in accordance with those agreements. Progress will be reviewed by an independent auditor who will periodically report to the U.S. Government. 

Third, UBS will implement an enhanced control framework 

around our compliance with the Qualified Intermediary (QI) Agreement. This new framework will include the appointment of a senior 

executive to supervise QI compliance across UBS. 

Through all these actions, UBS is making good on the commitments that I gave to the Subcommittee last summer. 

Mr. Chairman, we deeply regret our breaches of U.S. law. I can 

honestly say that what took place in one small part of our business 

is not representative of the firm’s culture nor the values of the 

78,000 UBS employees around the world. Those employees, including over 25,000 employees here in the United States, and roughly 

the same number in Switzerland, have suffered as they have seen 

the reputation of their firm harmed. That is very painful to me, as 

is the fact that the bank’s behavior has brought international criticism to the country of Switzerland. 

Before I conclude, I would like to address the recent civil action 

filed by the IRS. That action asks a U.S. court to compel UBS to 

disclose the names and account information of thousands of U.S. 

clients who maintained cross-border accounts with UBS in Switzerland and did not provide the bank with a Form W–9. Because 

Swiss law prohibits UBS from producing responsive information located in Switzerland, UBS has sought to work cooperatively with 

the IRS to identify information responsive to the summons that is 

located in the United States. We undertook substantial efforts over 

many months to collect and produce such U.S.-based information. 

This was information that we could provide to the IRS without violating Swiss law, and this process is continuing. We took these 

steps in a good-faith effort to cooperate with the summons. But we 

believe that UBS has now complied with the summons to the fullest extent possible without subjecting its employees to criminal 

prosecution in Switzerland. 

Mr. Chairman, the John Doe summons is fundamentally a dispute between the IRS and the Swiss Government. UBS believes 

this dispute should be resolved through diplomatic discussions between the two governments, and we will continue to support actively such discussions. But we respectfully submit that the IRS is 

attempting to resolve this diplomatic dispute in a courtroom, which 

is neither productive nor proper. 

The QI Agreement that UBS entered with the IRS in 2001 expressly recognized that UBS would open and maintain accounts 

covered by Swiss financial privacy laws for U.S. clients who chose 

not to provide a Form W–9, as long as those accounts held no U.S. 

securities. The Swiss accounts that are potentially subject to the 

summons do not contain U.S. securities. UBS legitimately maintained those accounts consistent with the QI Agreement signed by 

29 

the IRS. The summons, therefore, seeks client information that the 

IRS itself agreed would be kept confidential. 

In addition, Switzerland and the United States are signatories to 

treaties that specify the circumstances under which client names 

and account information located in Switzerland can be shared with 

U.S. authorities. We believe that the John Doe summons is inconsistent with those longstanding treaties. 

When I was last before the Subcommittee, I promised that UBS 

would cooperate with the IRS, and I believe that we have. We 

made a good-faith effort to produce responsive information available in this country that could be disclosed without violation of 

Swiss law. The bank has now done all that it can do to cooperate 

with the John Doe summons. But UBS cannot disclose information 

to the IRS that would put its employees at serious risk of criminal 

prosecution under Swiss law. 

Mr. Chairman, these are challenging times for my firm. But everyone at the bank is now dedicated to one goal: Fixing UBS, its 

finances, and the problems we have created here in the United 

States. 

Thank you for this opportunity to address the Subcommittee 

again, and I am happy to answer your questions. 

Senator LEVIN. Thank you very much, Mr. Branson. 

First, there are different numbers that have been presented 

about how many Swiss accounts are held by U.S. clients. One number we had last time from you, I believe, was 19,000. Then there 

was a number in a document which has been made part of the 

record, which I believe was 52,000. 

Yesterday, UBS provided the Subcommittee with its current best 

estimate that at the end of July 2008, there were about 46,000 U.S. 

client accounts in Switzerland for which no W–9 was filed. Is that 

correct? 

Mr. BRANSON. I have that information with me that was provided to your staff over the last couple of days. We provided you 

with a total number of accounts as of September 30, 2008, of some 

48,000 accounts. 

Senator LEVIN. Forty-eight thousand. 

Mr. BRANSON. That is 47,760—— 

Senator LEVIN. Let’s call it 48,000. Apparently, 1,000 of those 

had W–9s, so that now it is roughly 47,000. 

Mr. BRANSON. That is correct. 

Senator LEVIN. Let’s talk then about 47,000. Thirty thousandplus of those accounts are accounts of U.S. clients who reside in the 

United States, and the remaining 17,000 accounts that you have 

not closed are held by U.S. clients who do not live in the United 

States. Is that correct? 

Mr. BRANSON. I am not sure about those exact numbers, but 

these numbers, the 47,000, cover U.S. clients both resident in the 

United States and outside the United States. 

Senator LEVIN. Well, our estimate is about 17,000 of those accounts, using your numbers or your figures, are held by clients that 

are American citizens who do not live in the United States. Is that 

consistent with what your document shows? 

Mr. BRANSON. I am not familiar with that exactly. 

30 

Senator LEVIN. All right. We will assume it is accurate. It is your 

document we are working from, so let me ask you this question: 

Are you going to close the accounts of U.S. citizens or only U.S. 

residents? 

Mr. BRANSON. What we have concluded since running through 

the exit program since the time we were here last is that our focus 

should not just be on U.S. residents with securities accounts, but 

it should include non-resident U.S. citizens with securities accounts. 

Senator LEVIN. Well, you are not going to close 17,000 accounts 

apparently. You have acknowledged there are 47,000 accounts. You 

testified 30,000 of them you have exited. Are you going to exit out 

of the balance? And if not, why not? 

Mr. BRANSON. So there is, I think, just over 14,000 that we have 

exited so far. The only category of these accounts that we will not 

exit are those held by non-residents and banking accounts only. 

