[Senate Hearing 110-614]
[From the U.S. Government Printing Office]


                                                        S. Hrg. 110-614

                TAX HAVEN BANKS AND U.S. TAX COMPLIANCE 

=======================================================================

                                HEARINGS

                               before the

                PERMANENT SUBCOMMITTEE ON INVESTIGATIONS

                                 of the

                              COMMITTEE ON
               HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS
                          UNITED STATES SENATE


                                 of the

                       ONE HUNDRED TENTH CONGRESS

                             SECOND SESSION

                               ----------                              

                          JULY 17 AND 25, 2008

                               ----------                              

       Available via http://www.gpoaccess.gov/congress/index.html

                       Printed for the use of the
        Committee on Homeland Security and Governmental Affairs















                                                        S. Hrg. 110-614
 
                TAX HAVEN BANKS AND U.S. TAX COMPLIANCE 

=======================================================================

                                HEARING

                               before the

                PERMANENT SUBCOMMITTEE ON INVESTIGATIONS

                                 of the

                              COMMITTEE ON
               HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS
                          UNITED STATES SENATE


                                 of the

                       ONE HUNDRED TENTH CONGRESS

                             SECOND SESSION

                               __________

                          JULY 17 AND 25, 2008

                               __________

       Available via http://www.gpoaccess.gov/congress/index.html

                       Printed for the use of the
        Committee on Homeland Security and Governmental Affairs

                               ----------
                         U.S. GOVERNMENT PRINTING OFFICE 

44-127 PDF                       WASHINGTON : 2008 

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        COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS

               JOSEPH I. LIEBERMAN, Connecticut, Chairman
CARL LEVIN, Michigan                 SUSAN M. COLLINS, Maine
DANIEL K. AKAKA, Hawaii              TED STEVENS, Alaska
THOMAS R. CARPER, Delaware           GEORGE V. VOINOVICH, Ohio
MARK PRYOR, Arkansas                 NORM COLEMAN, Minnesota
MARY L. LANDRIEU, Louisiana          TOM COBURN, Oklahoma
BARACK OBAMA, Illinois               PETE V. DOMENICI, New Mexico
CLAIRE McCASKILL, Missouri           JOHN WARNER, Virginia
JON TESTER, Montana                  JOHN E. SUNUNU, New Hampshire

                  Michael L. Alexander, Staff Director
     Brandon L. Milhorn, Minority Staff Director and Chief Counsel
                  Trina Driessnack Tyrer, Chief Clerk
                                 ------                                

                PERMANENT SUBCOMMITTEE ON INVESTIGATIONS

                     CARL LEVIN, Michigan, Chairman
THOMAS R. CARPER, Delaware           NORM COLEMAN, Minnesota
MARK L. PRYOR, Arkansas              TOM COBURN, Oklahoma
BARACK OBAMA, Illinois               PETE V. DOMENICI, New Mexico
CLAIRE McCASKILL, Missouri           JOHN WARNER, Virginia
JON TESTER, Montana                  JOHN E. SUNUNU, New Hampshire

            Elise J. Bean, Staff Director and Chief Counsel
            Robert L. Roach, Counsel and Chief Investigator
                       Zachary I. Schram, Counsel
  Mark L. Greenblatt, Staff Director and Chief Counsel to the Minority
              Michael P. Flowers, Counsel to the Minority
             Adam Pullano, Staff Assistant to the Minority
                     Mary D. Robertson, Chief Clerk


























                            C O N T E N T S

                                 ------                                
Opening statements:
                                                                   Page
    Senator Levin................................................ 1, 45
    Senator Coleman.............................................. 7, 50

                               WITNESSES
                        Thursday, July 17, 2008

Hon. Douglas Shulman, Commissioner, Internal Revenue Service, 
  U.S. Department of the Treasury................................    11
Hon. Kevin J. O'Connor, Associate Attorney General, U.S. 
  Department of Justice..........................................    14
Shannon Marsh, Fort Lauderdale, Florida, accompanied by Sharon 
  Kegerrels, Esq.................................................    31
William Wu, Forest Hills, New York, accompanied by Henry 
  Klingeman, Esq.................................................    32
Martin Liechti, Head, UBS Wealth Management Americas, Zurich, 
  Switzerland, accompanied by David M. Zornow, Esq...............    35
Mark Branson, Chief Financial Officer, UBS Global Wealth 
  Management and Business Banking, Member, UBS Group Managing 
  Board, Zurich, Switzerland.....................................    36

                         Friday, July 25, 2008

Steven Greenfield, New York, New York............................    51
Peter S. Lowy, Beverly Hills, California; accompanied by Robert 
  Bennett, Esq...................................................    52

                     Alphabetical List of Witnesses

Branson, Mark:
    Testimony....................................................    36
Greenfield, Steven:
    Testimony....................................................    51
Liechti, Martin:
    Testimony....................................................    35
Lowy, Peter S.:
    Testimony....................................................    52
Marsh, Shannon:
    Testimony....................................................    31
O'Connor, Hon. Kevin J.:
    Testimony....................................................    14
    Prepared statement...........................................    65
Shulman, Hon. Douglas:
    Testimony....................................................    11
    Prepared statement...........................................    55
Wu, William:
    Testimony....................................................    32

                                APPENDIX

Staff Report titled ``Tax Haven Banks and U.S. Tax Compliance''..    73

                                EXHIBITS

  1. GMarsh Foundations, chart prepared by the U.S. Senate 
  Permanent Subcommittee on Investigations.......................   209
  2. GWu Foundation, chart prepared by the U.S. Senate Permanent 
  Subcommittee on Investigations.................................   210
  3. GGreenfield Foundation, chart prepared by the U.S. Senate 
  Permanent Subcommittee on Investigations.......................   211
  4. GLowy Foundation, chart prepared by the U.S. Senate 
  Permanent Subcommittee on Investigations.......................   212
  5. a. GStatement of former LGT Treuhand employee, formerly 
  known as Henrich Kieber........................................   213
    b. GLiechtenstein warrant for the arrest of Henrich Kieber...   222

DOCUMENTS RELATING TO MARSH ACCOUNTS:

  6. GLetter of wishes, Lincol Foundation, October 15, 1985......   223
  7. GLGT receipt for US $3,320,700 cash from Lincol Fondation, 
  dated October 15, 1985.........................................   224
  8. GHandwritten letter signed by Shannon N. Marsh to Mr. 
  Alvate, to give Kerry M. Marsh permission to review all 
  documents and receipts pertaining to Lincol Foundation and 
  Chateau Foundation, dated May 23, 1992.........................   226
  9. GInstruction signed by Shannon Neal Marsh, empowering Marsh 
  family members to act as principals for Lincol Foundation, 
  dated November 17, 1993........................................   227
 10. GCorrespondence from James A. Marsh, Jr. to Peter Meier, 
  LGT, dated October 4, 1994, re: Lincol and Chateau.............   228
 11. GLetter of wishes, Lincol Foundation and Foundation Chateau, 
  October 11, 2000...............................................   229
 12. GLGT Memorandum to File about Lincol and Chateau 
  Foundations, dated February 7, 2002............................   231
 13. GDeed of Signature accepting appointment as Protector of the 
  Chateau Foundation, signed by Kerry Michael Marsh, Shannon Neal 
  Marsh, and James Albright Marsh, Jr. and Deed of Appointment of 
  Successors, signed by James Albright Marsh, Jr.................   233
 14. GResolution, The Foundation Board of Foundation CHATEAU, 
  indicating the inventory of assets and liabilities at 31 
  December 2000 showing a total of USD 10'015'623,50, dated 
  September 12, 2003.............................................   237
 15. GLetter from James A. Marsh, Jr. to LGT, dated November 10, 
  2004, granting LGT all administrational and management 
  activities for Foundation Chateau..............................   238
 16. GCorrespondence from Shannon Neal Marsh to Members of the 
  Foundation Council of Chateau Foundation, dated November 4, 
  2004, re: appointment of members of the Foundation Council of 
  Chateau Foundation.............................................   239
 17. GExcerpt from Estate of James A. Marsh, 2006 Income Tax 
  Returns........................................................   240
 18. GThree letters from Baker & McKenzie LLP (Marsh Family 
  attorney) to the Internal Revenue Service, dated May 12, 2008, 
  forwarding amended returns for foreign income and foreign bank 
  and financial accounts for calendar years 2002-2006............   244

DOCUMENTS RELATING TO WU ACCOUNTS:

 19. GLGT report on JCMA Foundation, dated June 27, 2002.........   255
 20. GDeclaration of Trust between Cobyrne Limited and JCMA 
  Foundation, dated October 1, 1996..............................   257
 21. GNew York City property records, recording sale of Forest 
  Hills, NY home of William S. Wu to Tai Lung Worldwide, Ltd., 
  dated January 21, 1997.........................................   259
 22. GLGT Memorandum by Kim Choy regarding JCMA Foundation, dated 
  June 26, 2002..................................................   265
 23. GDocuments regarding withdrawal of $100,000 by JCMA 
  Foundation/William Wu from LGT through HSBC Hong Kong and 
  Shanghai Banking Corp. Hong Kong, dated June 27,2002...........   266
 24. GExcerpt from Resolution, The Foundation Board of JCMA 
  Foundation, indicating statement of assets as per 31 December 
  2001 in the total amount of USD 4,283,473.49, dated February 7, 
  2002...........................................................   270
 25. GExcerpt from Resolution, The Foundation Board of the JCMA 
  Foundation, indicating inventory of assets and liabilities at 
  31 December 2003 showing a total of USD 2,172,145.97, dated 
  March 10, 2004.................................................   272
 26. GExcerpt from Resolution of the Foundation Board of JCMA 
  Foundation, showing assets as per 31 December 2004 amount to 
  USD 1,202,636.25, dated February 13, 2006......................   274
 27. GExcerpt from Resolution of the Foundation Board of JCMA 
  Foundation, showing assets as per 31 December 2005 amount to 
  USD 1,188,957.64, dated March 30, 2006.........................   279
 28. GExcerpt from Resolution of the Foundation Board of Desert 
  Rose Foundation, showing assets as per 31 December 2006 amount 
  to USD 422,249.10, dated April 18, 2007........................   284
 29. GLGT report on Veline Foundation after a March 27, 2000, 
  client visit...................................................   288
 30. GStatements of assets as per 31.12.2000, Veline Foundation, 
  dated February 5, 2001.........................................   290
 31. GBearer Share Certificate, Manta Company Limited, dated 
  September 3, 1997..............................................   291
 32. GHandwritten organizational chart showing Veline Foundation 
  ownership of corporations and property, undated................   292

DOCUMENTS RELATED TO LOWY ACCOUNTS:

 33. GLGT Memorandum for the Record, dated November 26, 1996, 
  memorializing a November 21, 1996, Meeting in Sydney regarding 
  Westfields, Adelphi, Crofton between LGT and Frank Lowy, David 
  Lowy, David Gronski, and Joshua Gelbard........................   293
 34. GLGT Memorandum for the Record, dated November 27, 1996, 
  regarding New Establishment Westfields/Lowy....................   297
 35. GLGT Note for File, dated December 17, 1996, regarding 
  telephone conversation with Frank Lowy and Joshua Gelbard 
  regarding Westfields, Adelphi, Crofton.........................   299
 36. GLGT Memorandum for the Record, dated January 23, 1997, 
  regarding January 20, 1997 meeting in Los Angeles between LGT 
  and Frank Lowy, David Lowy, and Peter Lowy regarding Westfield/
  Lowy Family....................................................   303
 37. GLGT Memorandum for the Record, dated March 4, 1997, 
  regarding March 3, 1997, phone call with Peter Widmer regarding 
  March 12, 1997 meeting in London with F.L. and J. Gelbert, the 
  definitive structure as well as the asset transfer is to be 
  discussed......................................................   307
 38. GCorrespondence from J.H. Gelbard to LGT, dated March 12, 
  1997, regarding formation of a Foundation by the name Luperla 
  Foundation.....................................................   309
 39. GLGT Memorandum for the file, dated March 13, 1997, 
  regarding March 12, 1997, meeting in London between LGT and 
  Frank Lowy and Josua Gelbard...................................   311
 40. GLGT Memorandum for the Record, dated March 16, 1997, 
  regarding March 12, 1997, meeting in London with F.L. regarding 
  Luperla Foundation.............................................   315
 41. GRegulations, Luperla Foundation, Vaduz, dated April 30, 
  1997...........................................................   319
 42. GLGT Memorandum for the Record, dated May 2, 1997, regarding 
  April 30, 1997, meeting in the Hotel Savoy, Zurich between LGT 
  and David Lowy and J.H. Gelbard................................   322
 43. GLGT Memorandum for the File, dated May 14, 1997, regarding 
  Luperla Foundation, Vaduz......................................   326
 44. GLGT Memorandum for the File, dated October 23, 1997, 
  regarding Luperla Foundation/Sewell Service Ltd. B.V.I.........   328
 45. GLGT Memorandum for the File, dated January 29, 1998, 
  regarding January 28, 1998, meeting in Bendern with Peter 
  Widmer regarding Luperla Foundation, Vaduz (``Luperla'').......   330
 46. GLGT Memorandum for the File, dated June 26, 2001, regarding 
  Luperla Foundation.............................................   332
 47. GLGT Memorandum for the File, dated July 16, 2001, regarding 
  Luperla Foundation, Vaduz......................................   334
 48. GLGT Memorandum for the File, dated December 17, 2001, 
  regarding Luperla Foundation, Vaduz............................   342
 49. GLGT Memorandum for the File, dated December 18, 2001, 
  regarding Luperla Foundation, Vaduz............................   348
 50. GLGT Memorandum for the File, dated December 20, 2001, 
  regarding Luperla Foundation, Vaduz............................   352
 51. GDocuments regarding Beverly Park Corporation...............   358
 52. GIRS Information Document Requests (IDR) regarding Beverly 
  Park Corporation...............................................   362
 53. GState of Delaware, Division of Corporations, Entity Details 
  for Beverly Park Corp..........................................   365

DOCUMENTS RELATING TO GREENFIELD ACCOUNTS:

 54. GLGT Memorandum for the Record, dated March 27, 2001, 
  memorializing a March 23, 2001 meeting regarding Maverick 
  Foundation between LGT and Harvey and Steven David Greenfield..   367
 55. GLGT Summary of Maverick Foundation as of December 31, 2001, 
  dated January 1, 2002..........................................   372
 56. GLGT report on Maverick Foundation, undated.................   373
 57. GLGT report on TSF Company Limited, undated.................   375
 58. GLGT report on Chiu Fu (Far East) Limited, undated..........   377
 59. GLGT Background Information/Profile for Maverick Foundation, 
  dated October 12, 2001.........................................   379
 60. GLGT Background Information/Profile for TSF Company Ltd., 
  BVI, dated December 20, 2001...................................   380

DOCUMENTS RELATING TO GONZALEZ ACCOUNTS:

 61. GFoundation Tragique flow chart, undated....................   381
 62. GLGT report for Tragunda Foundation, dated December 3, 2001.   382
 63. GLGT Background Information/Profile for Auto and Motoren 
  [Motors] Corp., dated October 3, 2001..........................   384
 64. GLGT report on Asmeral Investment Anstalt, undated..........   386
 65. GLGT Memorandum for the File, dated September 11, 2001, 
  regarding Foundation Tragique..................................   388
 66. GStiftung flow chart, undated...............................   392
 67. GLGT Background Information/Profile for Foundation Tragique, 
  Vaduz, dated December 18, 2001.................................   393
 68. GLGT Background Information/Profile for FIWA AG, Vaduz, 
  dated December 10, 2001........................................   395

DOCUMENTS RELATING TO CHONG ACCOUNTS:

 69. GLGT Background Information/Profile on Yue Shing Tong 
  Foundation.....................................................   397
 70. GDocuments related to Apex Assets Limited...................   398
 71. GCommunication between Chong and Chalet [Silvan Colanti at 
  LGT], February-March 2008, regarding disclosure of LGT accounts   407

DOCUMENTS RELATING TO MISKIN ACCOUNTS:

 72. GDeclarations of Michael Miskin, dated 2003.................   413
 73. GDeclarations and court pleadings of Stephanie Miskin, dated 
  2003...........................................................   417
 74. GLGT Memorandum for the Record, dated June 30, 1998, 
  regarding New Establishment Michel Misten......................   426
 75. GMichael Miskin Letter of Wishes with respect to the assets 
  of Micronesia Foundation, dated July 28, 2000..................   430
 76. GLGT report on Micronesia Foundation........................   432
 77. GLGT/Michael Miskin receipt for wire transfer of GBP 
  3,650,314.00, dated October 21, 1998...........................   436
 78. GFax from Thomas Lungkofler/LGT to Michael Miskin, dated 
  February 27, 2002, regarding tax situation in the US-area......   437

ADDITIONAL DOCUMENTS RELATING TO LGT:

 79. GDocuments related to Sera Financial Corporation............   438
 80. GDocuments related to Jaffra Development Inc................   448
 81. GDocuments related to Sewell................................   454
 82. GExcerpt from presentation related to LGT and the Qualified 
  Intermediary (QI) Program......................................   460
 83. GDocuments related to LRAB Foundation.......................   475

DOCUMENTS RELATED TO UBS:

 84. GWealth Management And Business Banking, Client Advisor's 
  Guidelines For Implementation And Management Of Discretionary 
  Asset Management Relationship With U.S. Clients (2002).........   477
 85. GCross-Border Banking Activities into the United States 
  (version November 2004)........................................   480
 86. GRestrictions on Cross-Border Banking and Financial Services 
  Activities, Country Paper USA (Effective Date June 1st, 2007), 
  prepared by UBS................................................   483
 87. GExcerpt of KeyClients in NAM, Business Case 2003-2005, 
  prepared by UBS................................................   491
 88. GCorrespondence of UBS to Clients, dated November 4, 2002, 
  We are writing to reassure you that your fear is unjustified 
  and wish to outline only some of the reason why the protection 
  of client data can not possibly be compromised . . . UBS's 
  entire compliance with its QI obligations does not create the 
  risk that his/her identity be shared with U.S. authorities.....   502
 89. GMartin Liechti (Head of UBS Wealth Management Americas) 
  email, January 2007, regarding net new money goal and Year of 
  the Pig........................................................   503
 90. GReferral Campaign BU Americas, June 2003 (Swiss watch 
  award).........................................................   504
 91. GBS North America Report, Overview Figures NAM, prepared by 
  UBS............................................................   506
 92. GCase Studies Cross-Border Workshop NAM, prepared by UBS....   518
 93. GUBS Memorandum, dated November 15, 2007, re: Changes in 
  business model for U.S. private clients........................   520
 94. GTalking Points For Informing U.S. Private Clients With 
  Securities Holdings About The Realignment Of Our Business Model 
  Plus Q&A.......................................................   522

DOCUMENTS RELATED TO OLENICOFF:

