Probe Targets Tax Evasion By Wealthy New Yorkers

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The New York Sun

The Manhattan district attorney is opening an investigation into possible tax evasion by wealthy New Yorkers through banks in Switzerland and Liechtenstein, a top prosecutor in the district attorney’s office told The New York Sun.

District Attorney Robert Morgenthau’s inquiry will draw on work begun by the U.S. Senate’s Permanent Subcommittee on Investigations, which last month issued a report detailing how two banks, UBS and LGT, eased the way for Americans to hide assets and avoid paying taxes to the IRS.

The Manhattan district attorney’s office has requested the subcommittee’s file on each bank in order to pursue tax cases against New Yorkers, the office’s no. 2 official, Daniel Castleman, said in an interview.

The Senate authorized the subcommittee to share its files with law enforcement agencies.

“We’d like to find New York residents and companies that are sending money offshore to avoid taxes so that we can charge them criminally and recover tax money for the state and city,” Mr. Castleman, whose title is chief assistant district attorney, said.

UBS’s offshore banking services for Americans have already drawn the attention of the federal Justice Department and the Securities and Exchange Commission. Federal prosecutors in Miami recently obtained a guilty plea and cooperation from a former UBS executive, Bradley Birkenfeld, for helping a California billionaire, Igor Olenicoff, to evade taxes. Olenicoff, who last year pleaded guilty to tax charges, is the only UBS customer so far to be charged with a crime as part of the investigation.

Federal prosecutors are seeking from UBS the names of the Americans who hold some 19,000 accounts that the bank never disclosed to the Internal Revenue Service. The bank told the Senate subcommittee that these accounts may cumulatively hold as much as $17.9 billion. It’s unclear whether UBS will provide the names or argue that Swiss banking regulations prohibit such a disclosure.

Even so, the federal investigation into UBS is already generating work for criminal defense attorneys in New York, as Americans with assets offshore seek legal counsel. Two defense lawyers interviewed yesterday, who did not want their cases public, said that either they or their firm had been retained as part of a federal investigation.

An unwillingness on UBS’s part to disclose the identity of account holders could stymie any investigation into tax evasion by account holders.

Swiss bank secrecy regulations could prove to be a “big issue,” Mr. Castleman said.

Legal observers say that offshore tax evasion cases against bank clients could also come through information provided by bankers who cooperate with the investigation.

“There’s no such thing as omerta in the financial industry,” a defense attorney who is not involved in the investigation, Thomas Curran of the Manhattan firm Ganfer & Shore, said.

Bank secrecy may prove less of an obstacle to a tax investigation of clients with offshore assets at LGT, some of whose identities are literally up for sale. The IRS announced earlier this year that it is investigating more than 100 American taxpayers in connection with Liechtenstein accounts. The announcement came shortly after news broke that a former LGT employee was offering, for a price, confidential company data on the accounts of some 1,400 persons to tax authorities in several countries.

Both the former LGT employee, Heinrich Keiber, and Birkenfeld, the convicted UBS banker, provided testimony for the Senate subcommittee, according the report.

Mr. Morgenthau has long made pursuing tax evasion through the use of offshore accounts a priority for his office. While such cases might seem the purview of the federal government, the IRS doesn’t demand local back taxes as part of any tax settlement. As a result, Mr. Morgenthau’s office can make tax cases on behalf of New York without any interference from the federal government.

In one notable investigation, his office made a string of cases more than five years ago against New Yorkers who were using credit cards linked to Caribbean bank accounts as a way to stash and spend unreported income. Foreign bank secrecy regulations limited the scope of that investigation as the office was unable to learn the identities of the account-holders for the vast majority of transactions in New York involving such credit cards. The office did manage to make a handful of cases against customers who used the credit cards for purchases in which they gave their name, such as car rentals.

Spokesmen for LGT and UBS did not offer comments responding to news that Mr. Morgenthau would pursue an investigation.


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