And the vast majority of those will be located in Switzerland, provided to residents of Switzerland. 

Senator LEVIN. All right. Are you going to be closing the accounts 

of U.S. citizens who are not residents of the United States? 

Mr. BRANSON. With that one exception. 

Senator LEVIN. And that exception is? 

Mr. BRANSON. That exception is non-residents who have banking 

accounts only, no securities accounts. All securities accounts of residents and non-residents will be closed. 

Senator LEVIN. All right. And so why are you not dealing also 

with bank accounts that do not have securities in them but only 

cash, or something other than securities? 

Mr. BRANSON. The reason for that is there is only one place in 

the world where we provide banking-only services as a matter of 

course to our client base, and that is in Switzerland. There are obviously a very large number of U.S. expatriates, U.S. dual citizens, 

green card holders, U.S. persons resident in Switzerland. It would 

be simply impractical for us, as the largest bank in Switzerland, 

not to be able to offer very simple day-to-day banking services to 

that clientele. 

Senator LEVIN. And are you going to notify the IRS? 

Mr. BRANSON. There is no explicit mechanism in place for notification around those types of accounts right now. 

Senator LEVIN. Why? Shouldn’t they be notified? Those clients 

are supposed to notify the IRS, are they not, with a W–9? 

Mr. BRANSON. The W–9 is a securities-based concept. The QI 

Agreement is a securities-based concept. So there is no explicit 

mechanism for banking-only clients. 

Senator LEVIN. But they are supposed to notify—they are supposed to pay taxes on those revenues, are they not? 

Mr. BRANSON. That is correct. That is correct. 

Senator LEVIN. But you are not going to notify the IRS or require 

a W–9 for those non-residents that have cash in Switzerland. Is 

that correct? 

Mr. BRANSON. What we will make sure—as we examine that population that will remain with UBS, we will make sure that we have 

the appropriate controls and will evaluate what those appropriate 

controls are. 

31 

Senator LEVIN. Well, that is something you will do. I want to 

know whether or not you will require that U.S. citizens who are 

not residents of the United States but are citizens that they take 

steps to notify the IRS of that revenue. Will you take those steps? 

Mr. BRANSON. We will evaluate what the proper—— 

Senator LEVIN. You will evaluate. But is your intent to include 

that group? Is that your intent? 

Mr. BRANSON. Our intent is to make sure we have got the right 

controls over that population to make sure that we—— 

Senator LEVIN. And you do not know whether that is a right control or not? You are not committing here today to make sure that 

you take the steps to make sure that those hidden accounts that 

are secret from the IRS are now disclosed to the IRS. You are not 

flat out committing to do that. You are just saying you will take 

whatever is the appropriate steps. 

Mr. BRANSON. We will make sure that there are the appropriate 

controls around that. 

Senator LEVIN. Does that mean that you will make sure that 

those citizens of the United States notify the IRS one way or another, or that you do, of that account? Is that what you are saying? 

Is that appropriate? 

Mr. BRANSON. We are going to make sure that we evaluate what 

is the most appropriate way of putting controls around that limited 

remaining population. 

Senator LEVIN. Controls so that there is no tax evasion? 

Mr. BRANSON. All appropriate controls. 

Senator LEVIN. Will you let this Subcommittee know what you 

decide is appropriate? 

Mr. BRANSON. Yes, I am sure that we can report back. 

Senator LEVIN. UBS has committed wrongdoing by its own acknowledgment by referring U.S. clients who wanted to hide their 

assets to outside firms, ‘‘with the understanding that these outside 

advisers would help such U.S. clients form offshore companies in 

order to enable such clients to evade’’ U.S. law. 

So when UBS managers referred U.S. clients to those advisers to 

create those shell corporations and to form those offshore companies, your folks knew that those advisers were going to help those 

clients do what your lawyers said you could not do directly. Is that 

correct? 

Mr. BRANSON. There are many references in the statement of 

facts connected with the Deferred Prosecution Agreement of the 

kind of misconduct that we have admitted as part of that process, 

which includes, as you have identified, the use of sham offshore 

structures. I think that the behavior you are referencing is consistent with what we see in that statement of facts. 

Senator LEVIN. Well, it is not just consistent. I want you to say 

that is, in fact, what you have acknowledged, because it is. 

Mr. BRANSON. We have acknowledged—— 

Senator LEVIN. It is not just that it is consistent with what you 

have acknowledged. It is what you have acknowledged. Is that not 

true? 

Mr. BRANSON. We have acknowledged that there are clients who 

used inappropriately offshore structures which the—— 

32 

Senator LEVIN. And that your private bankers and managers 

knew or should have known that the purpose of that referral to the 

outside advisers was to create the sham corporations. Is that correct? You have acknowledged that in that proceeding? 

Mr. BRANSON. We have acknowledged in the statement of facts 

inappropriate use of offshore structures and inappropriate behavior 

of UBS employees in connection with the creation of those structures, yes. 

Senator LEVIN. I know it is inappropriate, but I am being very 

precise here. It is not just inappropriate behavior, but that they 

knew or should have known that, in fact, the people to whom they 

were referring your clients were going to create those corporations. 

Is that true, that you have acknowledged that? 

Mr. BRANSON. We have acknowledged that such referrals did 

take place, that such inappropriate structures were set up, and 

that UBS employees knew about that. That is all set out in the admission in the statement of facts. 

Senator LEVIN. And that the UBS employees knew that was the 

purpose of the referal? I just want to know whether you are willing 

to acknowledge what you have already acknowledged. It is very 

simple. Have you acknowledged that? 

