By James Vicini
WASHINGTON (Reuters) - Swiss banking giant UBS (UBSN.CH)AG
It said that Switzerland's largest bank has entered into what is known as a deferred prosecution agreement on charges of conspiring to defraud the United States by impeding the U.S. tax collection agency, the Internal Revenue Service.
Department officials said the agreement was unprecedented in pulling aside Switzerland's much-vaunted tradition of bank secrecy and described it as one of the biggest settlements ever. They said UBS admitted to helping U.S. taxpayers hide accounts from the IRS.
The UBS charges and agreement represented the latest court developments in a long-running, high-profile investigation.
In January, the former head of UBS AG's wealth management business, Raoul Weil, was formally declared a fugitive after failing to surrender to U.S. authorities on charges of conspiring to help wealthy Americans hide assets from U.S. tax authorities.
The deal further cracks Switzerland's trademark account secrecy, which helped cement its role as a global banking center but also tainted it with accusations of being a haven for "dirty" money.
In exchange, it frees UBS from prosecution over its actions. The deal also comes a week before a U.S. Senate hearing aimed at pressuring UBS to give more information about Americans who use Swiss bank accounts to avoid paying taxes.
"It's a modest positive. It's a good thing to have this behind them, said Ralph Cole, portfolio manager at Ferguson Wellman Capital Management in Portland, Oregon, who helps invest $2.2 billion.
"They built a pretty strong business in the U.S., so obviously they want to continue to do business here. But I think for most people, the concern with UBS was not these regulatory issues, it was more balance sheet items," Cole said.
UBS acknowledged that it helped U.S. taxpayers open accounts that concealed their identities from the IRS, the department said.
It said about 17,000 of 20,000 U.S. cross-border clients concealed their identities and the existence of their accounts, with $20 billion in assets, from the IRS.
Some of these clients are unindicted co-conspirators.
In an unprecedented move, UBS, under orders from Swiss market regulators, agreed to immediately provide the U.S. government with the identities of, and account information for, certain United States customers, the department said.
UBS has also agreed to expeditiously exit the business of providing banking services to United States clients with undeclared accounts, it said.
The agreement called for UBS to pay a total of $780 million in fines, penalties, interest and restitution, the department said. The agreement was accepted by a federal judge in Fort Lauderdale, Florida.
"It will be interesting to see what this means for them longer term with high net worth people. What does it mean to have a Swiss bank account now if your name can be turned over to the Feds? It was seen as a haven, but now it may not be that way," Cole said.
VEIL OF SECRECY PULLED ASIDE
John DiCicco, acting assistant attorney general of the Justice Department's Tax Division, said in a statement, "The veil of secrecy has been pulled aside and we will continue to aggressively pursue those who shirk their federal tax obligations or assist others in doing so."
The U.S. government will after 18 months recommend dismissal of the charges against UBS as long as it honors the terms of the agreement.
Department officials cited the bank's willingness to acknowledge responsibility for its actions, its cooperation and remedial action so far and promised future cooperation and remedial action.
The U.S. Securities and Exchange Commission said that UBS will settle U.S. regulators' claims that it acted as an unregistered broker-dealer and investment adviser.
UBS' actions helped certain U.S. clients maintain undisclosed accounts in Switzerland and other foreign countries, which in turn enabled the clients to avoid paying tax obligations, the SEC alleged.
From 1999 through 2008, UBS acted as an unregistered broker-dealer and investment adviser to thousands of U.S. clients and offshore entities with U.S. citizens as beneficial owners, the SEC said.
The SEC also alleges that UBS conducted business through client advisers located primarily in Switzerland, who were not associated with a registered broker-dealer or investment adviser.
The charges and agreement were the latest developments in the high-profile investigation, which intensified after Weil was formally declared a fugitive.
An indictment unsealed in November alleged that Weil and other unidentified bankers conspired to help 17,000 Americans hide $20 billion of assets in Swiss bank accounts in order to avoid paying U.S. taxes.
Weil's attorneys said in a statement it was "extremely disappointing" that the indictment against him had not been dismissed as part of UBS's settlement.
"Mr. Weil is a highly respected banking executive in Switzerland who engaged in no misconduct. Indeed, following an extensive investigation, the Swiss Financial Market Supervisory Authority ("FINMA") expressly found in a report released today that there was no evidence that Mr. Weil was aware of or participated in any conspiracy to violate U.S. law," the statement said.
(Additional reporting by Randall Mikkelsen, Rachelle Younglai and Tom Brown)
(Editing by Bernard Orr)