 95. GStatement of Facts, United States of America vs. Bradley 
  Birkenfeld, dated 2008.........................................   526
 96. GPlea Agreement For Defendant Igor M. Olenicoff, dated 2007.   533
 97. GEmails between Birkenfeld/Olenicoff, dated July 2001, re: 
  Meeting in California..........................................   550
 98. GCorrespondence of Igor Olenicoff, dated October 2001, re: 
  Guardian Guarantee Co. Ltd.....................................   551
 99. GEmail between Staggl/Olenicoff, re: Structure..............   553
100. GUBS documents related to opening of account for Guardian 
  Guarantee Company, Limited.....................................   554
101. GEmails related to Liechtenstein trust and a Danish 
  corporation....................................................   557
102. GFax from Olenicoff to Birkenfeld, dated December 2001, re: 
  Structure......................................................   561
103. GEmails dated April 2002, re: transferring U.S. securities 
  to a Liechtenstein account.....................................   562

OTHER DOCUMENTS:

104. GTax Haven Bank Secrecy Tricks, chart prepared by the U. S. 
  Senate Permanent Subcommittee on Investigations................   564
105. GLiechtenstein Secrecy Laws, chart prepared by the U. S. 
  Senate Permanent Subcommittee on Investigations................   565
106. GLetter from Baker & McKenzie LLP (Marsh Family attorney) to 
  the Permanent Subcommittee on Investigations, dated July 15, 
  2008, with clarification.......................................   566
107. GStatement for the Record of the Australian Taxation Office.   568

ADDITIONAL DOCUMENTS RELATED TO LOWY ACCOUNTS:

108. GLGT report on Luperla Foundation...........................   587
109. GLGT Background Information/Profile for Luperla Foundation, 
  dated December 7, 2002.........................................   591
110. GLGT Statement of Account for Luperla Foundation, dated 
  December 29, 2001..............................................   599
111. GLGT Memorandum for the Record, dated April 10, 2002, 
  regarding retroactive dissolution of Luperla Foundation........   600
112. GLetter to Peter Lowy from Leon C. Janks, dated December 13, 
  2001, enclosing documents related to Beverly Park Corporation..   601
113. a. GContract For The Purchase And Sale of Real Estate, sale 
  by West Park Avenue Corporation to Beverly Park Corporation, 
  March 1997.....................................................   607
    b. GBeverly Park Corporation Guest Log, Beverly Hills House 
  and New York Condo, July 1999-May 2000.........................   611

ADDITIONAL MATERIALS:

114. GHidden Money Trail, chart prepared by the U.S. Senate 
  Permanent Subcommittee on Investigations.......................   629
115. a. GLetter from O'Melveny & Myers LLP on behalf of their 
  client, UBS AG, to the Permanent Subcommittee on 
  Investigations, dated August 5, 2008, regarding Subcommittee 
  Staff Report on Tax Haven Banks and U.S. Tax Compliance........   630
115. b. GMemorandum of the Permanent Subcommittee on 
  Investigations staff regarding August 5, 2008, letter from 
  O'Melveny & Myers LLP..........................................   635
116. GTax Haven Liechtenstein, Transcript of the Frontal 21 
  Documentary, March 25, 2008 on ZDF Network in Germany..........   640
117. GStatement for the record submitted on behalf of the 
  Government of the Principality of Liechtenstein................   653
118. GOrganizational changes NAM, powerpoint presentation by 
  Michel Guignard, of UBS private banking in Switzerland, May 10, 
  2005...........................................................   655
119. GTranscript of Liechtenstein court proceeding involving 
  Mario Staggl, April 28, 2005...................................   665
120. GAffidavit of William Wu clarifying his testimony at the 
  Permanent Subcommittee on Investigations' July 17th hearing....   681
121. GCorrespondence between Caplin & Drysdale on behalf of Mr. 
  Steven Greenfield and the Permanent Subcommittee on 
  Investigations regarding the testimony of Mr. Greenfield at the 
  Subcommittee's hearing.........................................   683
122. GCorrespondence between Skadden, Arps, Slate, Meagher & Flom 
  LLP on behalf of Peter S. Lowy and the Permanent Subcommittee 
  on Investigations regarding the testimony of Mr. Lowy at the 
  Subcommittee's hearing.........................................   699
123. GDocuments relating to Footnotes found in the Staff Report, 
  Tax Haven Banks and U.S. Tax Compliance, prepared by the 
  Minority and Majority Staff of the Permanent Subcommittee on 
  Investigations in conjunction with the Subcommittee hearings 
  held July 17 and 25, 2008:

[Note: Footnotes not listed are explanative, reference 
  Subcommittee interviews for which records are not available to 
  the public, or reference a widely available public document.]

  [*] Retained in the files of the Subcommittee.

Footnote No. 16, See Hearing Exhibit No. 89 (above)..............   503
Footnote No. 100, See Hearing Exhibit No. 116 (above)............   640
Footnote No. 109, See Attachment.................................   710
Footnote No. 110, See Hearing Exhibit No. 105 (above) and 
  Attachment.................................................. 565, 722
Footnote No. 112, See Attachments (2)......................... 725, 729
Footnote No. 118, See Attachment.................................   743
Footnote No. 119, See Attachments (3).................... 754, 764, 772
Footnote No. 120 and 121, See Hearing Exhibit No. 18 (above).....   244
Footnote No. 122, See Hearing Exhibit No. 17 (above) and 
  Attachments (2)........................................ 240, 779, 802
Footnote No. 123 and 1 824, 832, 841, 845, 849, 854, 862, 871, 875, 879
Footnote No. 129, See Hearing Exhibit No. 11 (above).............   229
Footnote No. 130 and 1 824, 832, 841, 845, 849, 854, 862, 871, 875, 879
Footnote No. 135, See Attachment.................................   884
Footnote No. 136, See Footnote No. 135 (above) and Attachment. 884, 886
Footnote No. 137, See Hearing Exhibit No. 7 (above)..............   224
Footnote No. 138, See Hearing Exhibit No. 6 (above)..............   223
Footnote No. 139, See Attachment.................................   888
Footnote No. 140, See Attachment.................................   890
Footnote No. 141, See Hearing Exhibit No. 12 (above).............   231
Footnote No. 142, See Hearing Exhibit No. 11 (above).............   229
Footnote No. 143, See Hearing Exhibit No. 14 (above) and 
  Attachments (3)................................... 237, 892, 893, 894
Footnote No. 144, See Hearing Exhibit No. 13 (above).............   233
Footnote No. 145, See Hearing Exhibit No. 10 and Footnote No. 136 
  (above)................................................ 228, 884, 886
Footnote No. 146, See Hearing Exhibit No. 12 (above).............   231
Footnote No. 148, See Hearing Exhibit No. 18 (above) and 
  Attachments (2)........................................ 244, 895, 898
Footnote No. 149, See Hearing Exhibit No. 17 (above) and 
  Attachments (6).................... 240, 901, 902, 903, 904, 905, 906
Footnote No. 150, See Hearing Exhibit No. 6 (above)..............   223
Footnote No. 151, See Hearing Exhibit No. 8 (above)..............   226
Footnote No. 152, See Hearing Exhibit No. 9 (above)..............   227
Footnote No. 153, See Hearing Exhibit No. 12 (above).............   231
Footnote No. 154, See  824, 832, 841, 845, 849, 854, 862, 871, 875, 879
Footnote No. 155, See Hearing Exhibit No. 13 (above) and 
  Attachment.................................................. 233, 907
Footnote No. 156, See Hearing Exhibit No. 18 (above).............   244
Footnote No. 158, See Attachments (3).................... 909, 917, 922
Footnote No. 159, See Hearing Exhibit No. 19 and 20 (above)... 255, 257
Footnote No. 160, See Hearing Exhibit No. 19 (above).............   255
Footnote No. 161, See Attachment.................................   925
Footnote No. 162, See Hearing Exhibit No. 21 (above).............   259
Footnote No. 163, See Hearing Exhibit No. 19 (above).............   255
Footnote No. 164, See Hearing Exhibit No. 24 (above).............   270
Footnote No. 165, See Attachment.................................   926
Footnote No. 166, See Attachments (6)..... 932, 934, 936, 938, 941, 955
Footnote No. 167, See Attachments (2)......................... 971, 978
Footnote No. 168-170, See Hearing Exhibit No. 23 (above).........   266
Footnote No. 171, See Hearing Exhibit No. 22 (above).............   265
Footnote No. 172, See Attachment.................................   985
Footnote No. 173, See Footnote No. 167 (above)................ 971, 978
Footnote No. 174-177, See Footnote No. 166 932, 934, 936, 938, 941, 955
Footnote No. 178, See Hearing Exhibit Nos. 27 and 28 (above).. 279, 284
Footnote No. 179, See Hearing Exhibit No. 29 (above) and 
  Attachment.................................................. 288, 996
Footnote No. 180, See Hearing Exhibit No. 30 (above).............   290
Footnote No. 181, See Hearing Exhibit No. 31 (above).............   291
Footnote No. 183, See Hearing Exhibit No. 29 (above).............   288
Footnote No. 184, See Hearing Exhibit No. 32 (above).............   292
Footnote No. 185, See Attachments (3)................... 997, 998, 1002
Footnote No. 187, See Hearing Exhibit Nos. 33, 34, 39, 42 and 46 
  (above)...................................... 293, 297, 311, 322, 332
Footnote No. 188, See Hearing Exhibit No. 45 (above).............   330
Footnote No. 189, See Hearing Exhibit No. 33 (above).............   293
Footnote No. 191, See Hearing Exhibit No. 36 (above).............   303
Footnote No. 192, See Hearing Exhibit Nos. 35 and 36 (above).. 299, 303
Footnote No. 193, See Hearing Exhibit No. 39 (above).............   311
Footnote No. 194, See Hearing Exhibit Nos. 40 and 45 (above).. 315, 330
Footnote No. 195, See Hearing Exhibit Nos. 36, 39 and 42  303, 311, 322
Footnote No. 196, See Hearing Exhibit No. 35 (above).............   299
Footnote No. 197, See Hearing Exhibit No. 36 (above).............   303
Footnote No. 198, See Hearing Exhibit No. 33 (above).............   293
Footnote No. 199, See Hearing Exhibit No. 38 (above).............   309
Footnote No. 200, See Hearing Exhibit No. 41 (above).............   319
Footnote No. 201, See Hearing Exhibit No. 40 (above) and 
  Attachment................................................. 315, 1005
Footnote No. 202, See Hearing Exhibit No. 36 (above).............   303
Footnote No. 204, See Hearing Exhibit Nos. 33, 35, 39, 45 and 46 
  (above)...................................... 293, 299, 311, 330, 332
Footnote No. 205, See Hearing Exhibit Nos. 38 and 40 (above).. 309, 315
Footnote No. 206, See Hearing Exhibit Nos. 42 and 44 (above).. 322, 328
Footnote No. 207, See Hearing Exhibit No. 38 (above).............   309
Footnote No. 208, See Hearing Exhibit No. 41 (above).............   319
Footnote No. 209 and 210, See Hearing Exhibit No. 43 (above).....   326
Footnote No. 211, See Hearing Exhibit Nos. 36, 46 and 47  303, 332, 334
Footnote No. 212, See Hearing Exhibit No. 41 (above).............   319
Footnote No. 213, See Hearing Exhibit No. 51 (above).............   358
Footnote No. 214, See Hearing Exhibit Nos. 51, 113a and 113b 
  (above)................................................ 358, 607, 611
Footnote No. 215 and 216, See Hearing Exhibit No. 46 (above).....   332
Footnote No. 217 and 218, See Hearing Exhibit No. 47 (above).....   334
Footnote No. 219 and 220, See Hearing Exhibit No. 48 (above).....   342
Footnote No. 221, See Hearing Exhibit Nos. 48-50 (above). 342, 348, 352
Footnote No. 222 and 223, See Hearing Exhibit No. 48 (above).....   342
Footnote No. 224, See Hearing Exhibit No. 50 (above).............   352
Footnote No. 225, See Attachment.................................  1009
Footnote No. 226, See Hearing Exhibit No. 52 (above) and 
  Attachment................................................. 362, 1015
Footnote No. 227, See Hearing Exhibit No. 52 (above) and 
  Attachment................................................. 362, 1019
Footnote No. 229, See Hearing Exhibit Nos. 54 and 55 (above).. 367, 372
Footnote No. 230, See Hearing Exhibit Nos. 56-58 (above). 373, 375, 377
Footnote No. 231, See Hearing Exhibit No. 56 (above).............   373
Footnote No. 232, See Hearing Exhibit No. 59 (above).............   379
Footnote No. 233 and 234, See Hearing Exhibit No. 56 (above).....   373
Footnote No. 235, See Attachments (2)....................... 1023, 1025
Footnote No. 236-241, See Hearing Exhibit No. 54 (above).........   367
Footnote No. 243, See Attachment.................................  1028
Footnote No. 248, See Hearing Exhibit No. 61 (above).............   381
Footnote No. 249, See Hearing Exhibit Nos. 61 and 68 (above).. 381, 395
Footnote No. 261, See Hearing Exhibit No. 67 (above).............   393
Footnote No. 264 and 265, See Hearing Exhibit No. 65 (above).....   388
Footnote No. 266, See Hearing Exhibit Nos. 61 and 65 (above).. 381, 388
Footnote No. 267-269, See Hearing Exhibit No. 65 (above).........   388
Footnote No. 270, See Hearing Exhibit No. 64 (above).............   386
Footnote No. 271, See Hearing Exhibit No. 63 (above).............   384
Footnote No. 272, See Attachment.................................  1029
Footnote No. 273, See Footnote No. 243 (above)...................  1028
Footnote No. 275, See Hearing Exhibit No. 69 (above) and 
  Attachments (2)...................................... 397, 1030, 1032
Footnote No. 276, See Hearing Exhibit No. 69 (above) and 
  Attachment................................................. 397, 1034
Footnote No. 277, See Footnote No. 276 (above) and Attachmen 1034, 1042
Footnote No. 278, See Attachments (4)........... 1048, 1049, 1050, 1051
Footnote No. 279, See Attachment.................................  1052
Footnote No. 280, See Attachment.................................  1053
Footnote No. 283, See Hearing Exhibit No. 70 (above).............   398
Footnote No. 284, See Footnote No. 280 (above)...................  1053
Footnote No. 285, See Attachments (5)...... 1059, 1060, 1061,1062, 1063
Footnote No. 286-293, See Hearing Exhibit No. 70 (above).........   398
Footnote No. 294-297, See Hearing Exhibit No. 71 (above).........   407
Footnote No. 299, See Hearing Exhibit No. 74 (above).............   426
Footnote No. 300, See Hearing Exhibit No. 72 (above).............   413
Footnote No. 301 and 302, See Hearing Exhibit No. 73 (above).....   417
Footnote No. 303 and 304, See Hearing Exhibit No. 72 (above).....   413
Footnote No. 305, SEALED EXHIBIT and Hearing Exhibit No. 73 
  (above)........................................................   417
Footnote No. 306, See Hearing Exhibit No. 74 (above).............   426
Footnote No. 307, See Hearing Exhibit Nos. 75 and 76 (above).. 430, 432
Footnote No. 308, See Hearing Exhibit No. 76 (above).............   432
Footnote No. 309, See Hearing Exhibit No. 74 (above).............   426
Footnote No. 310, See Hearing Exhibit No. 76 (above).............   432
Footnote No. 312, See Attachment.................................  1064
Footnote No. 313, See Hearing Exhibit No. 72 (above).............   413
Footnote No. 315, See Attachment.................................  1066
Footnote No. 317, See Attachment.................................  1069
Footnote No. 319, See Hearing Exhibit No. 74 (above).............   426
Footnote No. 321, See Attachment.................................  1072
Footnote No. 323, See Attachments (4)........... 1074, 1075, 1076, 1079
Footnote No. 324, See Hearing Exhibit No. 77 (above).............   436
Footnote No. 325, See Hearing Exhibit No. 75 (above).............   430
Footnote No. 326, See Attachment.................................  1085
Footnote No. 327, See Attachment.................................  1086
Footnote No. 329, See Hearing Exhibit No. 78 (above).............   437
Footnote No. 330, See Hearing Exhibit No. 73 (above).............   417
Footnote No. 331, See Footnote No. 317 (above)...................  1069
Footnote No. 333, See Footnote No. 321 (above)...................  1072
Footnote No. 334, See Hearing Exhibit No. 73 and Footnote No. 317 
  (above).................................................... 417, 1069
Footnote No. 335, See Hearing Exhibit No. 82 (above) and See 
  Attachments (2)...................................... 460, 1087, 1091
Footnote No. 336-337, See Attachment.............................  1093
Footnote No. 339-343, See Hearing Exhibit No. 79 (above).........   438
Footnote No. 344, See Hearing Exhibit No. 80 (above).............   448
Footnote No. 345, See Hearing Exhibit No. 81 (above).............   454
Footnote No. 346, See Hearing Exhibit Nos. 44 and 108 (above). 328, 587
Footnote No. 347 and 348, See Hearing Exhibit No. 80 (above).....   448
Footnote No. 349, See Hearing Exhibit No. 83 (above).............   475
Footnote No. 365, See Attachment.................................  1145
Footnote No. 367, SEALED EXHIBIT.................................     *
Footnote No. 370, See Hearing Exhibit No. 87 (above).............   491
Footnote No. 372, See Hearing Exhibit No. 89 (above).............   503
Footnote No. 373, See Hearing Exhibit No. 91 (above).............   506
Footnote No. 375-380, See Hearing Exhibit No. 89 (above).........   503
Footnote No. 381, See Attachment.................................  1148
Footnote No. 382, See Footnote No. 367 (above) SEALED EXHIBIT....     *
Footnote No. 384, See Hearing Exhibit No. 88 (above).............   502
Footnote No. 390, See Hearing Exhibit No. 85 (above).............   480
Footnote No. 392, See Hearing Exhibit No. 84 (above) and 
  Attachment................................................. 477, 1170
Footnote No. 393, See Hearing Exhibit No. 85 (above).............   480
Footnote No. 398, See Footnote No. 367 (above) SEALED EXHIBIT....     *
Footnote No. 400, See Hearing Exhibit No. 85 (above).............   480
Footnote No. 402, See Attachment.................................  1172
Footnote No. 404, See Footnote No. 367 (above) SEALED EXHIBIT....     *
Footnote No. 405, See Hearing Exhibit No. 87 (above).............   491
Footnote No. 409, See Footnote No. 367 (above) SEALED EXHIBIT....     *
Footnote No. 410, See Hearing Exhibit No. 93 (above).............   520
Footnote No. 413, See Footnote No. 367 (above) SEALED EXHIBIT....     *
Footnote No. 415, See Hearing Exhibit No. 91 (above) and 
  Attachment................................................. 506, 1173
Footnote No. 416, See Hearing Exhibit No. 90 (above).............   504
Footnote No. 417, See Hearing Exhibit No. 89 (above).............   503
Footnote No. 418, See Hearing Exhibit No. 87 (above).............   491
Footnote No. 420-432, See Footnote No. 367 (above) SEALED EXHIBIT     *
Footnote No. 433, See Attachment.................................  1174
Footnote No. 434, See Hearing Exhibit No. 85 (above).............   480
Footnote No. 435, See Footnote No. 367 (above) SEALED EXHIBIT and 
  Footnote No. 433 (above).......................................  1174
Footnote No. 436, See Footnote No. 367 (above) SEALED EXHIBIT....     *
Footnote No. 437, See Hearing Exhibit No. 92 (above).............   518
Footnote No. 438 and 439, See Footnote No. 367 (above) SEALED 
  EXHIBIT........................................................     *
Footnote No. 443, See Hearing Exhibit Nos. 84 and 85 (above).. 477, 480
Footnote No. 444-450, See Footnote No. 367 (above) SEALED EXHIBIT     *
Footnote No. 451, See Hearing Exhibit No. 86 (above).............   483
Footnote No. 455, See Hearing Exhibit No. 93 (above).............   520
Footnote No. 458, See Attachment.................................  1176
Footnote No. 459, See Hearing Exhibit No. 94 (above).............   522
Footnote No. 464, See Hearing Exhibit No. 96 (above).............   533
Footnote No. 465, See Hearing Exhibit No. 97 (above).............   550
Footnote No. 468, See Footnote No. 367 (above) SEALED EXHIBIT....     *
Footnote No. 469, See Hearing Exhibit No. 97 (above).............   550
Footnote No. 471, See Attachments (2)....................... 1178, 1179
Footnote No. 472, See Hearing Exhibit No. 98 (above).............   551
Footnote No. 473-475, See Hearing Exhibit No. 100 (above)........   554
Footnote No. 476, See Hearing Exhibit No. 97 (above).............   550
Footnote No. 477, See Hearing Exhibit No. 99 (above).............   553
Footnote No. 478, See Hearing Exhibit No. 96 (above) and 
  Attachment................................................. 533, 1180
Footnote No. 480, See Attachment.................................  1181
Footnote No. 481, See Attachment.................................  1182
Footnote No. 483, See Attachments (2)....................... 1183, 1184
Footnote No. 484, See Hearing Exhibit No. 102 (above)............   561
Footnote No. 485, See Attachment.................................  1185
Footnote No. 486, See Attachment.................................  1186
Footnote No. 487, See Attachment.................................  1187
Footnote No. 488, See Attachment.................................  1188
Footnote No. 489, See Hearing Exhibit No. 103 (above)............   562
Footnote No. 490, See Hearing Exhibit No. 96 (above).............   533
Footnote No. 491, See Attachments (2)....................... 1189, 1190
Footnote No. 492, See Attachments (2)....................... 1191, 1192
Footnote No. 493, See Attachments (2)....................... 1196, 1197
Footnote No. 495, See Footnote No. 367 (above) SEALED EXHIBIT....     *

124. GCorrespondence between the Permanent Subcommittee on 
  Investigations and Frank P. Lowy...............................  1198
125. GCorrespondence between the Permanent Subcommittee on 
  Investigations and Joshua H. Gelbard...........................  1201

  [*] Retained in the files of the Subcommittee.


