Seven UBS clients in the US were charged yesterday with hiding over $100 million in secret Swiss bank accounts to defraud the Internal Revenue Service in New York, adding to a number of cases involving former clients of the Zurich-listed banking and wealth management group. 

The account holders hid income and assets from the IRS using sham companies and evaded millions of dollars in income taxes, according to Preet Bharara, the US attorney for the Southern District of New York, and Victor Song, the chief of the United States Internal Revenue Service Criminal Investigation Division.

Two of the seven defendants, Jules Robbins and Federico Hernandez, pleaded guilty to separate criminal informations filed yesterday in Manhattan federal court and agreed to pay civil penalties of $20.8 million and $4.4 million, respectively.

Charges also were unsealed against five additional defendants: Kenneth Heller, Sybil Nancy Upham, Richard Werdiger, Ernest Vogliano and Shmuel Sternfeld.

UBS provided private banking services to US taxpayers as part of its "US cross-border banking business," which employed approximately 60 UBS employees based in Switzerland, according to the charging instruments and other court documents unsealed in the guilty plea proceedings involving Robbins and Hernandez.

The bank has ceased to provide offshore banking services in the US. Last year, the bank paid a $780 fine to settle criminal charges of helping US clients evade tax; under a deal agreed between the Swiss and US governments, the bank is transferring details on up to 4,450 client account details to the US, although this transfer has been challenged by a senior Swiss court.

In the client documents, it is alleged that from at least 2000 to 2008, UBS, through these employees, helped US taxpayers conceal their Swiss-based assets, and the income earned on those assets, from the IRS. UBS and the US taxpayers, assisted by independent Swiss attorneys and financial advisors, hid these assets from the IRS by listing sham offshore companies as the account holders of UBS accounts, when in fact the US taxpayers actually owned and controlled the accounts.

Four of the defendants - Upham, Heller, Vogliano and Sternfeld - removed their assets from UBS shortly after the publication of media reports in May 2008 that the government's criminal investigation of UBS might result in the disclosure of their unreported accounts to the United States Department of Justice, the government charged.

According to the charges, the defendants moved tens of millions of dollars collectively from UBS to smaller, lower-profile Swiss and Liechtenstein banks, hand-picked because they, unlike UBS, did not have offices in the US.

Upham and Vogliano, the government alleged, repatriated funds from their UBS bank accounts to the US by travelling or having a close family member travel from New York to UBS's offices in Zurich, Switzerland, to pick up hundreds of thousands of dollars in cash or travelers checks and then return to the US.

Under federal law, when filing Individual Income Tax Returns, Form 1040, US taxpayers are obligated to report their worldwide income.

Additionally, taxpayers who have a financial interest in, or signature or other authority over, a financial account in a foreign country with an aggregate value of more than $10,000 at any time during a particular year are required to file with the IRS a Report of Foreign Bank and Financial Accounts (FBAR), as indicated on Schedule B of Form 1040.