Mr. BRANSON. What is in the statement, set out in the statement 

of facts is the complete record of what we have admitted connected 

to the behavior around the offshore structures, and the exact formulation of that is not something I have in hand, but certainly the 

inappropriate use of offshore structures, referrals, and the involvement of UBS advisers and management in that is a topic that is 

covered within there. It is acknowledged within there. It is part of 

the misconduct that we have admitted. 

Senator LEVIN. I am going to read something to you and just ask 

you whether or not you still acknowledge it, whether you are backing away from this statement in any way: ‘‘Notwithstanding the 

warnings, certain managers in the U.S. cross-border business 

thereafter authorized’’—I am reading from paragraph 11—‘‘UBS 

private bankers to refer those U.S. clients who did not wish to comply with the new requirements of the QI Agreement to certain outside lawyers and consultants, and did so’’—and here are the key 

words—‘‘with the understanding that those outside advisers would 

help such U.S. clients form offshore companies in order to enable 

such clients to evade the U.S. securities investment restrictions in 

the QI Agreement.’’ 

Is that an accurate reading of that acknowledgment? And do you 

still acknowledge it? 

Mr. BRANSON. Absolutely. That is from the statement of facts. 

That is our acknowledgment of what went on within UBS. 

Senator LEVIN. OK. Why would it take me four questions to get 

you to just say ‘‘yes, we have acknowledged that,’’ instead of wrapping it around generalities, like ‘‘we have acknowledged inappropriate conduct’’? I mean, I was giving you specific words from an 

acknowledgment, and it took me 3 minutes to get from you a very 

simple statement, ‘‘Yes, we acknowledged it, and it is an accurate 

acknowledgment.’’ And that is something which is very troubling to 

me, that it should take that long to get you to say something that 

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33 

knowledgment because it means your folks knew that they were 

participating in this violation of U.S. law. They knew it when they 

referred folks to these advisers who created these sham corporations for them and other tax havens. 

I am going to go now and vote, and then I will be back. I think 

Dr. Coburn would be—have you voted? 

Senator COBURN. Yes, I have. And vote yes, by the way. 

Senator LEVIN. You can be sure I—— 

Senator COBURN. It is my amendment. 

Senator LEVIN. I know, yes. [Laughter.] 

Senator LEVIN. You do not want to hear this, folks. 

Senator MCCASKILL. I voted yes. 

Senator LEVIN. All right. Well, then it is one to two. 

Senator COBURN. Maybe it will be three to zero by the time you 

get down there and think about it. 

Senator LEVIN. Doctor, well, I have thought a lot about this 

amendment, as a matter of fact, believe me. First Dr. Coburn, then 

Senator McCaskill. 

Senator COBURN. Thank you, Mr. Chairman. 

Through your admission of fact and statement, we know that you 

chose to send bankers on hundreds of trips to the United States to 

do things in violation of American law. What are we to understand 

that UBS is doing now to make sure that you are complying with 

U.S. law as we move forward? 

Mr. BRANSON. Well, the No. 1 action, obviously, is to exit the 

business completely and, therefore, not to provide services to U.S. 

residents going forward. And as we said today, we are making 

steady, strong progress on exiting that business, and that will be 

completed as soon as it possibly can be. That is a major program 

involving the recruitment of a large number of staff, project management, and governance. We are putting a huge amount of effort 

into getting that exit done and right. 

In terms of travel specifically, in the interim period, obviously we 

have got a complete ban in place that stops any client advisers 

making travel to the United States for any reason connected with 

visiting of those clients. It just simply cannot happen anymore. So 

the business is being exited, and that particular aspect in the 

meantime is strictly controlled. 

Senator COBURN. And this is a small portion of UBS’ business in 

this country, correct? 

Mr. BRANSON. This is a minute portion of UBS’ business overall. 

Senator COBURN. Right. 

Mr. BRANSON. This was some 60 client advisers, about 0.3 percent of the population of client advisers we have. And we have 

some 26,000, 27,000 employees located here in the United States. 

This is a very small part of our business where things went badly 

wrong. 

Senator COBURN. So this is a compliance failure in one segment 

of your business. What is the assurance that UBS is in compliance 

in the other segments of your business in this country? 

Mr. BRANSON. This is the top priority of UBS right now, is to 

make sure that nothing like this can happen in any other business 

within UBS, I mean that this just cannot reoccur. I mean, this particular business is finished, we are exiting it, that cannot reoccur. 

34 

I can only re-emphasize to you what I know about the culture of 

our firm, which is that compliance with all the applicable laws and 

regulation in every jurisdiction in which we operate, keeping that 

compliance is a No. 1 priority. 

Senator COBURN. So that is part of the corporate culture at UBS 

today? 

Mr. BRANSON. Yes, that is. 

Senator COBURN. Thank you. Can you describe for me maybe a 

legitimate reason why someone might want to—other than business—might want to have an offshore account with UBS? 

Mr. BRANSON. There are many reasons, and if we are talking 

particularly about Switzerland, which is the focus of this hearing, 

then Switzerland is a well-renowned financial center with a huge 

amount of expertise, particularly in the management of private 

wealth. It is the world’s greatest center for that, so there is a delivery of expertise and service which you can get in Switzerland 

which is not available everywhere else. There are other aspects— 

diversification of jurisdictions, stability of the financial, political, 

legal systems of Switzerland which are attractive to people from 

outside Switzerland who want to hold their assets somewhere other 

than their home country. So there are many legitimate reasons 

why offshore banking exists and will continue to exist. 

Senator COBURN. So let us say I had a significant amount of 

money, and I initiated—you did not initiate, but I initiated going 

to your company and, without evidence of giving you a 1099 or any 

other thing, are you going to take my money? 

Mr. BRANSON. If you are a U.S. resident, no. 

Senator COBURN. You are not? 

Mr. BRANSON. We are exiting that business, U.S. residents—— 

Senator COBURN. Even if I initiate that I want to put a deposit 

in your bank? 