                            TAX HAVEN BANKS

                        AND U.S. TAX COMPLIANCE

                              ----------                              


                        THURSDAY, JULY 17, 2008

                                   U.S. Senate,    
              Permanent Subcommittee on Investigations,    
                    of the Committee on Homeland Security  
                                  and Governmental Affairs,
                                                    Washington, DC.
    The Subcommittee met, pursuant to notice, at 9:34 a.m., in 
Room SD-106, Dirksen Senate Office Building, Hon. Carl Levin, 
Chairman of the Subcommittee, presiding.
    Present: Senators Levin and Coleman.
    Also Present: Senator Kerry.
    Staff Present: Elise J. Bean, Staff Director/Chief Counsel; 
Mary D. Robertson, Chief Clerk; Robert L. Roach, Counsel and 
Chief Investigator; Ross Kirschner, Counsel; Laura Stuber, 
Counsel; Zack Schram, Counsel; Gina Reinhardt, Congressional 
Fellow; Timothy Everett, Intern; Jeffrey Rezmovic, Law Clerk; 
Lauren Sarkesian, Intern; Spencer Walters, Law Clerk; Mark L. 
Greenblatt, Staff Director and Chief Counsel to the Minority; 
Michael P. Flowers, Counsel to the Minority; Clifford C. 
Stoddard, Jr., Counsel to the Minority; Timothy R. Terry, 
Counsel to the Minority; Adam Pullano, Staff Assistant to the 
Minority; Kelly Brannigan; Kathy Kerrigan (Senator Kerry), and 
Thomas Caballero, Senate Legal Counsel's Office.

               OPENING STATEMENT OF SENATOR LEVIN

    Senator Levin. Good morning, everybody. About 50 tax havens 
operate in the world today. Their twin hallmarks are secrecy 
and tax avoidance. Some tax havens are little known places like 
Andorra and Vanuatu that few Americans have heard of. Others, 
like Switzerland and Liechtenstein, are notorious for operating 
behind an iron ring of secrecy. Billions and billions of 
dollars worth of U.S. assets find their way into these secrecy 
tax havens, aided by banks, trust companies, accountants, 
lawyers, and others. Each year, the U.S. Treasury loses up to 
$100 billion in tax revenues from offshore tax abuses. Tax 
havens are engaged in economic warfare against the United 
States and against honest, hard-working American taxpayers.
    Today we will look at two banks that relied on secrecy and 
deception to hide not just the tax avoidance schemes of their 
clients, but the actions that they themselves took to 
facilitate U.S. tax evasion. The first bank is LGT, a private 
bank owned by the royal family of Liechtenstein. Liechtenstein 
is a tiny alpine nation whose 35,000 citizens would fill one-
third of a good-sized football stadium. It has no airport, but 
supports 15 banks that together boast of holding more than $200 
billion in assets. Liechtenstein also boasts of secrecy laws 
that are more stringent than even those that have made 
Switzerland synonymous with hidden bank accounts.
    The second bank is UBS, a Swiss bank. It is one of the 
world's largest financial institutions, the world's largest 
manager of private wealth, and a public company of 
international renown. Yet, as we will hear today, UBS has an 
estimated 19,000 so-called undeclared accounts for U.S. 
citizens with an estimated $18 billion in assets that have been 
kept secret from the IRS.
    Both LGT and UBS operate behind a wall of secrecy that this 
hearing and our report will show needs to come down. The 
evidence we have been able to obtain breaks through some of 
that wall of secrecy to show how these two banks have employed 
banking practices that facilitate, and have resulted in, tax 
evasion by U.S. clients.
    We initiated this investigation into tax haven banks in 
February 2008, as a global tax scandal erupted after a former 
employee of LGT provided tax authorities around the world with 
data on about 1,400 people with accounts at LGT Bank in 
Liechtenstein. On February 14, 2008, German tax authorities, 
having obtained the names of 600 to 700 German taxpayers with 
LGT accounts, executed multiple search warrants and arrested a 
prominent businessman for allegedly using LGT accounts to evade 
$1.5 million in taxes. Soon after, our IRS announced that it 
had initiated enforcement action against about 100 U.S. 
taxpayers in connection with accounts in Liechtenstein. The 
United Kingdom, Italy, France, Spain, and Australia made 
similar announcements on the same day. Altogether since 
February, nearly a dozen countries have announced plans to 
investigate taxpayers with Liechtenstein accounts, 
demonstrating not only the worldwide scope of the tax scandal, 
but also a newfound international determination to fight 
against tax evasion facilitated by tax haven banks.
    The former LGT employee who exposed LGT's dirty laundry had 
to go into hiding to avoid arrest by Liechtenstein which has 
listed him as its No. 1 target for arrest. A $10 million reward 
has been placed on his head by unknown parties on the Internet. 
This Subcommittee obtained about 12,000 pages of LGT documents 
related to U.S. clients from that former LGT employee. We also 
interviewed him and took his statement by videoconference, a 
tape of which, with precautions taken to obscure identifying 
details, will be presented during this hearing. His revelations 
are explosive.
    The documents and information that he provided depict a 
bank that is a willing partner, and an aider and abettor, to 
clients trying to evade taxes, dodge creditors, or defy court 
orders. Internal LGT documents and other information show 
secrecy was a deeply embedded way of life at the LGT bank. LGT 
used code names for its clients and directed its bankers to use 
pay phones when contacting them. A LGT document instructed 
bankers trying to contact a client as follows: ``CAUTION: Calls 
may be made only from public phone booths, preferably not from 
a [Liechtenstein] phone booth !!!'' LGT set up secret, shell 
transfer corporations which clients could use to route money 
into and out of their LGT accounts, in order to, in the words 
of LGT, ``cover the tracks.'' LGT created elaborate, deceptive 
offshore structures, using foundations, trusts, and 
corporations, to hide a client's ownership of assets from tax 
authorities in other countries.
    Our report presents seven case studies of U.S. clients 
using LGT services. Due to time constraints, we will discuss 
only four today. In preparation for this hearing, the 
Subcommittee served subpoenas on three of the four LGT clients 
seeking their personal appearance: Shannon Marsh, William Wu, 
and Steven Greenfield. Two of those individuals--Mr. Marsh and 
Mr. Wu--are here today. The third--Mr. Greenfield--has refused 
to appear after a subpoena was served on him, and we will be 
seeking enforcement of our subpoena. The fourth--Peter Lowy--
left the country despite our request that he appear today. The 
Subcommittee notified his legal counsel that he would be 
subpoenaed to appear, if necessary. He has now agreed to appear 
before the Subcommittee at a continuation of this hearing a 
week from tomorrow.
    Later in the hearing, when these individuals are called to 
give testimony, I will describe in more detail what we have 
learned about their Liechtenstein accounts, but for now I will 
mention each case history only briefly.
    Shannon Marsh. Shannon Marsh is a son of the late James 
Albright Marsh, a U.S. citizen from Florida in the construction 
business who formed four Liechtenstein foundations in the 1980s 
and transferred substantial funds to them. Two of these 
foundations were formed for him by LGT Bank. By 2007, the 
assets in the four foundations had a combined value of $49 
million. LGT instructed the Marshes to use the code ``Friends 
of J.N.'' when they wished to ``get in touch.'' The Marsh 
accounts were never disclosed to the IRS by LGT Bank.
    William Wu. Mr. Wu is a U.S. citizen who has lived for many 
years with his family in New York. LGT helped Mr. Wu hide 
ownership of his house in New York by helping him arrange a 
fake sale to an offshore company that he secretly controlled. 
LGT also helped him withdraw substantial funds from his 
Liechtenstein account, ranging from $100,000 to $1.5 million at 
a time, in ways that made the funds difficult to trace.
    Steven Greenfield. Harvey and Steven Greenfield, father and 
son, are New York businessmen who specialize in importing toys. 
In March 2001, in Liechtenstein, LGT Bank held a 5-hour meeting 
with the Greenfields, attended by three LGT private bankers and 
Prince Philipp, Chairman of the LGT Board of Directors and 
brother to the sovereign of Liechtenstein. The meeting was 
primarily a sales pitch to convince the Greenfields to transfer 
to LGT Bank about $30 million from a Hong Kong bank after 
``leaving behind as few traces as possible.'' Again, Mr. 
Greenfield has refused to appear despite service of a subpoena, 
so we will be pursuing that matter.
    Peter Lowy. Peter Lowy lives in California. His father, 
with his sons' help, set up a LGT foundation in 1998, after 
telling the bank that he did not want Australian tax 
authorities to know about the assets. LGT took measures to hide 
the Lowys' ownership of the assets, including by keeping their 
name off the formation documents for the new foundation, 
routing incoming assets through an offshore transfer 
corporation to prevent a direct link to the new foundation, and 
using a Delaware corporation headed by Peter Lowy to name the 
beneficiaries. In 2001, the Lowys dissolved the foundation and 
moved to Switzerland assets totaling about $68 million. Mr. 
Lowy will appear next week to answer questions about these 
matters.
    The importance of these case studies is that they provide 
an inside look at what goes on behind the wall of secrecy that 
surrounds this Liechtenstein bank. And what does go on behind 
that wall? Banking practices that facilitate tax evasion--
conduct that angers every honest American who pays taxes.
    We have also managed to pierce some of the layers of Swiss 
secrecy that for too long have made Switzerland the place to 
bank for people with something to hide.
    In late 2007, the Subcommittee took the deposition of 
Bradley Birkenfeld, who worked for more than 12 years as a 
private banker in Switzerland, including 4 years at the Geneva 
office of UBS. In 2008, Mr. Birkenfeld was charged and pled 
guilty to conspiring with a U.S. citizen, Igor Olenicoff, to 
defraud the IRS of $7.2 million in taxes owed on $200 million 
of assets hidden in secret accounts in Switzerland and 
Liechtenstein. In connection with this prosecution, the United 
States also detained, as a material witness, a senior UBS 
private banking official from Switzerland, Martin Liechti, then 
traveling on business in Florida. These enforcement actions 
appear to represent the first time that the United States has 
criminally prosecuted a Swiss banker for helping a U.S. 
taxpayer evade U.S. taxes. And Mr. Liechti is here today. I 
want to express my appreciation to the Justice Department and 
to the U.S. Attorney for the Southern District of Florida for 
making him available.
    Our report describes how Mr. Birkenfeld signed up Mr. 
Olenicoff as a client, in part by traveling to California from 
Switzerland to meet him, and opened UBS accounts for him in 
Switzerland in the name of offshore corporations that Mr. 
Olenicoff controlled to hide his ownership of the assets. For a 
time, Mr. Olenicoff was Mr. Birkenfeld's largest client.
    The details of their tax evasion scheme are sordid enough. 
But what Mr. Birkenfeld told the Subcommittee was that what he 
did as a private banker at UBS was ordinary practice. He told 
us about thousands of Swiss accounts at UBS for U.S. clients 
holding billions of dollars in assets, all undeclared. He also 
described the pressure placed on the Swiss private bankers to 
bring new money into the bank from the United States, called 
``net new money.'' His deposition with us and other documents 
show that each year, UBS assigns each private banker an annual 
net new money target. A January 2007 e-mail sent out by Mr. 
Liechti to the Swiss bankers in the Americas division wished 
them a happy new year, recounted how, in 2002, they had brought 
in 4 million Swiss francs per banker, how that number had 
quadrupled in 2 years to 17 million Swiss francs per banker in 
2006, and then urged them to quadruple their efforts again in 
2007 to bring in 60 million Swiss francs per banker in net new 
money from the Americas.
    Mr. Birkenfeld told us that Swiss bankers regularly 
traveled to the United States to target U.S. citizens for net 
new money. He told us how these Swiss bankers maintained a low 
profile, using business cards that did not mention ``wealth 
management,'' sometimes declaring they were in the United 
States for non-business purposes, and carrying encrypted 
computers that, allegedly, even U.S. Customs agents could not 
read.
    A Subcommittee analysis of travel records supplied by 
Customs corroborates the testimony. The travel records show 
that about 20 UBS Swiss bankers made about 300 trips to the 
United States since 2003, often traveling together to UBS-
sponsored functions designed to attract wealthy potential 
clients. The travel records also show that some UBS private 
banking officials made regular U.S. visits, including Mr. 
Liechti who traveled to the United States up to eight times in 
a year. Mr. Birkenfeld described one Swiss banker who saw 30 to 
40 clients on each U.S. visit. All this to sell Swiss secrecy 
on U.S. soil.
    Mr. Birkenfeld also described UBS Swiss bankers who 
presented their clients with securities products and helped 
execute securities transactions here in the United States, 
without a broker-dealer license from the Securities and 
Exchange Commission. In response to Subcommittee inquiries, UBS 
also acknowledged that, like LGT, its bankers had set up 
foreign corporations to disguise the ownership of accounts by 
U.S. clients.
    The Subcommittee even obtained a document showing that UBS 
provided its Swiss private bankers with training on how to 
detect surveillance by U.S. customs agents and law enforcement 
officers while traveling here. Think about that: A major 
international bank is training its bankers to detect 
surveillance by U.S. authorities.
    UBS efforts targeting U.S. clients to open Swiss accounts 
were, in the words of Mr. Birkenfeld, a ``massive machine.'' 
And the push to open Swiss accounts took place even though UBS 
had branch banking and securities operations in the United 
States that were large enough to accommodate all of its U.S. 
clients.
    Which brings up a fundamental question. Why would a U.S. 
taxpayer open a UBS account in Switzerland when it could bank 
with UBS right here in the United States? Why would 19,000 U.S. 
clients with nearly $18 billion in assets choose to open up 
accounts in Switzerland? It seems plain that part of the answer 
is that they wanted to open undeclared accounts that the IRS 
would not know about. They wanted secrecy.
    And UBS gave them secrecy. In November 2002, UBS sent a 
letter to all of its U.S. clients to reassure them that their 
secret Swiss accounts were still safely hidden, despite a new 
Qualified Intermediary program, or QI, going into effect. Here 
is what that UBS letter said in part:
    ``Dear client: From our recent conversations we understand 
that you are concerned that UBS' stance on keeping its U.S. 
customers' information strictly confidential may have changed. 
. . . We are writing to reassure you that your fear is 
unjustified and wish to outline only some of the reasons why 
the protection of client data can not possibly be compromised. 
. . . ''
    We all know what is going on here. U.S. clients who don't 
bank with UBS in the United States and instead bank with UBS in 
Switzerland are buying secrecy. And folks who buy secrecy have 
secrets they don't want to reveal, such as evading taxes, 
ducking creditors, or defying court orders. But those clients 
aren't the only ones relying on secrecy to cloak their actions. 
Banks in tax havens, including the two banks under examination 
today, are also covering up their own actions--actions that 
they presumably didn't want to see exposed by media around the 
world.
    We are putting up a chart that summarizes the Tax Haven 
Bank Secrecy Tricks that we have uncovered during this 
investigation:\1\ Banks using code names for clients to 
disguise their identities; banks telling their bankers to use 
pay phones instead of business phones so authorities can't 
trace a call back to the bank; banks giving their bankers 
encrypted computers when they travel so tax authorities can't 
read any client information; banks funneling money through so-
called transfer companies to cover the tracks of the funds and 
make audits difficult; banks opening accounts in the names of 
foreign shell companies to hide the real owners; banks setting 
up fake charitable trusts for the same reason; banks providing 
their bankers with countersurveillance training. The list goes 
on and on. These tricks are all about deception, all about 
making it impossible for the IRS to follow the money, to bring 
tax cheats to justice, and to bring back into the U.S. Treasury 
the tens of billions of dollars owed to Uncle Sam.
---------------------------------------------------------------------------
    \1\ See Exhibit No. 104, which appears in the Appendix on page 564.
---------------------------------------------------------------------------
    UBS has told the Subcommittee that it is changing its ways. 
It has banned travel by its Swiss bankers to the United States. 
It is encouraging U.S. clients to bank with UBS in the United 
States or at a subsidiary in Switzerland called Swiss Financial 
Advisors that requires all U.S. clients to disclose their 
accounts to the IRS. Liechtenstein tells us they are in 
negotiations with the United States to enter into a tax 
information exchange agreement and with its European neighbors 
to expand tax cooperation in connection with an anti-fraud 
agreement.
    Well, I hope that is all true, but count me skeptical for a 
number of reasons. First, we haven't heard anything from LGT 
about reforms; it is not even here today, in contrast to UBS 
that is here today. Second, evading U.S. taxes is a billion 
dollar industry; it's gone on for decades; and the profits are 
huge, both for the tax cheats and for the banks that hold their 
assets. The documents and testimony that we are releasing today 
disclose a culture of secrecy and deception that we are 
determined to end, despite it being so strongly entrenched.
    Tax evasion eats at the fabric of society, not only by 
starving health care, education, and other needed governmnent 
services of resources, but also by undermining trust--making 
honest folks feel that they are being taken advantage of when 
they pay their fair share.
    Our report outlines a number of ways we can fight back to 
end tax haven abuses, and here are a few.
    First, we should support the recent innovative enforcement 
actions taken by the Justice Department and IRS to prosecute 
foreign bankers who help U.S. taxpayers cheat Uncle Sam and to 
compel foreign banks to disclose the names of their U.S. 
clients.
    Second, we ought to enact new tools to penalize tax haven 
banks that impede U.S. tax enforcement. Congress should give 
the Treasury Department authority to bar U.S. financial 
institutions from doing business with those banks, and the IRS 
should remove those banks from the Qualified Intermediary 
program, the QI program, that allows them to avoid disclosing 
the names of their non-U.S. clients to U.S. authorities.
    Third, Congress should create a rebuttable presumption in 
enforcement proceedings that U.S. taxpayers who form or who 
send assets to or who receive assets from a legal entity in an 
offshore secrecy jurisdiction controls that entity and is, 
therefore, liable for taxation on its assets and income.
    Fourth, Congress ought to change the law to require banks 
who know U.S. clients are behind the accounts opened in the 
name of offshore entities to treat those accounts as U.S. 
accounts that have to be disclosed to the IRS.
    And we can do all that and more by enacting the Stop Tax 
Haven Abuse Act, a bill that I and Senator Coleman introduced 
last year.
    Right now, tax haven banks and tax haven governments dress 
up their secrecy laws and banking practices with phrases like 
``financial privacy'' and ``wealth management.'' But secrecy 
breeds tax evasion. And secrecy hides not only the wrongdoers, 
but also those who aid and abet the wrongdoing. We are 
determined to tear down those secrecy walls in favor of 
transparency, cooperation, and tax compliance.
    I want to thank my Ranking Member, Senator Coleman, and his 
staff for their support of this investigation and the 
legislation to stop tax haven abuses that we have introduced.
    Senator Coleman.

