A report by a Senate subcommittee says overseas tax shelters cost the United States about $100 billion a year.
The Senate Subcommittee on Investigations had a hearing Thursday on illegal tax shelters at foreign banks. One bank the subcommittee took aim at was the LGT Group, a private bank owned by the royal family of Liechtenstein.
LGT promises its wealthy clients discretion, respectability and above all, secrecy. So it was a shock last February when an LGT executive named Heinrich Kieber left the country and began handing over the names of the bank's clients to tax authorities in Europe and the United States.
The subcommittee played an interview with Kieber in which he talked about how the bank helped wealthy Americans avoid taxes by laundering their money through different countries.
"The only purpose of all this is to make it extremely complicated for law enforcement agencies to follow the trail, as each step serves as a filter to hide the track of the clients' money," he said.
Kieber said he went to the bank's executives and told them he thought this kind of tax avoidance was illegal.
"The answer was always the same: None of your business. Just stick to your designated job," he said.
Now, Kieber is wanted by Liechtenstein authorities for passing out business secrets and is in a witness protection program. Senate officials used Kieber's testimony to shine a light on the secretive world of foreign tax shelters. They said some foreign banks routinely use dummy corporations, shell companies and trusts to help U.S. residents avoid taxes.
"We got to close this down," said Minnesota Sen. Norm Coleman, the subcommittee's ranking minority member. "As I say, you [can] drive a Mack truck through the holes in this system, and there's a lot of money ... that's just — you know, not going down the drain, it's staying in people's pockets."
LGT officials have been interviewed by the subcommittee, but they refused to show up for the hearing. Three Americans accused of using shelters showed up, but claimed their Fifth Amendment right not to testify.
Among those who did testify was an executive from UBS. The big Swiss bank said Thursday that it will stop offering its offshore banking services to American residents. The Internal Revenue Service has accused the bank of helping wealthy Americans dodge taxes and hiding what they were doing from authorities.
Senate officials say UBS employees made repeated trips to the United States, sponsoring yachting races and art shows to attract rich people. The report said the employees entered as tourists and kept few notes while in the country, in case they were apprehended by the IRS.
Coleman asked UBS executive Mark Branson whether UBS officials based in the U.S. knew what was happening.
"I have no knowledge that anyone in the U.S. was aware," Branson said.
Branson said UBS has taken steps to ensure that no more illegal activity occurs. And he said the company regrets any involvement it had with illegal tax shelters.