Mr. BRANSON. We will not—if it was a deposit that fell within 

the small exception that Chairman Levin was talking about earlier, 

if you happened to be living in Switzerland as an expatriate and 

needed day-to-day banking services, then we would consider that, 

but in no other circumstances. 

Senator COBURN. So if I live in Muskogee, Oklahoma, and I want 

to send you half a million dollars, you do not want my money? 

Mr. BRANSON. No way. 

Senator COBURN. And why not? 

Mr. BRANSON. That is the business we have chosen to exit. We 

do not want to continue to operate that business. 

Senator COBURN. Because of the compliance? 

Mr. BRANSON. Because of the fact that the particular nature of 

operating in the United States is extremely complicated. There is 

no way, with the SEC restrictions around that business, that we 

can provide the kind of service that we would consider would be a 

good service for you, and we have operations here in the United 

States that those 30,000 people are operating which would be much 

better suited for your needs. 

Senator COBURN. Let us say I am an expatriate living in Zurich, 

and I want to put a million dollars in your bank, and I am not 

going to give you a 1099 or anything else. Are you going to take 

my million dollars? 

35 

Mr. BRANSON. Obviously, there would be a number of checks 

around any account opening and any large amounts that come 

in—— 

Senator COBURN. But there is no requirement for you to check 

on whether or not I am supplying a 1099 or any other compliance 

fact that I have paid taxes on that money that I am depositing? 

Mr. BRANSON. There is currently no formal treaty mechanism or 

any kind of bilateral agreement in place that would force that 

check on UBS or any other bank in Switzerland or anywhere else. 

Senator COBURN. Well, let me ask you this: Should there be? 

Mr. BRANSON. And that is what we said, we will evaluate what 

the proper controls will be around that small exception. 

Senator COBURN. Is it UBS’ position that there should be an enhancement in the treaty obligations between Switzerland and the 

United States for such a thing like that? 

Mr. BRANSON. Obviously, I am not here to talk about the Swiss 

Government’s position—— 

Senator COBURN. No, I am just saying, as a business decision for 

UBS, would you see that as advantageous for your business model 

for expatriates living in Switzerland? 

Mr. BRANSON. I mean, this is not a major part of our business 

model. It is not something that we are seeking to market as a big 

part of our business. As the biggest, by far the biggest bank in 

Switzerland, it seems impractical to us not to be able to offer those 

kind of services. And to the extent we need to put controls around 

those services to make sure everybody is comfortable, that we continue to operate that, that is what we will be evaluating. 

Senator COBURN. Of those accounts that are there now, if a person’s account was nothing but cash, no securities or anything else, 

would UBS have any reason to know or not know whether or not 

the earnings off that cash account had been reported to the IRS? 

Mr. BRANSON. We would not as a bank—UBS or any other bank 

would not have a reason to know. 

Senator COBURN. And you would not attempt to know? 

Mr. BRANSON. We would have no reason to know, no. 

Senator COBURN. Because the QI between UBS and the IRS is 

about stocks only. 

Mr. BRANSON. It is about stocks, and it is, in fact—— 

Senator COBURN. American stocks. 

Mr. BRANSON. American stocks only. 

Senator COBURN. Right. 

Mr. BRANSON. Not non-U.S. stocks. 

Senator COBURN. All right. I will have additional questions to 

submit, if you would not mind responding to them in writing. I will 

not take additional time. 

The Senator from Missouri is recognized. 

Senator MCCASKILL [presiding]. You say that UBS will continue 

to keep open the Swiss accounts of U.S. citizens who are not residents in the United States as long as these accounts do not hold 

securities. Could you give us an estimate of how many accounts 

that is? 

Mr. BRANSON. It is certainly a minor amount of that population. The amount of assets in there is certainly well below $1 billion. I 

do not have the exact number at hand. 

36 

1See Exhibit No. 32, which appears in the Appendix on page 939. 

Senator MCCASKILL. OK. If you could try to get that for the Subcommittee, we would appreciate it.1

The good news is that Switzerland has a reputation for secrecy; 

the bad news is Switzerland has a reputation for secrecy. I understand that this is causing quite an uproar in the banking community in Switzerland, and I would like you to speak to that. 

You are trying to compete with other banks in what I think we 

need to acknowledge today, in fairness to UBS and to every other 

banking institution, could not be a more difficult climate right now. 

I know that the financial sector is taking a pounding for a variety 

of reasons, some self-inflicted, some a matter of confidence right 

now in terms of the perception of investors and people engaged in 

the financial sector about what is out there that we do not know 

about. 

I am trying to figure out how in this global economy we are going 

to effectively get at this problem. Clearly, you guys got caught big 

time, but I realize there are many other banks that are crossing 

the line on a daily basis because a whole lot of people do not want 

to pay taxes and a whole lot of people have money they do not want 

other people to know about. 

Could you speak to how you think the laws in Switzerland could 

possibly evolve to at least acknowledge that the kind of secrecy 

that you all have branded yourself with is going to be counterproductive in a global economy when you run into problems like 

this? 

Mr. BRANSON. Obviously, I cannot speak on behalf of the Swiss 

Government, and it is a Swiss Government/Swiss people issue. But 

I think the most important thing as far as we are concerned is that 

discussions about that, bilateral discussions are taking place, 

should be taking place, those diplomatic discussions which we 

think are a more appropriate way of working on that evolution 

than through the courtroom. We are very happy to see those discussions have started. The Swiss Justice Minister was here in 

Washington visiting her counterpart on Monday. They discussed 

this topic. Those discussions have started and should be ongoing, 

and only through those kinds of discussions can you get the evolution in these kinds of legal frameworks which will result in a satisfactory outcome for the parties involved. 