              OPENING STATEMENT OF SENATOR COLEMAN

    Senator Coleman. Thank you, Mr. Chairman.
    This morning, we return to a matter that is important to 
all American taxpayers: The role of foreign banks--particularly 
those in offshore tax havens--in helping a disturbing number of 
wealthy Americans cheat on their taxes. At the outset, I want 
to express my appreciation to Senator Levin for his unwavering 
commitment throughout this effort. This has been a truly 
bipartisan investigation in every sense of the word. It would 
not have been possible to bring these important problems to 
light without your leadership, Mr. Chairman, and for that I 
thank you.
    The problem we are confronting today is simple: Tens of 
thousands of America's wealthiest citizens are using offshore 
secrecy jurisdictions to hide trillions of dollars and avoid 
paying their fair share of taxes. The offshore problem remains 
one of staggering proportions. These tax havens hold an 
estimated $1.5 trillion in American assets, resulting in lost 
taxes of roughly $100 billion. That is three times the size of 
the Minnesota State budget general fund--lost because of 
dishonest individuals and entities exploiting the secrecy of 
foreign countries.
    In doing so, these privileged few are forcing honest 
American taxpayers to bear a disproportionate burden of 
investing in crucial areas like health care, homeland security, 
and education. That tax loss sits like a millstone around the 
necks of honest American taxpayers, who are struggling with 
high taxes, ever-increasing gas prices, and rising health care 
costs.
    But these tax cheats are not acting alone. Foreign banks in 
these offshore havens are enthusiastic partners in this 
deception. Hiding behind an impregnable fortress of secrecy 
laws, these banks have partnered with American tax cheats to 
use offshore tax and secrecy havens to conceal ownership of 
assets and make sham transactions seem legitimate, while 
staying one step ahead of U.S. law enforcement and the IRS.
    Over the course of the last year, the Subcommittee has 
engaged in a broad investigation into two of these banks: LGT 
Bank in Liechtenstein, and UBS AG in Switzerland. Both banks 
operate under strict secrecy laws, yet both banks enabled and 
promoted felony tax evasion, and sometimes even worse 
misconduct, like the bribery of American officials and others. 
The audacity and cleverness of the bankers we have examined are 
matched only by the zeal with which their American clients used 
their services.
    Before we turn to the evidence, it is worthwhile to take a 
moment and review the relevant laws and rules to understand how 
the banks eagerly manipulated the regulatory and legal 
landscape to assist their tax-cheating clients. The key rules 
governing these foreign banks are found in the Qualified 
Intermediary program (QI). The QI program is intended to 
encourage foreign banks to assist the IRS collect taxes from 
overseas accounts by calling for contracts with the individual 
foreign banks. In short, contracts executed under the QI 
program require the banks to report to the IRS when the 
accounts held by Americans have income derived from U.S. 
securities and withhold the proper amount of taxes, sending 
that amount back to the United States.
    In one sense, the QI program has been quite effective: The 
IRS has been able to collect substantial taxes that it 
previously could not. But there was a loophole in these QI 
agreements, and these foreign banks drove a Mack truck right 
through it. Basically, while the QI agreements require the 
banks to reveal American account holders with U.S. securities 
investments, the agreements do not require the reporting of 
accounts that are held by non-US citizens or entities.
    So what did the banks do? They encouraged their American 
clients to form shell companies and trusts in jurisdictions 
with strict secrecy laws, helped them open accounts in the 
names of those trusts and companies, and then assisted them in 
shifting millions of dollars from accounts in their names to 
accounts in the names of the foreign entities. In doing so, 
these banks turned a blind eye to the fact that there was no 
legitimate reason for these maneuvers.
    In his opening statement, Senator Levin highlighted the 
findings of our Subcommittee, as set forth in the bipartisan 
staff report we have issued to accompany this hearing. The case 
studies related to LGT are as appalling in their brazenness as 
they are disturbing in their commonality:
    A family falsely hiding nearly $50 million in trusts for 
decades;
    Another family moving funds from one shell corporation to 
another to yet another in a chain of transfers that was clearly 
designed for one reason: To avoid paying taxes;
    A family meeting with the royal family of Liechtenstein 
with the express purpose, in their words, of ``hiding the 
traces'';
    The brazen facilitation of bribery here in the United 
States by Marc Rich and his affiliates.
    Sadly, the list goes on and on. What is worse, LGT was not 
alone. UBS engaged in parallel misconduct. In short, soon after 
joining the QI program, UBS undertook a systematic, wide-
ranging effort to harvest tax cheats from the United States, 
help them restructure their Swiss accounts to avoid paying 
taxes on billions of dollars, and surreptitiously evade the 
attention of Federal law enforcement agencies.
    To be clear, our focus is on UBS' operations out of 
Switzerland. UBS has a large number of personnel based here in 
the United States, including in Minnesota, and they, like us, 
must be surely appalled at what the Subcommittee has uncovered. 
These people are not part of the misconduct we examine today, 
nor do we suggest in any way that they are involved in these 
activities.
    Moreover, we should note that UBS has been cooperative with 
the Subcommittee's investigation and has been responsive to its 
requests. UBS is also appearing today voluntarily, and not 
under compulsion of subpoena. I find it significant that while 
UBS did not necessarily have to send a knowledgeable witness 
from Switzerland, it chose to do so, which stands in stark 
contrast to LGT's refusal to appear before us today.
    But there is a fundamental question that must be asked of 
UBS, and that is, when you are sending Swiss bankers, 20 UBS 
bankers taking over 300 trips since 2003, somebody in America 
has to know what is going on. Clearly, though this is generated 
out of Switzerland, this kind of activity in this country 
cannot simply have occurred without folks here intentionally 
turning a blind eye. I am not sure what my folks in Minnesota 
know, but I would sure like to find out what the folks in 
America knew about these transactions.
    The results of the Subcommittee's investigation are 
striking. The evidence reveals that the banks engaged in highly 
suspicious activities designed to hide the identities of their 
clients, including, as the Chairman noted, using code words, 
encrypted computers designed to thwart U.S. customs officials, 
shell companies and trusts strewn around the world, and 
techniques to avoid surveillance by law enforcement. Some of 
these activities sound like the cloak-and-dagger deception in a 
James Bond movie.
    It is bad enough if the banks were simply enabling tax 
crimes. But the problem is far worse and more pervasive than a 
mere see-no-evil acceptance of tax fraud. Our investigation has 
found that the banks have left their secrecy fortresses and 
furtively entered the United States to recruit and service 
thousands upon thousands of tax cheats. Driven by a desire to 
service their clients' desires, regardless of legality, these 
banks actively promote and cultivate this conduct day after 
day. They didn't just facilitate this misconduct; they 
orchestrated it. That must stop and it must stop now.
    How do we fix this problem? The Subcommittee has offered a 
number of recommendations.
    First, as the Chairman has noted, Congress should pass the 
Stop Tax Haven Abuse Act, which is comprehensive legislation 
that Senator Levin and I introduced, along with Senator Obama. 
It would go far to stop offshore tax haven and tax shelter 
abuses by shining a light in the dark world of secrecy 
jurisdictions.
    We must also change the laws and regulations which permit 
banks in tax havens to fulfill their contractual obligations to 
the IRS even though they are facilitating criminal conduct.
    We must also improve the QI program, by strengthening 
reporting requirements for QI banks and expanding the audit 
process.
    We must also bolster our law enforcement activities and 
increase the statute of limitations for activities involving 
tax havens.
    To be clear, foreign investment is vitally important to the 
United States. Such investments are critical to job growth and 
opportunity expansion and are undeniably necessary for the 
economic well-being of our citizens. Nor is our focus here 
today on U.S. companies investing abroad, which bolsters our 
competitiveness in the increasingly global economy. To the 
contrary, our inquiry is focused on individual U.S. taxpayers 
who have cheated the system with the active assistance of 
offshore banks.
    There may indeed be valid reasons for holding accounts 
offshore, such as Americans living and working abroad, or those 
with families in other countries with political or economic 
instability. These persons, when they file the appropriate 
documents with the IRS and pay their fair share of taxes, have 
nothing to fear from this inquiry.
    I want to close, however, by speaking directly to those who 
should be worried: Those Americans, and their attorneys and 
financial enablers, who have gone offshore to dodge their 
taxes, escape our courts, or worse. Our message is simple: You 
are hurting this country. Millions of Americans struggle with 
bills and mortgages, pay for gas and health care, educate their 
children, and care for their loved ones. Hundreds of thousands 
of your fellow Americans protect us--both here and at war 
abroad--making unimaginable sacrifices on behalf of this 
country. By cheating on your taxes, you are forcing those 
people to carry even more weight on their sagging shoulders. 
You, the tax cheats, are not being asked to suffer as they are. 
You, the tax cheats, are not being asked to struggle with your 
daily bills and mortgages and gas prices and medical bills. You 
are simply being asked to pay your fair share to the country 
whose freedoms you so richly enjoy.
    Listen closely to what we have uncovered in this 
investigation. Come forward and stop hiding. In one document, a 
foreign banker advised his American client to stop engaging in 
certain transactions so that the American authorities would not 
catch him. He said boldly, ``Let sleeping dogs lie.'' Well, the 
dogs are no longer sleeping.
    Thank you, Mr. Chairman.
    Senator Levin. Thank you very much, Senator Coleman.
    And now I would like to welcome our first panel of 
witnesses to today's hearing: Doug Shulman, the Commissioner of 
the IRS, and Kevin O'Connor, the Associate Attorney General at 
the Department of Justice.
    Commissioner Shulman, first I want to thank you for being 
here today, and this is your first appearance before this 
Subcommittee. Your predecessor, Mark Everson, contributed 
frequent insights and important context to our hearings. We 
welcome you. We look forward to your testimony.
    Mr. O'Connor, I believe this is also your first appearance 
before this Subcommittee, and it is important for us to hear 
from the Department of Justice, and we welcome you.
    We thank you both. We thank your agencies for your efforts 
to go after people who would dodge our tax laws and evade 
paying their taxes.
    Pursuant to Rule VI, all witnesses who testify before the 
Subcommittee are required to be sworn. So at this time, let me 
ask you both to please stand and raise your right hand. Do you 
swear that the testimony you are about to give will be the 
truth, the whole truth, and nothing but the truth, so help you, 
God?
    Mr. Shulman. I do.
    Mr. O'Connor. I do.
    Senator Levin. We will be using a timing system today, and 
one minute before the red light comes on, you will see the 
light change from green to yellow, giving you an opportunity to 
conclude your remark. Your entire testimony will be printed in 
the record. We ask that you limit--attempt to limit it, in any 
event--your oral testimony to no more than 10 minutes.
    Commissioner Shulman, we will have you go first, followed 
by Mr. O'Connor, and then we will turn to questions. Thank you 
so much. Commissioner Shulman.

 TESTIMONY OF HON. DOUGLAS SHULMAN,\1\ COMMISSIONER, INTERNAL 
        REVENUE SERVICE, U.S. DEPARTMENT OF THE TREASURY

    Mr. Shulman. Thank you, Chairman Levin and Ranking Member 
Coleman. I want to thank you for inviting me to this 
Subcommittee hearing. As you said, this is my first opportunity 
to testify before the Subcommittee. Let me reiterate to you in 
public what I have told you privately.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Shulman appears in the Appendix 
on page 55.
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    This Subcommittee has a long and impressive history of 
investigating tax secrecy jurisdictions and offshore abuses 
that undermine the integrity of the Federal tax system and 
potentially divert billions of dollars from the U.S. Treasury. 
I am looking forward to working with you during my 5-year term 
as IRS Commissioner.
    I have made international issues a strategic priority for 
the IRS. High-net-worth individuals should not be able to 
shortchange their fellow citizens by moving assets or income 
offshore as a means of avoiding U.S. taxation. Frankly, I have 
been outraged by some of the behavior that we have found in our 
investigations and that you have highlighted in your report. I 
also find the actions of the financial institutions involved in 
this evasion to be surprising and disappointing.
    We have been particularly active in the international arena 
in the past few months, and more is in the works. Some of these 
activities I can discuss publicly because they are already part 
of the public record. There are other situations that I cannot 
discuss because the investigation may be ongoing. Taxpayer 
privacy laws generally prohibit public disclosure of IRS 
investigations.
    The most notable recent case in the public record involves 
a major Swiss bank. The bank signed a disclosure agreement with 
the United States in 2001 to become a qualified intermediary, 
or QI. Becoming a QI requires a financial institution to, among 
other things, report on the income of U.S. taxpayers that were 
clients of the bank. However, a former employee of the bank, as 
part of his recent guilty plea, stated that a number of the 
bank's U.S. clients objected to having their information 
subjected to such reporting.
    The IRS has since requested, via a John Doe summons, that 
the bank turn over account information on any other U.S. client 
who used this Swiss bank to avoid U.S. income taxes. The 
summons directs the bank to produce records identifying U.S. 
taxpayers who had accounts with the bank in Switzerland between 
2002 and 2007 and elected to have their accounts remain hidden 
from the IRS.
    On July 1, a Federal judge in Miami approved a Justice 
Department request to enable the IRS to serve this summons. We 
are working closely with the Justice Department to ensure that 
we get all of the information requested in the summons.
    Speaking more broadly, the IRS has a multifaceted approach 
to combating offshore tax evasion. We are deploying a wide 
array of techniques and resources to uncover unlawful 
activities. Let me go through a few of them.
    One important tool is information reporting. Most U.S. tax 
returns require that the filer provide information about 
foreign financial accounts, ownership in foreign entities, and 
financial statement data. In addition, a U.S. citizen with 
offshore accounts in excess of $10,000 must file a foreign bank 
and financial account (FBAR) report. Information reporting 
requirements typically come with either civil or criminal 
penalties for noncompliance, and in some cases, both.
    Another tool is the QI program, which you, Mr. Chairman, 
and Ranking Member Coleman have both discussed. In laymen's 
terms, the QI program gives the IRS an important line of sight 
to the activities of foreign banks and other financial 
institutions. It also provides detailed information reporting 
that the IRS, before we instituted the QI program, did not 
receive. The QI program is critical to sound tax administration 
in a global economy. By bringing foreign financial institutions 
more directly into the U.S. tax system, we can better ensure 
that U.S. persons are properly paying tax on foreign account 
activity and that foreign persons are subject to the proper 
withholding rates. However, the whole program rests on the fact 
that banks and financial institutions that are part of the 
program have to abide by their agreement with the U.S. 
Government.
    The QI program is relatively new, and as with any new and 
complex program, there will be flaws that must be addressed. In 
my view, we need to shore up the QI program and continuously 
enhance it. In my written statement, I discuss some of the 
steps we are taking to improve this important program.
    The third tool in our arsenal is international agreements 
such as tax treaties and tax information exchange agreements, 
under which other countries agree to obtain information on 
behalf of the United States for use in U.S. tax matters. We 
also have a number of efforts to share information and 
strategies with our international counterparts, including a 
Joint International Tax Shelter Information Center, where we 
have people from the IRS and other tax administrations 
collocated to exchange information about specific abusive 
transactions and their promoters and investors. In addition, we 
meet regularly with revenue commissioners or their 
counterparts, from nine other countries, to consider and 
discuss issues of global and national tax administration. 
International dialogue and cooperation will only become more 
important in the years to come, and we will work to continually 
enhance these relationships.
    As you noted, Chairman Levin, in some of the current 
activities that are underway and have been made public, we have 
been coordinating with our foreign counterparts, and this has 
been really made possible because of the groundwork we have 
done in the last several years to develop relationships, 
collocate people, etc.
    When investigating offshore tax evasion and specific 
identities of U.S. taxpayers are not known, the IRS generally 
uses its John Doe summons authority. The summons is used to 
identify individuals, groups, or classes of U.S. taxpayers who 
may be involved in specific areas of tax noncompliance and who 
cannot be identified through other means.
    And the final and very important tool that I will mention 
this morning is informants. Informants have been valuable 
sources of information for IRS civil and criminal 
investigations into offshore tax evasion. With the new 
whistleblower standards that reward informants, we are hopeful 
that we will get additional input on potential violations.
    Deterrence is one of our most powerful weapons. In this 
regard, I am very proud of the hard work that the IRS and 
Justice Department investigators have put into these recent 
cases. As a result of their continuing work, I am confident 
that those who engage in deliberate offshore tax evasion are 
very concerned right now, as they should be. I believe that we 
owe it to the vast majority of honest taxpayers to pursue these 
cases aggressively, and I am committed to do so now and during 
my 5 years at the IRS.
    I am also equally committed to respecting the rights of 
U.S. citizens and corporations who engage in legitimate global 
commerce.
    In closing, I believe that we are efficiently utilizing the 
tools that we have, but there are other ways that Congress can 
help. First and foremost is to approve our 2009 budget and 
enact the legislative proposals that are included therein. The 
budget provides key enforcement resources that we can use in 
the area of international tax evasion.
    In addition, Congress can provide more time for us to work 
on these cases by extending the current 3-year statute of 
limitations. Because of the complexity of these cases, 3 years 
is often insufficient to close the case properly.
    Finally, it is important that Congress continue to support 
and strengthen our network of tax treaties. They provide a 
basis for information sharing, and each time an agreement is 
renewed, we seek more information from our treaty partners.
    Mr. Chairman, thank you again for the opportunity to be 
here. I look forward to working with you and the Members of the 
Subcommittee during my tenure at the IRS, and I am happy to 
respond to questions.
    Senator Levin. Commissioner Shulman, thank you so much. Mr. 
O'Connor.

