UBS Tax Evasion Controversy

The Swiss bank UBS AG became embroiled in controversy starting in 2008 when the U.S. Federal Bureau of Investigation (FBI) made a formal request to travel to Switzerland to probe a multi-billion-dollar tax evasion case involving the bank. The investigation had, in part, been prompted by disclosures made by Bradley Birkenfeld, a former UBS banker in Switzerland, who testified to the U.S. Department of Justice (DOJ), the U.S. Securities and Exchange Commission (SEC), and the U.S. Internal Revenue Service (IRS) that UBS had directed its North American sales force to recruit U.S. taxpayers by offering them access to offshore financial vehicles to hide their assets and evade taxes.

The events sparked by Birkenfeld's whistleblowing and resulting controversy created unprecedented pressure on UBS, the Swiss banking industry and the Swiss government from the U.S. and European Union members eager to claw back delinquent taxes from assets their taxpayers had stashed in offshore accounts maintained by UBS and other Swiss banks. The controversy eventually led to the erosion of Switzerland's fabled bank secrecy laws.

In 2005, UBS private banker Bradley Birkenfeld claimed that he learned that UBS's dealings with American clients violated an agreement between the bank and the U.S. Internal Revenue Service. He resigned from UBS on October 5, 2005 after reading an internal document prepared by UBS's legal department that delineated prohibited cross-border banking activities in the United States. The prohibitions were antithetical to the job description of wealth managers servicing American clients in the United States. Birkenfeld believes that the memorandum was prepared to give UBS legal cover should bank-sanctioned illegal activities be uncovered. The bank could then shift the blame to its employees.

He subsequently complained to UBS compliance about the bank's "unfair and deceptive business practices". According to Birkenfeld, when he received no response, three months later he wrote to Peter Kurer, then General Counsel for UBS, about the illegal practices. He became a partner at Union Charter Ltd., where he specialized in wealth management, resigning from the position on 3 June 2008.

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