Senator MCCASKILL. What is the most likely place—if Switzerland changes its very bright lines of financial secrecy and begins 

to become more of a cooperative world player, where is the next 

likely place that people are going to try to park money? 

Mr. BRANSON. I could not comment on other people’s motivation. 

Senator MCCASKILL. No, not motivations. I am just talking about 

your knowledge of the banking world. I know this is uncomfortable 

for you because this is not your nature to give an opinion about 

this. But you are a businessman in this sector of the economy. You 

are someone who is involved in global banking. I am trying to predict, if we work on this problem with Switzerland and we resolve 

this issue about whether or not we are entitled to these names and 

entitled to get our pound of flesh from these Americans who have 

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37 

ing to get at the issue of where is the next place that we need to 

be looking where this is going to continue to go on. 

Mr. BRANSON. There are many financial centers in the world that 

run big offshore businesses. Switzerland is obviously well known 

for that. In terms of the size of assets in offshore centers, you have 

centers in the United States; you have centers in the U.K. and 

their dependencies; you have centers in Asia. So there are many 

different offshore jurisdictions in the world that have a different 

overlapping network of bilateral treaties between them and the 

destination countries. So I think it is impossible to single out one 

location or the other, but offshore banking is regulated generally 

through these kind of double taxation treaties. 

It is clear that in the case of Switzerland and the United States 

that treaty is going to be discussed as part of these diplomatic contacts between the governments. We think that is right, proper. We 

are going to actively support those discussions. And then for Switzerland, if that framework adapts, then the new framework is the 

one we comply with, and that is the way things move forward. 

Senator MCCASKILL. Are there middlemen in this business? 

Mr. BRANSON. I am not quite sure I understand. 

Senator MCCASKILL. Brokers or people who actually deal with 

wealthy people to try to help find places they can park money and 

avoid taxes, that they help locate folks for them, someone who is 

a go-between—back when you did this business, between your bank 

and the person who holds the monies or securities. Is there an industry there? 

Mr. BRANSON. There is a part of the wealth management industry which would be referred to as ‘‘financial intermediaries,’’ where 

advisory firms look after the clients’ interests, but maybe the assets are booked elsewhere. 

Senator MCCASKILL. Are they, in your opinion, sufficiently regulated? 

Mr. BRANSON. That is not something I have a clear opinion on. 

There is a mosaic of those kind of intermediaries in many different 

jurisdictions around the world. 

Senator MCCASKILL. We are not going to get you to offer opinions 

on much outside your lane, are we? I think I am beginning to get 

that. Have the deposits in your bank dropped since this controversy? 

Mr. BRANSON. Yes. 

Senator MCCASKILL. And how much of that do you attribute to 

this controversy as opposed to the economic climate? 

Mr. BRANSON. That is impossible to tell. UBS has been faced 

with a number of problems, as you said, many of them self-inflicted, many of them connected to the global meltdown in the financial sector. As a result of that, we have seen outflows of client 

assets. There is no way of pinning each of those onto a specific reason. But each and every client that leaves the bank is a problem 

for us. It is painful for us, and that is clearly why re-establishing 

trust in UBS is absolutely the No. 1 priority, and getting these 

issues behind us is absolutely critical to re-establishing trust in 

UBS. 

Senator MCCASKILL. And it is my understanding you have a new 

CEO? 

38 

Mr. BRANSON. That is correct, yes. 

Senator MCCASKILL. And his name is? 

Mr. BRANSON. Oswald Gruebel. 

Senator MCCASKILL. And is he Swiss? 

Mr. BRANSON. He is German. 

Senator MCCASKILL. I know I will not get you to give an opinion 

of your competitors, but you are the largest bank in Switzerland? 

Mr. BRANSON. That is correct. 

Senator MCCASKILL. Who is No. 2? 

Mr. BRANSON. Credit Suisse. 

Senator MCCASKILL. Credit Suisse. And No. 3? 

Mr. BRANSON. Three, single bank, it may be one of the cantonal 

banks, so the Zurich Cantonal Bank. 

Senator MCCASKILL. And how much bigger are you than Credit 

Suisse? 

Mr. BRANSON. In terms of market capitalization, not tremendously bigger now. 

Senator MCCASKILL. So you are the two big ones. 

Mr. BRANSON. We are the two big multinational banks based in 

Switzerland. That is correct. 

Senator MCCASKILL. And I do not even need to ask because you 

would not offer an opinion, as to whether or not Credit Suisse has 

been involved in the same kind of activity. 

Mr. BRANSON. I would have no knowledge. 

Senator MCCASKILL. OK. That is all, Mr. Chairman. I will have 

further questions for the record. 

Senator LEVIN [presiding]. Thank you. 

Just going back to this 47,000 number again, is that estimate, 

that approximation, the number of accounts or clients or both? 

Mr. BRANSON. That is the number of accounts. 

Senator LEVIN. And how close would that be to the number of 

U.S. clients? 

Mr. BRANSON. It would be relatively close. 

Senator LEVIN. You do not have a better number for the clients 

than that? 

Mr. BRANSON. Not today. There are a number of reasons why. 

Obviously, clients can hold multiple accounts or accounts can have 

multiple clients behind them. So there is not a one-to-one mapping. 

But there is no reason to think you would get something of a grossly different order of magnitude. 

Senator LEVIN. All right. So it is somewhere in the mid-40s, 

probably, the number of clients? 

Mr. BRANSON. I would not like to hazard an exact number, but 

I think—— 

Senator LEVIN. Well, that is not an exact number. That is an approximation. I am just saying would it be in the area of the mid40s, probably. 

Mr. BRANSON. I do not have that level of precision today. 

Senator LEVIN. OK. Is it as good a number as you got in terms 

of clients? 

Mr. BRANSON. Well, we can pull that number out of our systems 

if we—— 

Senator LEVIN. Well, that would be great. 