  TESTIMONY OF HON. KEVIN J. O'CONNOR,\1\ ASSOCIATE ATTORNEY 
              GENERAL, U.S. DEPARTMENT OF JUSTICE

    Mr. O'Connor. Thank you, Chairman Levin and Ranking Member 
Coleman, for the opportunity to appear here this morning to 
discuss the Department of Justice's efforts, alongside our 
colleagues at the IRS, to combat the use of tax havens and 
offshore entities by U.S. taxpayers to evade income taxes. Let 
me begin by echoing my colleague, Commissioner Shulman, 
commending this Subcommittee for its longstanding commitment to 
investigating and publicizing abuses of our Federal tax system. 
Your work--in particular, the report that you issued just 
today--has brought much needed attention to serious misconduct 
that threatens to undermine the fundamental integrity of our 
tax system. Really, Commissioner Shulman and I were remarking 
before that we would be so lucky to have many of your 
Subcommittee staffers in our offices based on the thoroughness 
and diligence of that report, and I commend you and your staffs 
as well.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. O'Connor appears in the Appendix 
on page 65.
---------------------------------------------------------------------------
    Senator Levin. Thank you. We appreciate that, and I know 
they appreciate that, and you're right, they deserve that kind 
of a compliment.
    Mr. O'Connor. As a result of their work, taxpayers have a 
greater understanding of their obligations and the consequences 
of noncompliance, and tax professionals and promoters are on 
notice that their efforts to design, market, or facilitate tax 
evasion schemes will not be tolerated.
    Today I would like to briefly focus my remarks on the 
Department of Justice's role in combating the continuing 
problem of offshore tax evasion. Over the years, as you are 
well aware, Congress has made numerous changes to our tax laws 
to reflect advances in communications and technology. One 
fundamental concept has, however, remained constant: U.S. 
taxpayers are subject to taxation on their worldwide income 
from whatever source that income is derived. The use of tax 
haven banks and offshore nominee accounts to evade taxes is a 
direct assault on this basic principle and cannot be tolerated.
    Offshore tax schemes, often used by high-wealth 
individuals, but not exclusively, potentially result in the 
loss of billions of dollars a year in U.S. tax revenues. For 
this reason, the Department, alongside with our counterparts at 
the IRS, have used and will continue to use all of the tools at 
our disposal to ensure that noncompliance is both detected, 
and, where appropriate, aggressively prosecuted.
    While taxpayers who engage in tax evasion are subject to 
civil and criminal liability for their conduct, we are equally 
concerned about the role played by tax professionals and 
promoters in designing and implementing these schemes. It is 
discouraging, as Commissioner Shulman said, to see that some 
professionals--tax attorneys, accountants, bankers, brokers, 
corporate service providers, and trust administrators, in 
particular--continue to violate their legal and ethical 
responsibilities by facilitating these illegal tax schemes at a 
substantial profit. Holding these professionals accountable for 
their misconduct is necessary, and as the examples in my 
written testimony reflect, we are pursuing criminal sanctions 
against such individuals and entities where and when 
appropriate.
    Our success in prosecuting these cases is as a result of 
our close working relationship with the IRS and with U.S. 
Attorneys' Offices across the country. For example, lawyers in 
the Tax Division have worked with the IRS to investigate 
offshore tax evasion by obtaining approval from a court to 
serve what are known as John Doe summonses. As my colleague 
from the IRS has mentioned, a John Doe Summons enables the IRS, 
with the assistance of the Department of Justice and Federal 
court approval, to obtain information about possible fraud by 
taxpayers whose identities at that time are unknown.
    On the criminal side, the Tax Division serves as the nerve 
center for all of our Federal criminal tax prosecutions. Tax 
Division attorneys work closely with the IRS Criminal 
Investigation Special Agents to develop and prosecute a wide 
variety and array of tax crimes, including offshore evasion.
    It bears noting in this regard, however, that offshore tax 
evasion cases are, by their nature, international in scope. 
Investigations requiring international cooperation are both 
time-consuming, expensive, and often raise complex legal issues 
such as national sovereignty and bank secrecy laws of the 
foreign countries in which evidence we may seek is located.
    Despite the challenges, U.S. law enforcement agencies and 
our foreign counterparts are engaged in a variety of 
information-sharing arrangements designed to aid in shutting 
down illegal and abusive activity and exchanging the 
information we, both the IRS and the Department of Justice, 
need to do our jobs.
    Critical to every investigation of offshore activity is the 
ability to obtain evidence from a foreign country. In addition 
to traditional letters rogatory, information can be requested 
through tax treaties or tax information exchange agreements in 
both civil and criminal cases, and through Mutual Legal 
Assistance Treaties--otherwise known as MLATs--in criminal 
cases.
    Unfortunately, we do not have cooperative agreements with 
every country. Moreover, not all cooperative agreements cover 
both civil and criminal matters. On occasion, MLATs exclude 
outright tax crimes altogether, while other MLATs and tax 
treaties are limited to particular instances in which we can 
allege specific kinds of fraud.
    In such circumstances, however, we will not be deterred. We 
will pursue other formal and informal methods of obtaining the 
foreign evidence we seek. This includes the use of John Doe 
summonses as well as grand jury subpoenas.
    Tax evasion is a chronic drain on the public fisc and is a 
pernicious obstacle to effective tax administration. If not 
vigorously investigated and addressed, it threatens to 
undermine confidence in our system of voluntary compliance and 
self-assessment. We are dedicated to ensuring that law-abiding 
taxpayers have confidence that the tax laws are fairly and 
equally applied, and that those who would attempt to engage in 
tax evasion know that we will deter their schemes, detect their 
schemes, and hold them accountable for their misconduct.
    Thank you, Mr. Chairman and Ranking Member Coleman, for 
inviting me and the Department today to discuss our efforts to 
combat tax evasion. I would be happy to answer questions you 
may have.
    Senator Levin. Thank you so much, Mr. O'Connor.
    We will try an 8-minute round here for the first round of 
questions.
    We put up a chart before that lists some of the secrecy 
tricks that were uncovered during our investigation that these 
banks have used.\1\ These are actual, established banking 
practices at LGT and UBS, if you can believe it. The purpose of 
these banking practices is to stop you folks, the prosecutors 
and the IRS, from being able to follow the money and make it 
more difficult to bring tax cheats to justice.
---------------------------------------------------------------------------
    \1\ See Exhibit No. 104, which appears in the Appendix on page 564.
---------------------------------------------------------------------------
    Just to read a few of them, some of those tricks are 
funneling money through so-called transfer companies to cover 
the tracks of the funds; opening accounts in the name of 
foreign shell corporations and companies to hide the real 
owners; using foreign credit cards on undeclared accounts; 
using captive trustees for trusts instead of independent 
trustees.
    Have you seen these types of practices in your work? And 
are these practices limited to these two banks? Mr. O'Connor.
    Mr. O'Connor. Chairman Levin, your staff was kind enough to 
provide me a copy of that chart this morning in advance of the 
hearing. It is fair to say we have seen all of these tactics. I 
think with respect to Mr. Birkenfeld, the one case that has 
been discussed publicly because of his guilty plea, the vast 
majority of those secrecy tricks were actually employed in that 
matter. At least Mr. Birkenfeld admitted in Federal court in 
connection with his plea agreement that he engaged in those 
types of tactics. So the short answer to your question is yes.
    Senator Levin. Do you want to add anything, Commissioner?
    Mr. Shulman. All I would add is that anytime someone wants 
to evade paying taxes, they look for complexity. It is the 
reason people go overseas, because things become much more 
complex once you leave our borders and our jurisdiction. You 
add on top of this complex financial arrangements which include 
all the techniques in your chart, and you've got exactly the 
method by which people are looking to evade the U.S. tax laws.
    Senator Levin. We have talked about these QI agreements as 
to how they are basically subverted by tactics, some of which 
are on that chart.\1\ Should we insist that when U.S. clients 
are the beneficial owners of so-called foreign trusts or 
companies that they be treated as owners of the securities in a 
foreign bank account instead of owners of the nominal trust or 
the company that was created for them?
    Mr. Shulman. I think the issue you bring up is the absolute 
issue here, which is how we can have a line of sight into the 
people who really benefit from the money coming from these 
accounts. The QI program has brought in a lot of money into the 
U.S. Government and has created a line of sight into foreign 
banks and those accounts.
    With that said, we are in the process now of reviewing the 
QI program and have started discussions about tightening it up, 
so let me share with you those discussions.
    Last week, I participated in a conference call with major 
accounting firms who were responsible for performing audits on 
the QI program. I asked them to come to us with issues, and we 
shared with them the issues we have seen. In addition, we 
raised the possibility of requiring, as part of their 
agreement, that they report any fraud they see in a foreign 
bank in the QI program to the IRS, which, frankly, is what 
occurs when a bank hides assets.
    There is also this issue of beneficial ownership. What we 
are going to try to do in this regard is to rework our 
regulations and our QI agreements so that QI banks have to put 
in additional steps of due diligence to make sure they 
understand who the owner is; and where they cannot ascertain 
who the owner is, default to withholding. And so we could go 
through it later, and these are still being worked on.
    We want to make sure we carve out legitimate businesses, 
like public companies or active businesses in a foreign 
country, so QI banks don't need to look through there. But if 
the owner is basically a trust that looks like an individual 
holder, we want to make sure we either obtain their taxpayer 
identification number or implement automatic withholding.
    And then, finally, there is this whole issue of worldwide 
income that we are taking a hard look at, because one of the 
techniques alleged gets people out of U.S. securities and into 
foreign securities, which are not currently covered under the 
QI program.
    Senator Levin. These banks have accomplished their 
deception here in avoidance of the QI program in a number of 
ways. The one we are going to look at today told their U.S.--
here is what they told their U.S. clients: We are not going to 
identify you, and the way we are going to avoid identifying you 
to the IRS is that you are going to have to sell your U.S. 
securities from this account; or you have got to reopen your 
account under the name of a non-U.S. entity.
    So they helped them to create that shell company or that 
trust that is then the nominal owner of those securities, 
rather than what they know to be the U.S. taxpayer.
    Would you agree that banks that do that are gaming the QI 
program?
    Mr. Shulman. Absolutely.
    Senator Levin. And is there any reason why we should not 
modify this program to tell banks we will not accept that, and 
that if you want to participate in this program, you must 
disclose the beneficial owner to us when you know it?
    Mr. Shulman. That is the intent of the QI program, and I 
share your anger over people who circumvent the system.
    I want to emphasize, though, at least in my view, that 
banks that don't meet their obligation should be ashamed of 
themselves, and we should deal with them appropriately. But 
kicking a bank out of the QI program, which is always an 
option, would mean that account holders in that bank will not 
be subject to U.S. taxation. Thus, our goal is to get banks 
into compliance and to keep them in the U.S. tax net, where 
appropriate.
    Senator Levin. And if we can't get them into compliance, to 
kick them out of the program?
    Mr. Shulman. We terminated QI agreements before, and 
currently have a number of QI agreements that we are looking at 
right now.
    Senator Levin. How large a problem would you estimate this 
offshore tax haven, tax avoidance is? Can you give us any kind 
of an estimate as to what the loss is to the Treasury?
    Mr. Shulman. As you know, I started this job 3 months ago. 
We actually have some good research in certain areas of tax 
evasion. Research in general in tax evasion is hard because, as 
you know, when there is tax evasion, people are actually hiding 
their activities, so it is not the kind of research you get 
through a census or questionnaire.
    The current data we have from around 2001 does not quantify 
this, but I am confident to say that these activities involve 
thousands of taxpayers and billions of dollars.
    Mr. O'Connor. Mr. Chairman, if I might add?
    Senator Levin. Please.
    Mr. O'Connor. If you just look at the Olenicoff plea, $200 
million, and some of the figures thrown around there and 
realize that is just one taxpayer, and then you multiply that 
by thousands, it is an incredibly, significantly large number 
that I would not even want to put a ceiling on.
    Senator Levin. You would say it is a significant loss to 
the Treasury?
    Mr. O'Connor. Absolutely.
    Senator Levin. Would it be safe to say it is in the tens of 
billions? Could you even go that far? We have come up with an 
estimate of up to $100 billion, and I know you are not going to 
want to pick any specific figure. But would you be able to say 
that your estimate is it would be in the tens of billions? Is 
that a safe estimate?
    Mr. O'Connor. I am probably utterly unqualified to make 
such an assessment, but it is certainly in the billions. I 
think I am comfortable saying that. I would defer to 
Commissioner Shulman, who probably is much closer to these 
figures as the person who----
    Senator Levin. You would rather defer this to a future 
moment, I think. [Laughter.]
    But we will look forward to your estimate. At least, 
Commissioner Shulman, you would say it is a significant loss to 
the Treasury. Is that safe?
    Mr. Shulman. It is a significant loss. And also let me tell 
you, even in my confirmation hearing, I talked to the Senate 
Finance Committee about why I made international a strategic 
priority of mine coming in. Where there is complexity, there 
are global capital flows, mobile capital, and people and 
businesses who want to evade taxes are going to do it in the 
complex international arena. And so regardless what the number 
is--and I agree the number is significant--this is an area that 
we are going to focus on at the IRS.
    Senator Levin. Finally, the burden is now on the government 
to prove that an individual controls an offshore corporation, 
and that is very difficult where there are secrecy 
jurisdictions. Would a presumption that a U.S. taxpayer who 
forms or who sends assets to or who gets assets from a 
corporation in an offshore secrecy jurisdiction controls that 
corporation--it would be a rebuttable presumption, but would 
that be helpful in tax enforcement cases? I do not know, maybe, 
Mr. O'Connor, I should start with you on that. I am not sure. 
Either one of you can give me an answer, Commissioner or Mr. 
O'Connor.
    Mr. O'Connor. Well, I think certainly the more information 
we have as prosecutors, it is always better and the easier we 
can do our jobs and the more efficiently we can do our jobs. I 
would say that about any mechanism. In terms of what is 
actually in a QI, obviously those are agreements negotiated by 
the IRS, not the Department of Justice.
    Senator Levin. I mean a law that created that presumption 
so that would have to be disclosed, it would be a rebuttable 
presumption, but it puts the burden on people who use these 
offshore tax havens to come forward and to disclose the fact 
that they have either assets in that tax haven or have assets, 
income from companies that are in those tax havens.
    Mr. O'Connor. Yes, I think I could just say that the 
Department has a formal response for handling inquiries about 
legislation. I, as I sit here today, cannot see a reason to 
oppose that.
    Senator Levin. All right. Do you have a comment on that at 
this time?
    Mr. Shulman. My comment is that the idea of getting a line 
of sight to the people who own and control these accounts is 
the whole game. I actually think some of the activities that 
are in your report and that have been made public show that we 
are actually doing a pretty good job right now of getting some 
of these lines of sight.
    Our preference would be to modify the regs in the QI 
program so we can see through first, and then come back later 
to things like presumptions because they are tools that can 
obviously ensnare a whole wide range of people who may or may 
not be involved in evasion.
    Senator Levin. Which is why we make it rebuttable. Senator 
Coleman.
    Senator Coleman. Thank you, Mr. Chairman.
    The Chairman talked about U.S. clients and this issue of 
beneficial owners. In other words, you create a trust, the 
beneficial owner is the client, but you use that as a way to 
shield the identity of the client.
    Even with secrecy jurisdictions, either to Mr. O'Connor or 
Mr. Shulman, is it fair to say that they still have to comply 
with the know-your-client obligations that we impose on banks?
    Mr. Shulman. Yes, in order to enter the QI program, a piece 
of the diligence is to have acceptable know-your-customer 
rules. And so people who are evading this are generally doing 
it on purpose.
    Senator Coleman. And that is what we call the ``gap,'' one 
of my frustrations. On the one hand, banks have to know their 
customer, so they know who they are dealing with. Then you have 
the QI program. If they have had their customers unload U.S. 
securities, they got the assets, they have their customers set 
up beneficial trusts which should be identified, but they still 
know the customer because the banks retain that information. 
And yet when QI comes, they are allowed simply to put a blinder 
on and to respond just to QI, even though they know that there 
is another path in there. And what I am frustrated about is up 
until this hearing, we have folks auditing QI. They may, in 
fact, see fraud. They may see this other stuff. But they do not 
report on it.
    What has been the justification up until now for folks who 
are auditing, seeing fraud, seeing other trails, and not 
pursuing them? What has the rationale been all along?
    Mr. Shulman. Like I said, I am 3 months into this job. We 
are now in the process of closing down a loophole in the 
program. I think that the intent you articulated is just that, 
and I think banks who circumvent that intent should be ashamed 
of themselves. They know that the purpose of signing up for the 
QI program is to provide us with a line of sight into U.S. 
taxpayers who have a tax obligation, and they either withhold 
or report that income to us. And so, dancing around a set of 
technicalities is not an excuse. We are going to make sure we 
tighten up those technicalities so they are harder to dance 
around, and we will keep working with this Subcommittee if we 
find we cannot do that through administrative remedies and 
regulations.
    And so I cannot tell you what the purpose was before. I 
think the purpose was always to make sure we could see through 
and get the information. People have found some ways around 
that, and we are going to try to remedy that.
    Senator Coleman. And I hope we do. My point with the know 
your customer (KYC) rules is that the information is there. 
Banks know who these folks are, and they have been able to 
segregate out their KYC obligations and to kind of disassociate 
KYC from QI and just respond in a narrow sense to the QI, 
process that information that even our own auditors did not 
break through. So, I ask for a little bit of common sense here. 
And I know that we want folks to participate in QI. We are 
getting access to information that we did not have. On the 
other hand, there is a charade being played here. There is a 
game being played with terrible consequences. I am not seeing 
any bars to simply coming in and telling auditors to go down 
that trail. If there is fraud, you check it out. And to the 
banks, we know you have KYC obligations; if you do this, you 
have a problem. And we talk about what the reaction to that 
problem is. But, to me it seems pretty clear. You have this 
huge gap that there does not seem to be a reason for.
    Mr. O'Connor, one of the things that you talked about were 
these Mutual Legal Assistance Treaties (MLATs) that we have 
with other countries. So if you are doing an international 
case, we have this MLAT, but you have noted that they sometimes 
exclude tax crimes. I have not looked through this, but do they 
exclude tax crimes when we have MLATs with tax havens?
    Mr. O'Connor. Well, not surprisingly, obviously MLATs are 
the product not of legislation or dictation, but of 
negotiation. And at the end of the day, we try to negotiate the 
most favorable terms possible with foreign sovereigns. But we 
cannot dictate necessarily what they will give and not give us.
    To no one's surprise, the countries that tend to carve out, 
if you will, tax crimes tend to be those with bank secrecy 
laws. So it is an obstacle to us, and it is something we are 
very well aware of, and we are almost in daily communication 
trying to, if you will, loosen those terms to get the 
information we need.
    Senator Coleman. This would come back to perhaps another 
area of oversight, Mr. Chairman. We are giving these countries 
access to the world's largest economy. We are giving them 
access to American securities. There is a huge benefit for 
being able to tap into the American economy. Even in the UBS 
notes, they talk about there are 200-and-something billionaires 
in America. This is a big market. This is still where, in spite 
of our challenges, it is where the money is. And I would think 
that we would utilize that leverage.
    So I would hope we would do a review of that and say for 
the luxury of participating in this market, this economy, and 
to be able to do business, we have to close this down. As I 
said, you can drive a Mack truck through the holes in this 
system. And there is a lot of money, Mr. Chairman, that is just 
not going down the drain, but it is staying in people's 
pockets.
    So I see the MLATs, and it seems to me that the exclusion 
is something that we really have to take a look at, and I hope 
we would do that.
    Mr. O'Connor. If I may, Senator, we are, and I think in 
fairness, while the MLAT with a country, say, carves out tax 
cases except where there is an organized crime element, that is 
not our sole avenue to pursue evidence. So while the MLAT may 
not be as favorable to us as we would like, we do have a double 
taxation treaty. There is also what is called the IMAT, which 
is their own law enforcement assistance regulations in 
Switzerland. So there are other avenues we can pursue even if 
the MLAT has a carve-out for tax offenses, complete carve-out 
or sometimes defines tax offenses very narrowly. For example, 
in some countries, simple tax evasion is not a crime. It is 
only a civil liability. Whereas, in the United States it is a 
crime.
    So we find that each country is different, but we are very 
creative in exploring different avenues. If we run into a dead 
end with a MLAT, we will pursue those documents through the tax 
treaty. And again, as Commissioner Shulman said, if we have to 
go all the way down to using a grand jury subpoena or a John 
Doe summons, we will do that as well.
    Senator Coleman. Commissioner, just one other area of a gap 
in the QI program. It is my understanding--does the QI program 
involve folks who have assets in U.S. securities, their 
securities?
    Mr. Shulman. Correct.
    Senator Coleman. So that one of the things that we see is 
you get clients of both UBS and LGT who sold--if they sell of 
their U.S. securities, then they escape any QI obligations. Is 
that a fair statement?
    Mr. Shulman. If you sell off your U.S. securities, yes.
    Senator Coleman. And so what about expanding banks' QI 
reporting obligations on U.S. persons--I am talking about U.S. 
citizens--beyond those for simply U.S. citizens who hold 
securities? Have you looked at that expansion of QI?
    Mr. Shulman. Yes, when I talk about worldwide income and 
mention that--and I did not go into it deeper--that is one 
thing we are looking at.
    Senator Coleman. I would hope we would pursue that. Thank 
you, Commissioner.
    Thank you, Mr. Chairman.
    Senator Levin. Thank you very much, Senator Coleman.
    We welcome Senator Kerry here, and we are going to excuse 
this panel unless you have questions of them.
    Senator Kerry. Mr. Chairman, I don't want----
    Senator Levin. We were going to move to the second panel.
    Senator Kerry. I might have just two questions, if that is 
possible.
    Senator Levin. Please.
    Senator Kerry. Could I just begin by saying, first of all, 
thank you for the courtesy of allowing a non-Permanent 
Subcommittee Member to be part of this. I really appreciate 
that. I know that happens occasionally around here in various 
committees, and I am very grateful to you for your courtesy.
    And, second, I would like to say thank you to you and 
Senator Coleman for doing this. I see that some of the chairs 
are empty here, but I must say to you this is a topic that 
people really need to understand, and its larger implications. 
And I am very respectful of the work that this Subcommittee has 
done. It has done a terrific job, though I know there are some 
folks who dispute some aspects of the report, and that will 
have an opportunity to be able to be aired here.
    But when I served on the Banking Committee back in 1986, I 
became aware of some of this and became interested in it 
through a bank called BCCI, which became infamous because not 
only did it have money from Noriega and drug trafficking, but 
it has money from Osama bin Laden, which is one of the first 
times we observed his name. And that secrecy process really 
opened up a window for many of us, arms trafficking that was 
illicit and otherwise. And I remember visiting with the 
governor of the Bank of England in the course of trying to get 
at this and ran into resistance in certain quarters that were 
willing to protect the secrecy and the flow of funds in that 
way.
    And so that is when we developed some of the MLAT 
apparatus, which I have heard referred to. I did hear both of 
the testimonies, though I was not here. And we also passed some 
amendments in the Banking Committee that came to be known as 
the Kerry amendments, which required transparency and 
reporting. And, ultimately, the $10,000 transfer requirement 
and other things became pro forma.
    Listening to the Administration--and we created our 
financial group down at the Treasury, and we have gone through 
a process of this. But it strikes me that we are woefully 
behind the curve and that the focus on this has been sort of 
significantly sporadic, to be honest with you. And I want you 
to address that a little bit.
    There is an infamous building in the Cayman Islands that I 
believe houses some 15,000 or so brass plates that are 
telephone numbers and fax machines, which are used, everybody 
knows, to move huge sums of money in and out of the financial 
system. And with the commingling of these funds that takes 
place with multiple transfers, ultimately accountability is 
really just absent.
    Why are known financial tax evasion/wealth-hiding entities 
still able to access the largest financial systems in the world 
and, until recently, the most secure in our own, willy-nilly? 
Just why has there not been a greater push for cross-country 
international transparency and accountability? Because I heard 
you in your testimony mention we are trying to get some of 
these others countries to cooperate. It depends on the level of 
their cooperation. We are still struggling with something that 
is just fundamental to the integrity of every government's 
ability to be able to run itself and provide a fairness to 
their populations. And it seems to me the effort necessary to 
do this other than when Senator Levin and Senator Coleman have 
a moment of accountability is just not forthcoming.
    Can you address that?
    Mr. O'Connor. Well, I would be happy to speak on behalf of 
the Department of Justice. I think you are 100 percent correct 
about the scope of the problem, but I have had the pleasure of 
working with our Tax Division and to see even a case like the 
Birkenfeld case, the complexities involved in chasing through 
foreign accounts and foreign entities, it is incredible. And 
they are working incredibly hard with U.S. Attorneys' Offices 
across the country to try to ferret out these cases, both the 
taxpayers--and there are obviously thousands of them--as well 
as the promoters.
    Of course, there is always going to be an issue. For 
example, we have one individual under indictment now who is in 
a country for which we do not have an extradition treaty. So 
you do run into road blocks in these investigations that are 
not made by Department of Justice or others, but it is just a 
simple sovereignty issue. And the folks in the Tax Division 
have assured me--and I am comfortable with that--that they are 
doing all that they possibly can to hold people accountable 
both here in the United States but abroad as well. And whether 
it is using material witness statutes to detain people, whether 
it is being creative in how we go about getting documentation 
that is not here in the United States, we are availing 
ourselves of all the avenues available to us.
    Senator Kerry. All the evidence available, but not all the 
evidence that could be available. I mean, don't the G-8 
fundamentally have the financial clout in the use of their 
system to demand greater transparency and accountability?
    Mr. O'Connor. Senator, I think they do, and in fairness to 
the folks who negotiate these treaties, I would imagine every 
time we ask for something, the countries ask for something in 
return. And I would imagine if you are in the State Department 
or in our Office of International Affairs negotiating MLATs, 
and every time we ask for more information, there is a counter 
request to us that we have to weigh equally. And we may have 
reasons in that circumstance to not agree to everything they 
want, which the end result might be we don't get everything we 
want.
    Again, I am not privy to, I do not participate in those 
negotiations, but I know that they can oftentimes reach dead 
ends.
    Senator Kerry. Well, doesn't the IRS have a very clear 
sense of the level of lost revenue to the country as a 
consequence of these practices?
    Mr. Shulman. We talked a little bit about this before, 
Senator, and let me, if I could, just respond to your earlier 
question, and at least give you my perspective on it. I just 
started my term. I am going to be here for 5 years. We are 
going to make this a major focus.
    What I said before is really the notion that once you leave 
the United States, our tools become harder to use, and it takes 
longer to use them from a tax administration standpoint, 
evasion tactics are easier to execute when you get outside of 
the United States. You layer on that the notion that capital 
markets have become global, and the obvious place to hide 
assets.
    We have never had a study directly on the leakage from the 
U.S. Treasury from global tax evasion, but I am comfortable 
saying it is in the billions of dollars, and it is something 
that we are going to focus on.
    I think one of the keys and one thing that I know is 
happening now--and it has been happening in my 3 months here 
because I have been involved in conversations--is that the OECD 
has a Tax Administrator Forum that sets standards of 
transparency that the United States has been active in. Just in 
the last couple of weeks, I think the G-8 actually asked that 
there be a broader OECD directive around transparency. We now 
house people together with folks from the governments of the 
U.K., Australia, Canada, and Japan to look at tax evasion. And 
we have now coordinated efforts with those countries and 
others, around some of these tax haven and tax evasion cases 
that you have been reading about recently. And we have hundreds 
of cases open.
    In response to your question of whether we are behind the 
curve, I would say every regulatory entity in the United States 
is going to need to pay attention to global capital flows, and 
that we are always going to be struggling to get ahead of the 
curve where there is complexity. We need to focus on both U.S. 
citizens, who frankly are evading their tax obligations and 
shortchanging their citizens, as well as on the supply side, 
which this Subcommittee is talking about today, the banks, the 
promoters, the lawyers, the accountants--anyone else involved 
in making it possible to evade tax obligations. I just think we 
need to have continued focus.
    Senator Kerry. Well, my time is up. I really want to thank 
the Chairman. I would just say those efforts I referred to were 
1986 and 1991. It is now 2008. And I will tell you, the 
American taxpayer has enough to be angry about in terms of what 
is happening to their wallet today and the sense of unfairness 
that is institutionalized in the system. But if we cannot get 
at this with greater energy and create a system that is fair, 
and they are picking up the burden for a whole bunch of folks 
who are avoiding it and taking it overseas, we have a serious 
long-term problem because it undermines--and all you have to do 
is look at other countries in Europe that have difficulties in 
terms of the legitimacy of their tax structures to see what 
begins to happen. Our underground economy is already growing 
enormously, and everybody knows it. And this is one of the 
contributing factors to that.
    So, Mr. Chairman, I congratulate you again. I think this is 
really important stuff in terms of the integrity of our 
governance, and I think it is terrific you are pursuing it.
    Senator Levin. Thank you, Senator Kerry.
    Let me mention that I think we both would fully agree with 
you that there is a role for much stronger regulation and 
enforcement. But there is also a role here for legislation, and 
as I mentioned in my opening statement, I have introduced with 
Senator Coleman and Senator Obama a bill which will really take 
on these tax havens head on. The way we do that, one of the 
ways we do it in that bill, is to create a rebuttable 
presumption that in enforcement proceedings, a U.S. taxpayer 
who forms a legal entity in an offshore secrecy jurisdiction, 
which were enumerated by the Treasury Department, or who sends 
assets to an entity in a tax haven jurisdiction, or who 
receives assets from an entity in a tax haven jurisdiction is 
presumptively liable for that income and for tax on those 
assets.
    It is the way to get at this thing. It puts the onus on 
taxpayers. They are not going to be able to go to that little 
building there that has tens of thousands of nameplates of 
phony corporations which allow people to avoid paying taxes 
because they cannot do it without violating our tax law. When 
they send in their tax return, under our bill they would have 
to disclose that they are sending assets to an entity in a tax 
haven. And if they do not do it, they would be violating our 
laws. Right now they do not violate our laws per se by just 
simply sending money to a tax haven. It is only if they do not 
report it under certain circumstances.
    We want to create a rebuttable presumption that they are 
taxable on that income. They can rebut it. But we have to do 
that if we are going to take on that building in the Caymans 
and places like that all around the world, and these banks 
which facilitate and aid and abet our taxpayers. That is the 
way we think we can directly do it legislatively. But we need 
all the regulatory enforcement.
    Senator Kerry. The only thing I would say to that, Mr. 
Chairman--and I applaud it, and I think you have to move in 
that direction. But I know, because I have been through this 
with some of these folks, what you are going to hear from some 
of them, and that is that in a global marketplace, where 
capital is competing for the return on investment and where 
there is a voracious appetite for deals and for who is moving 
their wealth where and how, some people are going to say if you 
make it so onerous only in one jurisdiction, those folks just 
are not going to bother, and they will go take their capital--
--
    Senator Levin. We are not talking about foreign taxpayers. 
We are talking about U.S. taxpayers.
    Senator Kerry. I understand that, but it is critical for 
the U.S. taxpayer to be able to feel they are competing on a 
playing field where they can have the ability to compete. And 
if that comparable cost of capital gets skewered, which is why 
the international piece is so critical here, that you have got 
to have the transparency and openness and have the larger 
financial structure, now global, not just controlled by New 
York as it used to be, but London, Singapore, Hong Kong, a vast 
array of centers of finance, you are going to have to think 
carefully about the implications. That is all I am saying.
    Senator Levin. I could not agree with you more. Senator 
Coleman.
    Senator Coleman. Thank you.
    Mr. O'Connor, if you could look at the exhibit book to your 
left, Exhibit No. 92,\1\ which purports to be information that 
comes from UBS, it was used at UBS workshops, training for some 
of their client advisors. It was given to us by Mr. Birkenfeld. 
I think he delivered that, and I will be asking the UBS folks 
about this. But if you look at Case 4--which the Chairman 
mentioned in his opening statement--and it gives a case study, 
and it says, ``After passing the immigration desk during your 
trip to the USA/Canada, you are intercepted by the authorities. 
By checking your Palm, they find all your client meetings. 
Fortunately, you stored only very short remarks of the 
different meetings and no names.''
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    \1\ See Exhibit No. 92, which appears in the Appendix on page 518.
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    Then it goes on to say, ``You are staying at a hotel. You 
are being observed.'' And what they are reflecting is being 
observed by authorities, and that you are then intercepted by 
an FBI agent, and he is looking for information about one of 
your clients, explains to you your client is involved in 
illegal activities.
    Then they ask, ``What are the signs indicating something is 
going on?'' In other words, this purports to be directions to 
folks coming in to do business here--and we are going to find 
out that they are not registered securities folks, that many of 
them that came, that on their entry documents saying they were 
here for personal reasons, not for business reasons were in 
fact here solely for the business of inducing and abetting tax 
evasion.
    Can you tell me in your experience whether--is this 
standard training that American businesses give to their staff 
or that even other international--I am trying to understand 
where this fits in.
    Mr. O'Connor. Well, if it is standard training, God help us 
because, again, in fairness, I would want to see what UBS would 
have to say about it. But it seems to me it is clearly a way to 
evade the QI requirements, the deemed sales provision of the QI 
programs, as well as our securities laws that would require 
them to register as investment advisors. And, as I have seen 
the Subcommittee's report about filing false declarations with 
customs, the lengths that apparently we are going to--and, 
again, I referred to Mr. Birkenfeld's plea where he confirms a 
lot of this. It is, frankly, very troubling, and that is why we 
charged that case as a 371 conspiracy. It was not charged as an 
evasion case. It is one thing for a U.S. taxpayer to be 
creative and create shell corporations. It is a whole different 
ball of wax when a bank is enabling it and encouraging it. And 
that is what Mr. Birkenfeld has admitted to here. It was not 
just a taxpayer trying to save money by not paying their lawful 
taxes. It was a conspiracy.
    Senator Coleman. If you were looking at pursuing some 
action against the entity, would it be fair to say that this 
kind of information at least appears on the surface to be 
enabling the kind of illegal conduct that we are talking about?
    Mr. O'Connor. Again, I have to be very careful with an 
ongoing investigation, but in a hypothetical manner, obviously 
this is documentation that raises a lot more questions than it 
answers.
    Senator Coleman. Thank you, Mr. O'Connor.
    Thank you, Mr. Chairman.
    Senator Levin. Thank you, Senator Coleman. And we will 
again thank you both and excuse you.
    Mr. Shulman. Thank you.
    Senator Levin. Before we seat the next panel, we are going 
to have a tape recording, so the second panel is going to be 
deferred until we have a presentation of a statement by and 
questions of a man named Heinrich Kieber.
    In 2007 and 2008, Mr. Kieber, a former employee of LGT 
provided tax authorities around the world with records on 
people who had accounts at LGT. He freely gave to this 
Subcommittee about 12,000 pages of documents related to U.S. 
persons who had LGT accounts.
    Mr. Kieber spent 2 years reviewing the LGT documents. He 
also spoke with LGT officers and employees. As a result, he 
gained a familiarity with the operations and practices of LGT. 
During a recorded interview with Subcommittee staff, he 
provided information on LGT practices that helped U.S. citizens 
hide their assets from U.S. tax authorities. Many of the 
practices that he outlined apply to the case histories that are 
featured in the next panel.
    This taped interview along with the documents provided to 
the Subcommittee by Mr. Kieber provide insight into the 
practices of LGT.
    This man is now in a witness protection program. His 
current location and name are unknown to the Subcommittee. In 
order to avoid any breach in the security surrounding his 
condition or whereabouts, we will not discuss any aspects of 
the interview other than the content. There is a transcript of 
this interview at Exhibit No. 5.a.\1\
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    \1\ See Exhibit No. 5.a., which appears in the Appendix on page 
213.
---------------------------------------------------------------------------
    So now if we could play that interview, we would appreciate 
it.
    [Interview played.]
    [The transcript of the interview follows:]

