UBS client case implicates Swiss bankers, official

By Reuters Staff
July 28, 2009

UBSBy Tom Brown
MIAMI, July 28 (Reuters) – An American client of UBS AG pleaded guilty on Tuesday to using Swiss bank accounts to hide more than $8 million from U.S. tax authorities and said a Swiss government official received $45,000 to help cover up the fraud.

The Swiss accounts that Jeffrey Chernick, a New York resident, admitted using for tax fraud included one at UBS, according to documents made public as he entered his guilty plea in federal court in Fort Lauderdale, Florida.

UBS is at the center of a high-profile dispute with the United States focusing on alleged abuse of Swiss bank secrecy laws by wealthy Americans seeking to cheat U.S. tax authorities.

U.S. authorities are trying to force UBS to disclose the identity of an estimated 52,000 U.S. holders of secret Swiss accounts suspected of dodging taxes. A trial against UBS was set to begin in Miami on July 13, but presiding Judge Alan Gold agreed to delay it until Aug. 3 to allow time for a settlement.

Because of an ongoing U.S. investigation of UBS, Chernick told a Swiss lawyer in July 2008 that he wanted to repatriate his money to the United States and voluntarily disclose his UBS account to U.S. tax authorities, according to a “statement of facts” document made public on Tuesday.

The document said the lawyer convinced Chernick not to take any action, assuring him that a Swiss bank executive, a former UBS manager, had a connection with an unnamed high-ranking Swiss government official, who said the U.S. client’s account information would not be disclosed.

“Swiss attorney told the defendant that Swiss bank executive paid the government official $45,000 for this information, and the defendant authorized Swiss attorney to withdraw $45,000 from his UBS account to cover the payment,” the document said.

It also documented advice Chernick said he received from two unnamed UBS client advisors.

“SHADOWY WORLD”
A UBS spokeswoman in the United States had no immediate comment on the documents made public on Tuesday and a lawyer for Chernick was unavailable for comment.

Chernick, who owns a corporation that represents toy manufacturers in China, was the third suspect charged in Florida with using a UBS account to evade U.S. taxes.

All three of those accused have pleaded guilty to tax fraud charges and are cooperating with the government in its case against UBS.

According to the court document, one of Chernick’s Swiss bankers left UBS sometime around 2000 because the company had entered into an agreement to begin providing the U.S. Internal Revenue Service (IRS) with certain information involving accounts in which the beneficial owner was a U.S. citizen.

This banker went on to join a smaller Swiss bank that was not subject to U.S. scrutiny and could not be pressured to disclose information to U.S. authorities, the document said.

“Following this banker’s advice, Chernick agreed to invest some of his assets with the smaller Swiss bank,” it added.

The banker and the second Swiss bank were not identified in the document, which added the second Swiss bank had “no presence in the United States.”

Chernick’s sentencing has been set for Oct. 30.

The charges against him were made public a day before Judge Gold was due to ask the U.S. government and UBS what progress they had made toward reaching a settlement in the ongoing case against the Swiss bank, which has strained relations between the two countries.

The case is expected to figure prominently in talks between U.S. Secretary of State Hillary Clinton and Swiss Foreign Minister Micheline Calmy-Rey at a meeting scheduled for Friday.

Chernick’s guilty plea was heralded as “an important victory” by IRS Commissioner Doug Shulman, who called it part of a broader effort by Washington to aggressively find and crack down on U.S. tax cheats and people concealing assets overseas.

“For those still hiding in this shadowy world, it is time to come in and get right with your government or face stiff criminal and financial penalties,” Shulman said in a statement.
(Reporting by Tom Brown; Editing by Jim Loney and Tim Dobbyn)

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