Mr. BRANSON [continuing]. Go back and do that. 

39 

1See Exhibit No. 32, which appears in the Appendix on page 939. 

Senator LEVIN. Would you do that? 

Mr. BRANSON. I can make sure that we work on that.1

Senator LEVIN. OK. Mr. Branson, this is kind of a summary as 

to what has happened here recently in the last 2 weeks. You have 

entered into a Deferred Prosecution Agreement with the United 

States in which it admitted facts, the bank, that related to past 

conduct, accepted responsibility for a violation of U.S. law, paid a 

$780 million fine, and turned over the names of a very tiny subset 

of U.S. clients. The President of Switzerland estimated that number was 250 to 300, and that is, if it is 40,000 clients—and you do 

not want to hazard a number, but it is the best number we have 

got—that would be less than half of 1 percent of those clients’ 

names so far. 

Now, you have agreed that you have committed wrongdoing by 

referring U.S. clients who wanted to hide their assets to outside 

firms because you had the understanding that these outside advisers would help those clients form offshore companies in order to enable the clients to evade—those are your words—U.S. law. 

UBS also admitted that its bankers and managers took a range 

of other actions which actively assisted or otherwise facilitated U.S. 

taxpayers—again, your words—‘‘actively assisted or otherwise facilitated’’—U.S. taxpayers who were evading U.S. taxes. You agreed 

in court that, acting through your bankers and managers, you ‘‘participated in a scheme to defraud the United States of America.’’ 

Now, you have acknowledged that you schemed with people. Why 

won’t you give us the names of the people with whom you schemed 

to commit violations of American law? 

Mr. BRANSON. The issue with the John Doe summons and the 

production of those names is to go beyond what we have done already, which is to produce information located here in the United 

States and to move to information located in Switzerland, and to 

produce would be a breach of Swiss client confidentiality laws. 

Senator LEVIN. All right. So the short answer is that Swiss law 

in your judgment does not allow you to produce more than that 

small subset of names which you have already produced. Is that 

the short answer? 

Mr. BRANSON. Yes. 

Senator LEVIN. And if it were not for Swiss law, would you do 

it? 

Mr. BRANSON. We can only live within the legal framework we 

have today. 

Senator LEVIN. If there were no prohibition in Swiss law, would 

you then give the IRS the names since you have acknowledged that 

you participated in a scheme with a large number of people to defraud the United States? If it were not prohibited by Swiss law, 

would your bank give us those names? 

Mr. BRANSON. If there was a framework and these frameworks 

will evolve—and if the frameworks evolve, then we will comply 

with however that framework evolves. So if the framework evolves 

to make that appropriate, that would happen. If it doesn’t, then it 

wouldn’t. 

40 

Senator LEVIN. All right. I do not know why I cannot get direct 

answers here. Your answers are needlessly evasive, it seems to me. 

If it were not for the Swiss prohibition, would you be willing to provide those names to the IRS when you have agreed that you participated in a scheme with people to defraud our government? 

Would you then be willing to supply the names? 

Mr. BRANSON. If there is a treaty framework—— 

Senator LEVIN. No treaty framework. No treaties. You have 

agreed you participated in a fraud with certain people. Since you 

have agreed that you have done that, if it were not for a prohibition in law and there is no treaty involvement, would you be willing as a bank to give us the names so we could enforce our laws? 

Would that be something you would be willing to do, do you think? 

Mr. BRANSON. Well, with respect to all kinds of exchange of information across borders are always going to be subject to a treaty 

framework or some other bilateral or multilateral framework. And 

it is only within that framework— 

Senator LEVIN. Would you be willing to enter into an agreement 

to give us those names? 

Mr. BRANSON. We believe that the discussions between the governments is the right way to look at those agreements, and we are 

very happy that those discussions are underway. We are very supportive of those discussions, and whatever framework evolves out 

of those discussions will be the one that we comply with. 

Senator LEVIN. The last discussion I have heard is a unilateral 

statement on the part of the President of Switzerland or the head 

of the banking industry in Switzerland saying that you are going 

to continue Swiss secrecy. That is the last so-called discussion that 

we have heard. 

I think the document we have made reference to indicated—it is 

a UBS document—that during the period in question, 32 UBS 

bankers made 3,800 client visits to the United States. Your bankers chose to come to this country and to conduct business here voluntarily. Is that correct? 

Mr. BRANSON. That is correct. 

Senator LEVIN. Now, since you have acknowledged participating 

in a scheme to defraud the government, why didn’t you consider 

that before you sent your bankers over here? Or did you? Were 

there discussions inside UBS about, hey, wait a minute, if we have 

our bankers go over there and carry out all these shenanigans, 

then that would be participating in a scheme to defraud the U.S. 

Government. Were there any discussions about that and any urging not to do that, that you know of? 

Mr. BRANSON. Not that I am aware of, but everything about this 

inappropriate travel is acknowledged within the statement of facts. 

It is something we acknowledged. The way that travel was done 

and the use of U.S. jurisdictional means should not have happened. 

Senator LEVIN. No, we understand that, but were there conversations prior to those bankers and employees of UBS coming here as 

to the propriety of their coming to the United States and engaging 

in those activities? 

Mr. BRANSON. I would not have knowledge of the conversations. 

My responsibility, as you know, for the business is limited to last 

year, so I am not privy to the conversations there may have been. 

41 

1See Exhibits No. 1.e. and 15, which appear in the Appendix on pages 65 and 235. 

Senator LEVIN. All right. Now, we have been informed by the 

Swiss Government that it has identified 12 U.S. clients whose 

names and account information can be supplied under the treaty. 

So that is 12 out of somewhere in the area of 40,000 persons. Why 

is there only 12 when you have acknowledged in this statement, 

this joint statement, that you have helped to hide thousands of accounts from the IRS? Why only 12? 