    MR. ROACH: Good morning, sir. My name is Bob Roach. I am 
counsel for the Democratic staff of the Permanent Subcommittee 
on Investigations. With me is my colleague, Mike Flowers, who 
is counsel for the Republican staff of the Subcommittee.
    MR. FLOWERS: Good morning, sir.
    CONFIDENTIAL WITNESS: Good morning.
    MR. ROACH: Thank you for joining us.
    I understand you have a statement to make after which we 
will ask you a few questions about the banking and trust 
operations of the LGT Group. Please proceed.
    CONFIDENTIAL WITNESS: Good morning.
    I swear that the testimony I am about to give will be the 
truth, the whole truth, and nothing but the truth so help me 
God.
    In 2000, the LGT Trust was evaluating the so-called 
``paperless office.'' A project to scan every document of each 
client's legal entity and index them electronically, encoding 
an internal ``bak track'' code, a b-a-k. The project requires 
to hire over 20 new staff members. Based on my education and 
skills, I, then named Heinrich Kieber, worked--started to work 
at the LGT Trust in Vaduz in October 2000, and I worked there 
for more than 2 years until the date 2002.
    The LGT Group in Liechtenstein is a provider of a vast 
range of financial services. The key business of the LGT Group 
consists of the LGT Bank and the LGT Trust services. Both are 
independent, commercial companies, and both use autonomous 
computer data storage systems.
    The core trade of the LGT Trust, with head office in Vaduz 
and several branches in Switzerland, is selling and managing 
Liechtenstein legal entities such as foundations or 
establishments. They cater for clients from many different 
countries including the USA. Generally, the client transfers 
his/her bank assets, such as securities and cash accounts and 
often also the nonbank assets, such as real estate, expensive 
paintings, patents, rights, etc., into the ownership of a 
selected one or more legal entity.
    The client becomes then the beneficial owner of the legal 
entity. Every single legal entity from Liechtenstein has to pay 
on average a worldwide matchless flat tax rate of only $1000 
Swiss francs per year, regardless of the millions of different 
type of assets they own and income they gain.
    The LGT Trust, back in the year 2002, had over 3,500 active 
legal entities under management, with the combined total bank 
assets of around 7.2 billion Swiss francs of which about 6 were 
invested at the LGT Bank and the rest in other Liechtenstein 
banks or Swiss banks. Back then, the LGT Bank had around 50 to 
60 billion Swiss francs in their books. Today they hold over 
100 billion Swiss francs. The real value of the nonbank assets 
are never recorded in the books.
    The first couple of months I was in charge of the correct 
handling of all clients' legal entities' files to make sure 
that they are scanned properly and that not one of the very 
sensitive documents where all the data concerning the 
beneficial owners are recorded is lost in the process. Because 
of the nature of my job, I had access to all documents of all 
legal entities, active ones and the inactive ones.
    The biggest task of the second stage was the proper 
indexing of all scanned documents. To be able to index the 
documents, we had to read every single one on our screens. It 
was then when I began to realize the very questionable business 
the LGT was often involved in and the dubious clients they were 
serving, the kind of business that goes beyond just 
facilitating massive tax evasion. Going through thousands of 
documents, I got very--I got the very clear picture of the 
highly sophisticated and sometimes surprisingly simple tricks 
and methods used to (a) help any clients to bring his or her 
bank assets to Liechtenstein and nonbank assets under the 
control of the one or more selective legal entity; (b) help any 
clients to keep his or her assets out of the reach of the 
taxman and people who may have a legal right to it or interest 
in it; (c) get around the laws of Liechtenstein and other 
countries; (d)--and (d)--avoid the attention of international 
law enforcement agencies and the international media.
    Liechtenstein has implemented real tough new compliance 
laws in January 2001. In addition, in July 2002, they signed a 
mutual assistance treaty with the United States of America. 
This treaty was designed to protect the international financial 
markets against terror, organized and economic crimes. However, 
the business practices of LGT undermines those reforms that 
Liechtenstein enacted. The LGT deliberately ignores the basic 
principles of the know-your-customer rules. For sure, I can 
frankly declare that in the vast majority of all legal 
entities, LGT does not have a clue about the real sources of 
their clients' huge wealth they manage, as it has been verified 
in the files I delivered to the U.S. Government.
    The final part of my job was to conduct training programs 
for all of the 85 staff members of the LGT Trust, including 
CEO, members of the company's board--and members of the 
company's board. When I was teaching the CEO or a member of the 
board or a trust client advisor, I confronted them about the 
LGT's questionable practices that I have seen in many files. 
Sometimes I always raised this topic with foundations' bank 
account managers from the LGT Bank. All these discussions were 
about files with strong indication to corruption, links to 
dictators, or business deals to avoid a U.S. embargo, for 
example. The answer was always the same: None of your business. 
Just stick to your designated job.
    I obtained copies of the data of every legal entity and, 
furthermore, copies of vast internal documents before I left 
the company. All documents provided are authentic, original 
copies and have not been in any way changed or manipulated.
    MR. ROACH: Thank you, sir.
    CONFIDENTIAL WITNESS: That's my statement.
    MR. ROACH: Thank you, sir. I'd now like to ask you a few 
questions. First of all, in your statement you referred to 
tricks that LGT used to help clients bring their assets into 
the bank, including--would you mind commenting on that, 
including the use of shell companies to move funds 
internationally.
    CONFIDENTIAL WITNESS: Yes. There are several methods in 
use, depending on the type of assets the client wants to 
transfer into his or her legal entity in Liechtenstein. For 
bank assets, the LGT Group establishes, indirectly manages, and 
ultimately owns a number of legal entities, so called ``special 
purpose vehicles,'' SPV. For the purpose of high-grade 
camouflage, there are two types of SPVs. Type A: big bank 
accounts around the world; and Type B: Which do not have any 
bank accounts but own and control Type A. To protect the LGT 
Group, those types used are never from Liechtenstein. The LGT 
uses only SPV registered in Panama, in the British Virgin 
Islands, or sometimes even in Nigeria.
    In practical terms, for a U.S. client, the LGT will 
transfer the bank's assets out of the United States through a 
chain of several Type A SPVs. Firstly, always into a country, 
for example, Canada, which from the IRS point of view is not 
suspicious. Next, through a series of other countries and 
therefore different jurisdictions. Preferably countries with 
very weak or, better, non-existing compliance laws. Before 
reaching Liechtenstein, it will run through a Swiss bank, for 
example the Banca del Gottardo in Lugano. This bank, in turn, 
has reciprocal rights to use the LGT Bank for its own 
customers.
    For an additional layer of concealment, either the Swiss 
bank or the LGT Bank often perform a fake cash-out transaction 
to make it look like the monies have been paid out in cash over 
the counter where in fact they have been transferred into the 
concentration account of the LGT Bank and, at the same time, an 
equal amount has been credited into the client's legal entity's 
bank account. After one or two years in use, the SPVs are put 
into liquidation, then deleted, and new ones established.
    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 
client's money. For any bank or trust company in Liechtenstein, 
the matter of SPVs is commercially very sensitive material. The 
better sys--sorry. The better the system put in place, actually 
the less it will be detected. There's a lot of effort put into 
general research and checks of any possible legal implications, 
so that the LGT Group can always be many steps ahead of the tax 
authorities.
    All of the clients' trust advisors and bank account 
managers of the LGT Group get regular in-house training in 
relation to the latest tricks and methods used so they can keep 
their knowledge up to date and can offer it to any existing or 
future customers.
    MR. FLOWERS: Thank you, sir.
    Sir, you mentioned during your statement that LGT helped 
clients to keep their assets out of reach of tax agencies or 
persons with legal claims on those assets. Could you please 
explain how that was accomplished?
    CONFIDENTIAL WITNESS: Yes. What happens, the LGT strongly 
recommends to all clients to follow instructions such as, 
firstly, not to tell anybody concerning the legal entity to 
their lawyers, to other family members or relatives who are not 
part of the pool of beneficial owners, to friends or business 
partners. The reason is, any human relationship can go wrong 
and the client may end up in a situation where blackmailing is 
possible. Secondly, not to call the LGT Group from home--not 
from home, not from work. Use public phones instead. As 
Liechtenstein has an own country code number, the IRS may use 
the same plan as the Italian tax police did some years ago. 
They ordered the state-run phone company to record over a 
certain period the caller's i.d.; the time, date, and number 
dialed from a big city in Italy to Liechtenstein, to a 
Liechtenstein number. When the number called did not match a 
phone number--sorry--did match a phone number registered to a 
bank, trust company, or a lawyer, the tax police of Italy 
conducted a special assessment of the Italian callers. Thirdly, 
a third recommendation, only make calls in emergency to the 
nominated cell phone numbers of the clients' trust advisors. 
The LGT Trust only uses cell phone numbers from Switzerland or 
Austria. Again, because of the existence of a Liechtenstein-own 
country code number. When calling, the clients should always 
use the code words agreed and never state their own names or 
name of the legal entities. In addition, the LGT Group itself 
does not send any mail to their customers out of--from 
Liechtenstein. If at all, mail gets sent out via Swiss or 
Austrian post office to avoid the attention of any tax 
enforcement agency around the world looking for mail coming 
from Liechtenstein. In addition, any documents sent out are 
specially prepared in the way that the name of the bank, the 
client's name, or the legal entities' name is not revealed. The 
LGT Group does not call the clients at home or at work or on 
her or his phone--cell phones and does not communicate with 
their clients via email. The fact that all the LGT Trust's 
clients do not need their assets hidden in legal entities for 
their daily living helps very much to avoid detection and to 
keep the personal contact between the parties to a minimum, on 
average once per year.
    MR. ROACH: Thank you.
    You said that LGT used methods to allow it to get around 
compliance with the laws of Liechtenstein and other countries. 
How did LGT do that?
    CONFIDENTIAL WITNESS: Yes, they're very sophisticated in 
that way. The know-your-customer rules necessitate a lot of up-
to-date documentation concerning the client's identity and the 
true source of assets. In addition, a profile of every client 
has to be created, and any movement outside the set profile has 
to be reported to a preferably independent government entity, 
for example, to the financial intelligence unit. The LGT not 
only fails to keep the basic documentation up to date, often 
there is no clear indication of the beneficial owner or the 
source of the monies at all. Furthermore, they, the LGT Trust, 
predetermine the threshold of a client's profile in such an 
unrealistic way that it would--that it will not trigger the 
compulsive report even so when according to compliance law, the 
transaction is regarded as more than suspicious.
    MR. FLOWERS: Thank you, sir.
    Sir, based on your experiences while working at LGT, did 
LGT ever assist U.S. persons in repatriating their assets back 
to the United States in a manner that would have reduced the 
attentions of the United States Government?
    CONFIDENTIAL WITNESS: Yes, there are several tricks in use, 
and I recall one. Then, at times, actually the LGT Trust would 
adjust the legal entities' documents to designate a new 
beneficial owner who will cause or result in the lowest tax 
obligation or, if possible, a zero tax obligation. Often this 
means creating a--new trust documents and changing the name of 
the real beneficial owner into the name of a person or relative 
who has recently died or, in some cases, is unfortunately in 
the process of dying. When the assets are transferred back to 
the United States, the real beneficial owners explain to the 
IRS that they have just inherited a large amount which was only 
discovered in recent times.
    MR. ROACH: Now, in your statement, you also said that LGT 
sought to avoid the attention of international law enforcement 
and the media. How did LGT do that?
    CONFIDENTIAL WITNESS: After some major scandals in the past 
15 years, in an effort to avoid bad and further damage to their 
reputation, many powerful financial key players in 
Liechtenstein established smaller banks or trust companies 
whose names nobody recognizes. They have transferred their 
risky group of clients into those new banks or trust companies. 
In that way, if the risky clients are exposed in a scandal 
overseas, the larger well-known banks or trust companies are 
out of trouble and the media spotlight. The LGT Trust, but not 
so much the LGT Bank, did not accept new clients from Russia, 
for example, but would refer them to such smaller trust 
companies.
    MR. FLOWERS: Sir, you made references in your statement to 
LGT's role in assisting in corruptive--or corruption, acts of 
corruption including breaking embargoes, for example. Could you 
please elaborate on that?
    CONFIDENTIAL WITNESS: Yeah. The words I say here is that 
one set of documents indicate its pride in government officials 
in another country--in other countries including the United 
States. The LGT Bank introduced the client to the LGT Trust. 
The LGT Trust did accept the client but refused to nominate 
staff onto a new Panama company where such payments should be 
done in the future. At the end, in this file, the payments 
continued to be facilitated through the LGT Bank.
    And there's another file which has a very strong indication 
to--of corruption in a third world country. A head of a social 
government department owns over $5 million U.S. dollars with no 
explanation in the files whatever in regard to the source of 
the vast amount.
    MR. ROACH: In an answer to a previous question, you 
identified some problems with LGT's know-your-customer program. 
What about LGT's compliance with the qualified intermediary 
program?
    CONFIDENTIAL WITNESS: Yeah, I strongly believe that they 
are violating this one too. The IRS implemented the qualified 
intermediary stages QI to be able to collect the withholding 
tax on interest and dividends on U.S. securities through 
foreign intermediaries. The LGT Group realized quickly that 
without the QI stages, the banking secrecy for their U.S. 
clients cannot be sustained, because only as a QI the LGT Group 
can avoid having to report the underlying beneficial owners to 
the IRS. The IRS approved the QI stages to Liechtenstein as a 
country and to the LGT Group as a foreign intermediary in early 
2001, as both were able to persuade the IRS that 
Liechtenstein's know-your-customer rules were top standard. All 
U.S. clients from the LGT Group with U.S. securities in the 
bank portfolios have been informed about the QI regulations. 
These clients had two options: Get out of the U.S. security--
sell them or keep them. The clients wanting to keep the U.S. 
securities had great fears that the IRS may eventually find out 
who the ultimate beneficial owners are, for instance, through 
the external auditors' working paper the IRS can request to 
examine.
    To reduce the panic, the LGT came up with the solutions: 
(a) to transfer all U.S. securities held by a legal entity of a 
U.S. tax person into a newly established Panama corporation. To 
add a further layer of secrecy between the foundation and that 
Panama corporation, another offshore company will own the 
Panama corporation. The LGT's argument for the Panama 
corporation solution was that the IRS regards it as a per se 
corporation; (b) having added enough offshore companies in 
between the U.S. client as a beneficial owner and the entity 
holding the U.S. securities, the LGT Trust declares the whole 
structure as being a non-U.S. status. This should keep the 
client out of trouble and taxes.
    MR. ROACH: Thank you very much, sir. We appreciate your 
comments.
    This concludes our questions.
    MR. FLOWERS: Thank you, sir.
    CONFIDENTIAL WITNESS: Thank you very much.

