Top executives at Swiss bank UBS were aware in 2006 of potential problems over offshore services provided to US clients, long before a US tax evasion probe began, a letter from the bank's chairman shows.
UBS confirmed a report in the Financial Times on Wednesday that Peter Kurer, UBS chairman and then the bank's general counsel, wrote in May 2006 to the banker now on trial for helping wealthy American clients evade US taxes. A UBS spokesman said Kurer wrote to the former banker, Bradley Birkenfeld, to thank him for blowing the whistle about working practices in the US cross-border business.
"The letter confirmed that an investigation into the complaints had been completed, the results would be reviewed and recommendations formulated," the spokesman said. "Management was copied on this letter to further demonstrate the seriousness with which the complaints were being treated." The FT said the letter was copied to Marcel Rohner, then head of private banking and now group chief executive, as well as Lawrence Weinbach, a UBS director who sits on the board's audit committee. UBS declined to comment on those names.
In May, the US Department of Justice and the Securities and Exchange Commission revealed they were investigating UBS's conduct in relation to cross-border services provided by UBS advisers to US clients from 2000 to 2007. The letter was now in the hands of the US Department of Justice, the FT said. UBS declined to comment on that.
Thousands of wealthy Americans avoid taxes by hiding assets in Switzerland and the tiny European principality of Liechtenstein. US lawmakers say tax havens deprive the US government of $100 billion in revenues a year.
Birkenfeld, who once smuggled a client's diamonds into the United States in a toothpaste tube, pleaded guilty in June to charges of conspiring to defraud the United States. He has said he and other UBS bankers helped the bank earn $200 million a year managing $20 billion in assets held in offshore tax havens.
The case could ultimately force UBS to reveal the names of other US clients who dodged taxes, striking at the heart of Switzerland's prized banking secrecy rules. Last month, UBS said it would stop offering offshore Swiss bank accounts to US citizens. After being singled out by Democratic presidential contender Barack Obama as one of the banks who helped "tax cheats", a top UBS manager apologised to a US Senate subcommittee last month.
UBS shares were down 4.3 percent at 21.64 francs at 0917 GMT compared to a 3 percent weaker European banking index. Traders said UBS, like other European banking stocks, was tracking losses by their US peers overnight on rekindled worries over credit losses, rather than reacting to the letter.
The stock lost 2.4 percent on Tuesday after UBS, Europe's biggest casualty of the credit crunch, said rich clients continued to withdraw money in the second quarter and said it will separate its investment bank from wealth management.
Last week, UBS settled a separate case with US authorities, who accused it of steering clients towards auction-rate securities - debt which became impossible to sell after the market froze. UBS agreed to buy back almost $19 billion of the bonds and said this would cost it $900 million.
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