Mr. BRANSON. Well, I believe the number of 12 is probably superseded by the production of client data pursuant to the settlement 

agreement that was reached with the Department of Justice. 

Senator LEVIN. And that is 250, roughly? 

Mr. BRANSON. It is a number I am not at liberty to confirm exactly, but—— 

Senator LEVIN. I have made reference to a UBS memo, and it is 

on a chart 1 which says that, ‘‘In the case where the U.S. person 

holds his U.S. investments directly, we have been advised by Baker 

& McKenzie that we cannot recommend products . . . to our clients 

as an ‘alternative’ to filing a Form W–9. This could be viewed as 

actively helping our clients to evade U.S. tax, which is a U.S. criminal offense.’’ 

‘‘What we can do is to suggest that clients seek external professional advice and offer them a choice of approved service providers, 

if they request it.’’ 

Do you agree—again, I want to be very clear on this point—that 

your folks knew when they—that you understood from Baker & 

McKenzie that you could recommend your clients to outside professional advisers who you knew would offer them advice on how to 

create shell corporations and tax havens? Is that what you understood the advice to mean? 

Mr. BRANSON. I think this is the point we covered earlier about 

what was in the statement of—— 

Senator LEVIN. It is not quite the same point. I am asking about 

did you understand that Baker & McKenzie were advising you that 

you could seek external professional advice knowing that advice 

would be the same as your bank could not directly recommend? Is 

that what you understood the Baker & McKenzie advice to be? Or 

did you ignore the Baker & McKenzie advice in going to these outside advisers—or having these clients go to the outside advisers? 

Mr. BRANSON. I do not have a knowledge of the Baker & 

McKenzie advice or what was or was not done with that. But that 

behavior or that memo that you have referred to there does seem 

to be consistent to the quick review with what we have referred to 

in the statement of facts earlier, part of this misconduct related to 

the sham offshore structures and the referral to outside advisers. 

Senator LEVIN. Did Baker & McKenzie tell you you could go to 

an adviser who would recommend the creation of a sham corporation? 

Mr. BRANSON. I have no knowledge of that. 

Senator LEVIN. Are you familiar with your own document which 

says that, ‘‘We have been advised by Baker & McKenzie we cannot 

recommend products . . . to our clients as an ‘alternative’ to filing 

a Form W–9,’’ that would be ‘‘viewed as actively helping our clients 

42 

1See Exhibits No. 1.e. and 15, which appear in the Appendix on pages 65 and 235. 

2See Exhibit No. 16, which appears in the Appendix on page 237. 

to evade U.S. tax. What we can do’’—presumably referring to Baker 

& McKenzie—‘‘is to suggest that clients seek external professional 

advice and offer them a choice of approved service providers.’’1

Did you understand from that document, which is UBS’ own 

memo, that Baker & McKenzie was telling you that you could do 

indirectly and knowingly what you could not do directly? 

Mr. BRANSON. I think it is really impossible for me to impute a 

motive of Baker & McKenzie. 

Senator LEVIN. It is not the motive; it is the words. Did you understand, did UBS understand from those words that you could recommend to your clients that they go to external professional advice 

and have the same effect as if you directly referred them to the creation of a sham corporation offshore? Is that what you understood 

that advice to mean? 

Mr. BRANSON. I think the result of this—— 

Senator LEVIN. The words. I am asking about did you understand 

those words to mean—not motive, not intent. Those words. 

Mr. BRANSON. I think the result of this is the creation of the 

sham offshore structures that we have acknowledged this misconduct. We are not trying to minimize it. We are not trying to run 

away from it. We have acknowledged it. We have paid for it. It is 

acknowledged, set out there in the statement of facts. 

Senator LEVIN. Maybe you have paid for it, but 40,000 American 

tax evaders have not. 

Do you have the exhibits in front of you? If you take a look at 

Exhibit 16,2 this is an internal UBS e-mail. These are not just 

40,000 American citizens who have avoided paying taxes. These are 

folks that you aided and abetted in that process. 

Anyway, take a look at Exhibit 16. It says here that you contacted in this e-mail some of the company formation agents that 

have been opening accounts at UBS in the name of offshore shell 

companies at the request of U.S. clients. Here is the message from 

you: ‘‘We invite you to make a short presentation on the structures/ 

vehicles that you recommend to U.S. and Canadian clients who do 

not appear to declare income/capital gains to their respective tax 

authorities.’’ 

So when you were asking these folks to make a short presentation to UBS, you were aware that these folks were providing 

these structures and vehicles to your clients who were not apparently declaring their income to their governments’ tax authorities. 

Is that correct? 

Mr. BRANSON. I have no personal knowledge of that e-mail or 

any of the details around it. It does appear to be conduct consistent 

with what we have discussed from the statement of facts and that 

acknowledged pattern of misconduct around offshore structures. 

Senator LEVIN. And, again, these structures were being set up 

for the purpose of hiding who the true owner or beneficiary of the 

accounts were. Is that correct? 

Mr. BRANSON. On all of these topics, Chairman Levin, it is difficult for me to have any knowledge of the exact conversations. I 

43 

have been in my job less than a year. I do not have a personal 

knowledge of the way—— 

Senator LEVIN. Well, is it your understanding—I mean, this is 

based on the documents that you folks have signed. Is it your understanding that these structures that I have been referring to 

were being set up for the purpose of trying to hide who the true 

beneficial owner was of these accounts? 

Mr. BRANSON. The sham use of offshore structures is part of the 

misconduct that we have identified and acknowledged. 

Senator LEVIN. And was the purpose of those sham structures to 

hide who the true owner of the accounts were? Was that the purpose? 

Mr. BRANSON. Yes. 