    Senator Levin. After Germany and other nations began to act 
on the information provided by Mr. Kieber, Liechtenstein put 
out an international arrest warrant for Mr. Kieber and posted 
his picture on the government's website, and this is a chart of 
that website.\1\ Even today it is on the website, and Mr. 
Kieber has been listed by Liechtenstein as their number one 
target for arrest.
---------------------------------------------------------------------------
    \1\ Exhibit No. 5.b., which appears in the Appendix on page 222.
---------------------------------------------------------------------------
    This is what the message on that arrest warrant reads. This 
is a translation: ``Information on the whereabouts of Heinrich 
Kieber should be passed on to the national police force of the 
Principality of Liechtenstein or the closest police station. 
Kieber is being sought under an international arrest warrant. 
Liechtenstein law enforcement authorities seek Kieber's prompt 
delivery/extradition. The legal basis: Warrant issued by the 
principality's county court on 2/9/08 for the alleged transfer 
(passing on) of company business secrets for use abroad and for 
data theft.''
    Liechtenstein is obviously aggressive in pursuing persons 
who release information about their banking practices in 
violation of their secrecy laws. They have not been 
particularly aggressive at all in combating banks that 
facilitate tax evasion. And while the government of 
Liechtenstein told the Subcommittee that it has now initiated 
an investigation into LGT, when the Subcommittee asked the 
chief compliance officer of LGT Group about the investigation, 
he was unaware of it.
    We will now call panel two. Mr. Marsh and Mr. Wu, if you 
would please be seated.
    [Pause.]
    Senator Levin. Let me now welcome our second panel of 
witnesses for today's hearing: Shannon Marsh of Fort 
Lauderdale, Florida, and William Wu, of Forest Hills, New York. 
We appreciate your traveling here today.
    Pursuant to Rule VI, all witnesses who appear before the 
Subcommittee are required to be sworn. And at this time, I 
would ask both of you to please stand and raise your right 
hand. Do you swear that any testimony that you will give before 
this Subcommittee will be the truth, the whole truth, and 
nothing but the truth, so help you, God?
    Mr. Marsh. I do.
    Mr. Wu. I do.

     TESTIMONY OF SHANNON MARSH, FORT LAUDERDALE, FLORIDA, 
             ACCOMPANIED BY SHARON KEGERREIS, ESQ.

    Senator Levin. Our investigation disclosed that Shannon 
Marsh is the son of the late James Albright Marsh who formed 
four Liechtenstein foundations in the mid-1980s, as shown in a 
chart which we will put up, and transferred substantial sums to 
those foundations.\1\ In 1985, for example, LGT documents show 
that he deposited $3.3 million in cash into just one LGT 
foundation. That is Exhibit No. 7.\2\ By 2007, the assets in 
the four foundations had a combined value of more than $49 
million.
---------------------------------------------------------------------------
    \1\ See Exhibit No. 1, which appears in the Appendix on page 209.
    \2\ See Exhibit No. 7, which appears in the Appendix on page 224.
---------------------------------------------------------------------------
    Shannon Marsh, who is here today, has been involved with 
the LGT foundations since the beginning. LGT's documents 
indicate that he traveled to Liechtenstein, served as a 
foundation protector with control over the foundations' 
activities, and signed a so-called letter of wishes to provide 
instructions for distributing foundation assets that he would 
receive. The Marshes are in settlement discussions with the 
IRS.
    Mr. Marsh, do you have any opening remarks?
    Ms. Kegerreis. No, Your Honor, we don't.
    Senator Levin. Mr. Marsh, have you ever spoken to anyone at 
LGT Bank in Liechtenstein?
    Mr. Marsh. On the advice of counsel, I hereby invoke my 
right to remain silent under the Fifth Amendment of the U.S. 
Constitution.
    Senator Levin. And, Mr. Marsh, do you have any corrections 
to what I have just said about the Marsh foundations and your 
activities at LGT to ensure that we have the facts right?
    Mr. Marsh. On the advice of counsel, I hereby invoke my 
right to remain silent under the Fifth Amendment of the U.S. 
Constitution.
    Senator Levin. Mr. Marsh, you have been asked specific 
questions about matters of interest to this Subcommittee, and 
in response to each question, you have asserted your Fifth 
Amendment privilege. Is it your intention to assert your Fifth 
Amendment privilege to any question that might be directed to 
you by the Subcommittee today?
    Mr. Marsh. Yes, it is, sir.
    Senator Levin. Given the fact that you intend to assert a 
Fifth Amendment right against self-incrimination to all 
questions asked of you by this Subcommittee, you are excused. 
You are free to leave.
    Ms. Kegerreis. Thank you, Chairman Levin.
    Senator Levin. Thank you.
    Mr. Marsh. Thank you.

TESTIMONY OF WILLIAM WU, FOREST HILLS, NEW YORK, ACCOMPANIED BY 
                     HENRY KLINGEMAN, ESQ.

