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U.S. probes 8 offshore banks for aiding tax evasion

The logo of Swiss bank Credit Suisse is seen at an office building near the company's headquarters in Zurich
The logo of Swiss bank Credit Suisse is seen at an office building near the company's headquarters in Zurich

By Lynnley Browning and Jonathan Stempel

(Reuters) - Eight offshore banks are the subject of United States federal grand jury investigations examining whether they helped Americans evade taxes, a sign that authorities may be ready to issue subpoenas to those banks as part of a crackdown on offshore tax cheating.

In a highly unusual action late on Monday, the U.S. Department of Justice disclosed the probes on a website page discussing its tax division's Offshore Compliance Initiative. It did not identify the eight banks by name, a move that would have been a felony under criminal procedure rules, and removed the reference on Tuesday.

The disclosure that eight offshore banks are under criminal investigation comes amid efforts by certain Swiss banks to reach a settlement with U.S. authorities over their offshore private banking services. Those talks have bogged down over questions of immunity for foreign bankers, among other issues.

Much of the campaign has focused on Switzerland, and the Justice Department said in the website disclosure that it had "dealt fabled Swiss bank secrecy a devastating blow and provided tools that should yield information on thousands of additional U.S. offshore account holders who have undisclosed accounts at UBS and other banks."

SUBPOENAS

People briefed on the latest disclosure said it appeared to set the stage for the Justice Department to issue unusual subpoenas to try to compel the eight banks to turn over American client names and data.

The rarely issued subpoenas, known as Bank of Nova Scotia subpoenas, allow a court presiding over a grand jury investigation to force a foreign bank to produce data and records via its U.S. presence. The subpoenas can only be issued once a grand jury investigation has been opened.

While some of the Swiss and Swiss-style banks under scrutiny have U.S. branches and operating licenses, others have representative offices or no formal presence. authorities may try to argue that those latter banks, by dint of being suspected of having conducted private banking services for wealthy Americans via telephone and email, still have a U.S. presence. They may also try to argue that offshore banks with no formal U.S. presence still have a presence through correspondent banking relationships with U.S. banks.

Charles Miller, a Justice Department spokesman, declined on Tuesday to comment.

Issuing the subpoenas requires approval from the highest levels of the Justice Department.

"The subpoenas are rarely issued because of the diplomatic sensitivity that surrounds them," said Jeffrey Neiman, a former federal prosecutor in Fort Lauderdale, Fla., who worked on the criminal case against UBS AG.

UBS paid a $780 million fine in 2009 to avert indictment over charges it sold offshore private banking services that enabled wealthy Americans to evade taxes. It later turned over 4,450 American client names, a watershed in Swiss bank secrecy.

NEW QUESTIONS

UBS's $2.3 billion rogue-trading loss, which has rattled global banks, may also inject new questions over the level of fine that Swiss banks may be required to pay.

In August, the Justice Department's second in command, Deputy Attorney General James Cole, sent a letter to 10 Swiss banks and foreign banks with Swiss outposts, including three Israeli banks, demanding that they turn over broad statistical information on their American clients.

It was not immediately clear how many of those banks were among the eight under grand jury investigation.

Nevertheless, the Cole letter signals a potential dual-track approach by U.S. authorities -- one focused on a global settlement and the other focused on prosecution.

Last week, the tax-collecting Internal Revenue Service said it had made major progress cracking down on international tax evasion. It said about 30,000 people had voluntarily declared offshore accounts as part of an amnesty program and it had collected about $2.7 billion as a result.

According to the Justice Department's website, about 150 grand jury investigations of offshore banking clients have been initiated. Charges have been brought in 30 cases, resulting in two convictions and 24 guilty pleas. Four cases await trial.

Credit Suisse Group AG and its bankers and clients have also come under scrutiny by U.S. authorities.

Also that month, several former Credit Suisse bankers, including former North American offshore banking chief Markus Walder, were indicted on charges of conspiring to defraud the government by helping wealthy Americans evade taxes.

(Reporting by Lynnley Browning in Hamden, Conn., and Jonathan Stempel in New York; additional reporting by Sakthi Prasad in Bangalore; editing by Howard Goller)

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