In a hearing before a U.S. Senate subcommittee, UBS AG's (UBS) CFO Mark Branson announced that his company will cease to offer offshore banking services to U.S. clients through foreign banks. The announcement came on the heels of a report released Wednesday that revealed tax abuses are costing Americans up to $100 billion every year in lost tax dollars.
The U.S. Senate Committee on Homeland Security and Governmental Affairs' Permanent Subcommittee on Investigations held a hearing on the report Thursday, where senators threw pointed accusations at banks in Switzerland and Liechtenstein for their role in helping the wealthiest Americans transfer money offshore, establishing a loophole that results in egregious tax evasion.
"Tax havens are engaged in economic warfare against the United States and the honest, hardworking American taxpayer is losing," said Sen. Carl Levin, chairman of the U.S. Senate Committee on Homeland Security and Governmental Affairs' Permanent Subcommittee on Investigations.
"The iron ring of secrecy around tax haven banks and their deceptive banking practices enable and encourage tax cheats to hide assets from the United States," the Michigan Democrat added. "Congress needs to enact strong penalties on tax haven banks that help U.S. taxpayers avoid paying taxes to Uncle Sam."
In response, Branson informed the committee that his company has removed itself from the business.
"We have decided to exit entirely the business in question,'' Branson said. ''UBS will no longer provide offshore banking or securities services to U.S. residents through our bank branches. Such services will only be provided to residents of this country through companies licensed in the United States."
''UBS genuinely regrets any compliance failures that may have occurred,'' Branson added. ''We will take responsibility for them. We will not seek to minimize them. On behalf of UBS, I am apologizing, and committing to you that we will take the actions necessary to make sure this does not happen again.''
Levin was pleased with the banks move, saying it "represents progress."
"You've taken responsibility for your actions, you've changed your business and your business practices,'' he said. ''We can't reach all the banks. We have reached yours. That represents progress."
UBS is the world's largest wealth manager, earning almost $6.9 billion from managing wealth in 2007.
Also testifying at the hearing was IRS commissioner Douglas Schulman, who told the committee that "offshore tax shelters are robbing the American treasury of billions of dollars each year."
Schulman insisted his agency has "significantly stepped up" its efforts in combating the illegal hiding of assets overseas.
"I am pleased with the early successes that we are having at systematically pursuing unlawful off-shore schemes," Schulman said.
The Senate subcommittee's report recommends a series of reforms to the current system, including stricter requirements for offshore banks and stiffer penalties for institutions found in violation of tax information.
There is a bipartisan consensus on the issue, with the Senate panel's ranking Republican Norm Coleman of Minnesota voicing his agreement.
"It is simply unacceptable that some individuals are using offshore tax havens and secrecy jurisdictions to shelter trillions of dollars from taxation, forcing working families to shoulder the burden," Coleman.
Foreign banks are "exploiting gaping loopholes" in current law, and are acting as "Al Capone safe houses for evading taxes," he added.
'It is discouraging to see that some professionals continue to violate their legal and ethical responsibilities by facilitating these illegal schemes," Kevin O'Connor, the Associate attorney General for the Department of Justice told the subcommittee. "Holding these professionals accountable for their misconduct is a high priority, and we are not reluctant to seek injunctive relief and criminal sanctions where appropriate."
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