Senator LEVIN. Now, that message that I made reference to went 

to four companies. I am not sure I am pronouncing their names 

correctly. Quadris, Sinco Treuhand, Rickenbach & Partner, and 

MMG Panazur. You asked those companies to come in, in 2004, 

and they actually had started forming offshore shell corporations 

for U.S. persons in 2000 when the QI Program was set up for the 

first time. Is that correct? 

Mr. BRANSON. I have no knowledge of the activities of those 

firms. 

Senator LEVIN. OK. Well, at our request, your company estimated that about 81 non-U.S. entities were established in 2000 to 

open accounts for U.S. clients, and your company, your bank provided estimates for the number of entities created by three companies named in that e-mail. This is what UBS told us: Sinco formed 

26 entities, Rickenbach formed 10 entities, MMG Panazur formed 

12 entities, for a total of 48. 

Do you know whether there were other companies that were establishing these type of entities for U.S. clients with UBS accounts 

in Switzerland? 

Mr. BRANSON. I do not know, no. 

Senator LEVIN. A recent press article quoted your new CEO, Mr. 

Gruebel, as follows. He said, ‘‘It is questionable whether we can 

continue to hide tax evaders behind banking secrecy.’’ Is your bank 

going to recommend to the Swiss Government that they drop their 

strict secrecy requirements and cooperate with law enforcement in 

friendly countries such as ours to go after people who violate our 

laws? Is that what UBS is going to recommend to the Swiss authorities? 

Mr. BRANSON. We are going to actively support the discussions 

between the Swiss Government and your government. We think 

that is the right way for this to evolve and this to develop, and that 

will create a framework which will be the one with which we would 

comply in the future. 

Senator LEVIN. What is going to be your recommendation in 

terms of any shift in Swiss policy so that bank secrecy is no longer 

used to protect tax avoiders? 

Mr. BRANSON. I cannot speak today to a position the bank may 

develop on that topic. 

Senator LEVIN. Is that the bank’s official position, that it is questionable whether we can continue to hide tax evaders behind banking secrecy? Is that what you understand when Mr. Gruebel made 

44 

that statement? Or is that just kind of an off-the-cuff kind of statement? 

Mr. BRANSON. I am not aware that the bank has an official publicly stated position on the issue. 

Senator LEVIN. Mr. Branson, thank you for being here today. 

Needless to say, we and I hope most of the rest of the world that 

loses tax revenues to your secrecy policies will come together and 

jointly determine to end those policies. When you say that our 

problem is with the law of Switzerland, we have problems with, obviously, your bank. That is why you are involved in a criminal proceeding. But we also have very serious problems with the Swiss secrecy laws because of what they lead to, which is the kind of participation, the aiding and abetting in tax evasion which has taken 

place so prominently in this situation. 

We now have a President of the United States who cosponsored 

my bill last Congress to go after these secrecy jurisdictions with all 

of our might. It is absurd that any country wants to make money 

off our loss of tax revenues, particularly friends. And we consider 

the Swiss our friends. It offends our people who are in very stressful economic times, but even before that. It is offensive to us that 

our laws are being circumvented with the assistance of tax havens 

in secrecy jurisdictions. 

We may not be able to change your law, but we are going to do 

everything we can to pass a law here which is going to make it difficult, if not impossible, for American citizens, whether they are 

residents or non-residents, to use tax havens offshore that maintain the secrecy of bank accounts in order, obviously, to make our 

law enforcement more difficult since that is the purpose of so many 

of these account holders. 

So I hope you will take that message back to your bank. I hope 

your bank will not just say you will follow the law. It is a law 

which has created real harm in terms of other countries’ tax revenues, and I do not know why any country would want to benefit 

from that kind of behavior. I do not know why any country that 

genuinely cares about values would want to be in a position where 

its entities, its businesses are operated in such a way that other 

countries which have legitimate tax laws are the losers. 

You may be the gainers so far, but we are going to do everything 

we can to take away that ill-begotten gain because that is the way 

we view it, and I think that is the way the world more and more 

views it. Prime Minister Brown today made that very clear in his 

speech to the Congress of the United States. And I know our President—and I have spoken to him personally about this today at the 

White House—and I know that his heart is exactly in making sure 

that we do not lose revenues to these offshore secrecy jurisdictions. 

Again, I hope you will take back the message. I will give you a 

chance if you want to say anything, obviously, but I want to thank 

you for being here today. Do you want to say anything? 

Mr. BRANSON. I have nothing further to add. 

Senator LEVIN. Thank you. 

[Whereupon, at 5:03 p.m., the Subcommittee was adjourned.] 

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832 


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861 


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863 


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864 


49492.822
865 


49492.823
866 


49492.824
867 


49492.825
868 


49492.826
869 


49492.827
870 


49492.828
871 


49492.829
872 


49492.830
873 


49492.831
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49492.832
875 


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877 


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880 


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888 


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890 


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891 


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49492.850
893 


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894 


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895 


49492.853
896 


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49492.856
899 


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900 


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901 


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902 


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903 


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904 


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905 


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906 


49492.864
907 


49492.865
908 


49492.866
909 


49492.867
910 


49492.868
911 


49492.869
912 


49492.870
913 


49492.871
914 


49492.872
915 


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916 


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917 


49492.875
918 


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919 


49492.877
920 


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921 


49492.879
922 


49492.880
923 


49492.881
924 


49492.882
925 


49492.883
926 


49492.884
927 


49492.885
928 


49492.886
929 


49492.887
930 


49492.888
931 


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932 


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933 


49492.891
934 


49492.892
935 


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936 


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937 


49492.895
938 


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939 


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940 


49492.898
941 


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942 


49492.900
943 


49492.901
944 


49492.902
945 


49492.903
946 


49492.904
947 


49492.905
948 


49492.906
949 


49492.907
950 


49492.908
951 


49492.909
952 

Æ 


49492.910