    Senator Levin. Our investigation disclosed that William S. 
Wu has lived for many years with his family in New York. LGT 
helped Mr. Wu establish a Liechtenstein foundation in 1996 and 
a second one in 2006. LGT documents indicate that these 
foundations were used to conceal certain Wu ownership 
interests. For example, in 1997, 3 months after forming his 
first foundation, Mr. Wu pretended to sell his home in New York 
to what appeared to be an unrelated party from Hong Kong. In 
fact, as you can see from the chart which we have put up,\3\ 
the buyer was a British Virgin Islands company with a Hong Kong 
address, and it was wholly owned by a Bahamian corporation, 
which was in turn wholly owned by Mr. Wu's Liechtenstein 
foundation. These layers of ownership were designed to hide Mr. 
Wu's ownership of the home that he lived in and likely shield 
him from taxes at the same time.
---------------------------------------------------------------------------
    \3\ See Exhibit No. 2, which appears in the Appendix on page 210.
---------------------------------------------------------------------------
    LGT documents also show that Mr. Wu transferred substantial 
sums to his foundation and over the years withdrew substantial 
amounts ranging from $100,000 to $1.5 million at a time. In one 
instance, LGT arranged for Mr. Wu to withdraw $100,000 using an 
HSBC bank check drawn on a LGT correspondent account, which 
made the funds difficult to trace. By 2006, Mr. Wu's first 
foundation had been dissolved while his second foundation had 
assets in excess of $4.6 million.
    Mr. Wu, do you have an opening statement?
    Mr. Wu. No, sir.
    Senator Levin. Have you ever spoken to anyone at LGT Bank 
in Liechtenstein?
    Mr. Wu. Senator, I decline to answer the question based on 
my right to remain silent under the Fifth Amendment to the U.S. 
Constitution.
    Senator Levin. And, Mr. Wu, do you have any corrections to 
what I have just said about your foundations and your role in 
them in order to ensure that we have the facts correct?
    Mr. Wu. No, sir.\1\ And, Senator, I intend to give the same 
answer to any questions posed to me.
---------------------------------------------------------------------------
    \1\ See Exhibit No. 120, which appears in the Appendix on page 681.
---------------------------------------------------------------------------
    Senator Levin. You have been asked specific questions about 
matters of interest to this Subcommittee, and in response to 
the questions, you have asserted your Fifth Amendment 
privilege. Is it your intention to assert your Fifth Amendment 
privilege to any question that might be directed to you by the 
Subcommittee today?
    Mr. Wu. Yes, sir.
    Senator Levin. Given the fact that you are asserting a 
Fifth Amendment right against self-incrimination to all 
questions asked of you by this Subcommittee, Mr. Wu, you are 
excused.
    Mr. Wu. Thank you.
    Senator Levin. Thank you.
    Now, the third witness who was subpoenaed for this panel 
was Steven Greenfield. Harvey Greenfield, Steven Greenfield's 
father, and Steven Greenfield are New York businessmen. In 
1992, LGT helped Harvey Greenfield establish a Liechtenstein 
foundation for which he is the sole primary beneficiary. Steven 
Greenfield holds power of attorney. As shown in the Greenfield 
foundation chart,\2\ the Greenfields' foundation used two 
British Virgin Islands corporations as conduits to transfer 
funds, which at the end of 2001 had a combined value of $2.2 
million.
---------------------------------------------------------------------------
    \2\ See Exhibit No. 3, which appears in the Appendix on page 211.
---------------------------------------------------------------------------
    A LGT memorandum, which is Exhibit No. 54,\3\ describing 
the 2001 meeting in Liechtenstein with Prince Philipp states 
the following: ``The Bank of Bermuda has indicated to the 
client that it would like to end the business relationship with 
him as a U.S. citizen. Due to these circumstances, the client 
is now on the search for a safe haven for his offshore assets. 
The bank indicates strong interest in receiving the US$30 
million. The clients are very careful and eager to dissolve the 
trust with the Bank of Bermuda, leaving behind as few traces as 
possible.''
---------------------------------------------------------------------------
    \3\ See Exhibit No. 54, which appears in the Appendix on page 367.
---------------------------------------------------------------------------
    The Subcommittee subpoenaed Mr. Greenfield to testify at 
today's hearing. LGT documents indicate that he has information 
related to the Subcommittee's investigation into tax haven 
financial institutions, their use of offshore entities and 
accounts for U.S. clients, and the impact of these activities 
on U.S. tax compliance.
    Mr. Greenfield's counsel informed the Subcommittee by 
letter that Mr. Greenfield would assert his Fifth Amendment 
rights in response to any questions and requested that he be 
excused from appearing at this hearing. The Subcommittee 
informed Mr. Greenfield's counsel by letter that his absence 
was not excused and that he was required to attend the hearing 
and answer Subcommittee questions or assert appropriate 
privileges in response to particular questions. Our letter 
assured the lawyer that any assertion or constitutional rights 
would be respected, but that his client needed to make any 
assertions personally at the hearing. That exchange of 
correspondence will be included in today's hearing record, as 
well as a longer statement of mine.\1\
---------------------------------------------------------------------------
    \1\ Subsequent to the adjournment of the hearing, Mr. Steven 
Greenfield agreed to appear before the Permanent Subcommittee on 
Investigations at the July 25 hearing. Senator Levin's longer statement 
was presented at that hearing. However, the correspondence referred to 
by Senator Levin is included as Exhibit No. 121, which appears in the 
appendix on page 683.
---------------------------------------------------------------------------
    Senator Levin. Mr. Greenfield has ignored the 
Subcommittee's subpoena and directive and has chosen not to 
appear today. There are both civil and criminal sanctions that 
can be sought by the Subcommittee for his failure to appear, 
and we will at the appropriate time make a decision as to how 
to proceed with respect to Mr. Greenfield.
    The fourth witness who was to be on this panel was Peter 
Lowy. On July 10, 2008, Mr. Lowy was asked to appear at today's 
hearing. His attorney was informed that Mr. Lowy would be 
formally subpoenaed if he did not agree to appear voluntarily. 
A subpoena was signed.
    On July 11, 2008, Mr. Lowy's attorney was asked if he was 
authorized to accept service of the subpoena. He replied that 
he would check with his client and respond by Monday, July 14. 
On Monday, Mr. Lowy's attorney notified the Subcommittee that 
Mr. Lowy was out of the country. Yesterday, Mr. Lowy's attorney 
provided a letter stating that Mr. Lowy would appear before the 
Subcommittee for a hearing on July 25, one week from tomorrow. 
The letter will be entered into the record, as well as the 
other documents referred to, and we will look forward to his 
appearance at that hearing.\2\
---------------------------------------------------------------------------
    \2\ See Exhibit No. 122, which appears in the Appendix on page 699.
---------------------------------------------------------------------------
    Senator Levin. Senator Coleman, before we proceed now to 
our next panel, I am wondering if I might turn to you for any 
comments that you might have.
    Senator Coleman. Mr. Chairman, I simply want to say for the 
record that I associate myself with the comments from the 
Chairman and will work with the Chairman on following up and 
pursuing these matters.
    Senator Levin. I want to thank you, Senator Coleman, again 
for your work on this matter, for the great work also of your 
staff. They have been essential.
    Senator Coleman. It has been a very good bipartisan 
investigation, Mr. Chairman.
    Senator Levin. Now, the next panel is Martin Liechti--and I 
hope I am pronouncing your name correctly, Mr. Liechti--the 
head of the Wealth Management Americas, which is part of the 
Wealth Management Business Bank Division of UBS. In this 
capacity, Mr. Liechti oversees, among other things, the 
activities of UBS private bankers in Switzerland who serve U.S. 
clients, and his offices are located in Zurich, Switzerland.
    Pursuant to Rule VI, all witnesses who testify before the 
Subcommittee are required to be sworn. And at this time, I 
would ask you, Mr. Liechti, to please stand and raise your 
right hand. Do you solemnly swear that any testimony that you 
will give before this Subcommittee will be the truth, the whole 
truth, and nothing but the truth, so help you, God?
    Mr. Liechti. Yes, I do.

   TESTIMONY OF MARTIN LIECHTI, HEAD, UBS WEALTH MANAGEMENT 
AMERICAS, ZURICH, SWITZERLAND, ACCOMPANIED BY DAVID M. ZORNOW, 
                            ESQUIRE

    Senator Levin. Do you have any opening remarks, Mr. 
Liechti?
    Mr. Zornow. Mr. Chairman, we do not have an opening 
statement.
    Senator Levin. Are you, Mr. Liechti, involved in setting 
and implementing policies that govern the practices of UBS 
private bankers in Switzerland who recruit and serve clients 
from the United States?
    Mr. Liechti. Mr. Chairman, on advice of my counsel, I 
assert my rights under the Fifth Amendment to the U.S. 
Constitution and respectfully decline to answer your question.
    Senator Levin. Mr. Liechti, as part of your 
responsibilities, do you travel to the United States?
    Mr. Liechti. Mr. Chairman, on the advice of my counsel, I 
assert my rights under the Fifth Amendment to the U.S. 
Constitution, and I respectfully decline to answer your 
question.
    Senator Levin. Mr. Liechti, you have been asked specific 
questions about matters of interest to this Subcommittee. In 
response to each question, you have asserted your Fifth 
Amendment privilege. Is it your intention to assert your Fifth 
Amendment privilege to any question that might be directed to 
you by the Subcommittee today?
    Mr. Liechti. Yes, I do.
    Senator Levin. Given the fact that you are asserting your 
Fifth Amendment right against self-incrimination to all 
questions asked of you by this Subcommittee, you are excused.
    Mr. Zornow. Thank you, Mr. Chairman.
    Mr. Liechti. Thank you.
    Senator Levin. Thank you. We will now move to our final 
panel and call as our final witness today Mark Branson, the 
Chief Financial Officer of UBS Global Wealth Management and 
Business Banking of Zurich, Switzerland.
    Mr. Branson, I want to thank you for traveling here today. 
We look forward to your testimony.
    The Subcommittee also extended an invitation to the LGT 
Group in Liechtenstein. We do not have the authority to compel 
its attendance. We, nonetheless, had hoped that LGT would send 
a representative to answer questions and to provide us with the 
bank's perspective. LGT chose not to appear. LGT did send its 
Senior Compliance Officer to be interviewed by the Subcommittee 
in private last week and provided limited information in 
response to our requests. We obviously had hoped that LGT would 
be more open and forthcoming to enable the Subcommittee to gain 
a better understanding of its interaction with U.S. clients. 
However, we do not have subpoena capability over LGT, and they 
decided not to appear.
    We are very pleased that you appeared today, Mr. Branson, 
and we know that in doing so you are undertaking to answer some 
questions which you have heard a great deal about already.
    Pursuant to Rule VI, all witnesses who testify before the 
Subcommittee are required to be sworn. And at this time, I 
would ask you to please stand and raise your right hand. Do you 
solemnly swear that the testimony you will give before this 
Subcommittee today will be the truth, the whole truth, and 
nothing but the truth, so help you, God?
    Mr. Branson. Yes, I do.
    Senator Levin. Thank you. You may proceed. Do you have an 
opening statement, Mr. Branson?
    Mr. Branson. I do.
    Senator Levin. That is fine. Thank you.

TESTIMONY OF MARK BRANSON, CHIEF FINANCIAL OFFICER, UBS GLOBAL 
   WEALTH MANAGEMENT AND BUSINESS BANKING, MEMBER, UBS GROUP 
              MANAGING BOARD, ZURICH, SWITZERLAND

    Mr. Branson. Thank you, Chairman Levin and Senator Coleman. 
My name is Mark Branson of UBS. I am the Chief Financial 
Officer of our Global Wealth Management and Swiss Businesses 
located in Zurich. I have been with UBS since 1997, and in my 
current position for 5 months. Prior to this, I was the Chief 
Executive Officer of UBS in Japan. I am now responsible for 
finance and for risk control, including the financial reporting 
of our performance and the maintenance of a strong compliance 
framework for our wealth management business worldwide.
    Mr. Chairman, I have now had the chance to review your 
Subcommittee's staff report. I am here to make absolutely clear 
that UBS genuinely regrets any compliance failures that may 
have occurred. We will take responsibility for them. We will 
not seek to minimize them. On behalf of UBS, I am apologizing. 
I am committing to you that we will take the actions necessary 
to see that this does not happen again.
    First, we have decided to exit entirely the business in 
question. That means that 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. While we are winding down this business, there will be 
no new accounts opened, and Swiss-based client advisors will 
not be permitted to travel to the United States for the purpose 
of meeting with U.S. clients.
    Second, we are working with the U.S. Government to identify 
those names of U.S. clients who may have engaged in tax fraud. 
Client identity is generally protected from disclosure under 
Swiss law, but such privacy protections do not apply when 
disclosure of client names is requested in connection with an 
investigation of tax fraud and where the requests are presented 
to the Swiss Government through established legal channels. We 
will fully support and assist that process.
    Mr. Chairman, I have worked in this organization in many 
different divisions and many different locations over the past 
11 years. What I have experienced is a firm which not only puts 
an enormous emphasis on compliance--compliance with law, 
compliance with regulation, compliance with internal policy--
not only that but also acts as a partner to governments seeking 
the assistance of the financial system. We have been a 
recognized partner to the U.S. Government in its efforts to 
stop the flow of money that supports terrorism, illegal drug 
trade, or organized crime. And we have constructed a best-in-
class system for reconciling the multiple sanction rules 
imposed by the United States, the United Nations, the European 
Union, and other countries. This system has won direct praise 
from senior officials in the U.S. Treasury Department. And 
these are just two examples.
    Like many international financial institutions with clients 
around the globe invested in U.S. securities, UBS has entered 
into a Qualified Intermediary (QI) agreement with the Internal 
Revenue Service. We entered this agreement with the IRS 
effective January 1, 2001. The QI agreement established a 
reporting and withholding regime by which UBS would help the 
U.S. Treasury collect more taxes.
    Chairman Levin, I know that you and Senator Coleman object 
to banks providing cross-border services to U.S. clients with 
accounts that do not require the filing of a Form W-9 with the 
IRS. But, respectfully, this cross-border business was and is 
entirely legal in both Switzerland and the United States. And, 
indeed, the QI expressly contemplates that U.S. citizens could 
access bank accounts in Switzerland and other countries without 
providing a Form W-9 as long as they held no U.S. securities. 
Unless or until those rules are changed, that is the framework 
with which we and other banks must comply.
    In 2000, UBS adopted detailed procedures and policies to 
implement the QI agreement, and we worked hard to comply. For 
example, we undertook a comprehensive process to identify the 
accounts of U.S. persons which contained assets that could 
generate U.S. source income. Then, consistent with the QI 
agreement, UBS systematically communicated with all of these 
U.S. persons, advising them that they must either provide UBS 
with Form W-9, and thereby disclose to the IRS their 
relationship to the account, or must agree to sell all of the 
U.S. securities in their accounts. If those clients did not 
respond by taking one of those two options, we administered 
forced sales of the U.S. securities in those accounts. 
Notwithstanding this effort, we now know that our compliance 
system had failures, and misconduct appears to have occurred.
    As the Subcommittee is aware, the U.S. Department of 
Justice has been conducting an investigation of UBS' business 
of servicing U.S. clients from Switzerland. Last year, in order 
to respond to U.S. investigations, UBS launched a comprehensive 
internal investigation into our cross-border business with U.S. 
customers. These still ongoing investigations suggest that 
misconduct occurred, which we find unacceptable. We did have 
detailed written policies that prohibited our employees from 
engaging in some of the conduct that our internal investigation 
has uncovered, such as assisting in the creation of sham 
offshore companies to defraud tax authorities. While our own 
review is not complete, it is apparent now that our controls 
and our supervision were inadequate. We are committed to taking 
both corrective and disciplinary measures.
    Mr. Chairman, as you know, we have nearly 32,000 U.S. 
employees out of some 80,000 employees around the world. They 
are all understandably alarmed by the reports of misconduct 
that they have been seeing. They want to know that kind of 
misconduct does not belong in UBS and that the firm's ethics 
match their own. I am here today to tell you and to tell them 
that, no, that kind of misconduct does not belong in UBS; and, 
further, that by exiting this business, we have taken a major 
step designed to ensure that this misconduct will not be 
repeated and that this matter can be properly resolved.
    Thank you for the opportunity, and I will be pleased to 
answer your questions.
    Senator Levin. Thank you very much, Mr. Branson, for not 
only coming today but for the steps which your bank is now 
taking. If anybody ever suggests that congressional oversight 
does not have an impact, I hope they will read today's hearing. 
We have put a lot of time into this investigation, and it has 
obviously already paid off and was worthwhile. We just want to 
clarify a few things, however, one being--you say you have read 
the report, you have read the stories of UBS' undeclared 
accounts and encrypted computers and the shell companies that 
you mentioned that were created, the anonymous wire transfers, 
the disguised business trips, the countersurveillance training, 
the requirement that foreign credit cards be used.
    Do you have any corrections that you want to make in those 
factual statements?
    Mr. Branson. I think obviously it is a very detailed, very 
thorough report, which raises obviously very legitimate 
concerns. I think there may well be some areas of factual 
record within the report that we may challenge, but points of 
detail, especially in terms of the record of growth in the 
business which you reference in the document, is something 
which doesn't actually correspond to our understanding of the 
growth in the business over that period, maybe some other 
details.
    Senator Levin. Would you give to the Subcommittee for the 
record--not today, obviously, but for the record, would you 
provide us with any factual statements that are in the report 
that you disagree with?
    Mr. Branson. I am sure we can provide that.
    Senator Levin. Could you provide that within the next 
couple weeks?
    Mr. Branson. Yes.
    Senator Levin. Thank you. Would you agree that the purpose 
of the QI agreement is not just a technical compliance but is a 
compliance with the point and the intent of that agreement so 
that if a bank that agrees to provide information to the IRS of 
the presence of a client in that bank from the United States, 
and then takes steps to help that client cover up the U.S. 
identity of that client so that it appears that the deposit 
comes from some foreign entity rather than from the beneficial 
owner, that violates the purpose and intent and spirit of the 
QI agreement?
    Mr. Branson. I would agree that the creation of any kind of 
sham offshore entities to conceal the identity of the client 
from the IRS would be a violation of the QI agreement.
    Senator Levin. If you would take a look at Exhibit No. 
92,\1\ this is a cross-border workshop that UBS held for its 
bankers, and just take a look at Case 4, if you would. I am not 
going to go through all these, obviously, because of the 
position that you are now taking, which is a very welcome one, 
at UBS. But take a look at Case 4. These are all troubling 
because, obviously, this is training to help your bankers avoid 
surveillance. But there is that one sentence in the first 
paragraph there about, ``After passing the immigration desk 
during your trip to the USA/Canada, you are intercepted by the 
authorities. By checking your Palm, they find all your client 
meetings.'' And then it says the following: ``Fortunately, you 
stored only very short remarks of the different meetings and no 
names.''
---------------------------------------------------------------------------
    \1\ See Exhibit No. 92, which appears in the Appendix on page 518.
---------------------------------------------------------------------------
    Would you agree that is very troubling?
    Mr. Branson. I think this and the other case studies in 
this kind of training document have to be seen in the context 
of the legal framework under which these client advisors are 
operating, and clearly that is all of the applicable legal 
frameworks relevant to their business activities, obviously in 
this case specifically the legal frameworks of Switzerland, the 
legal frameworks of the United States.
    The legal framework of Switzerland, as it relates to bank-
client confidentiality, clearly prohibits the disclosure of 
clients' names or identities or their relationship to the bank 
except in circumstances of criminal activity, tax fraud, etc., 
as we have heard today.
    So any client advisor, whether they be in Switzerland or 
abroad, has an enormously strong duty under the law not to 
disclose the names of their clients.
    Senator Levin. Now, this is not disclosure.
    Mr. Branson. Well, under Swiss law----
    Senator Levin. Can you not keep a record of it?
    Mr. Branson. The names of a client--the link of a name of a 
client and the relationship to UBS would count as the 
disclosure of that client's name--it is not the disclosure of 
the assets in the account. Simply the disclosure of that client 
relationship is against Swiss law and has severe sanctions, and 
that is what this training is designed to talk about: Are there 
difficult situations in which you may find yourself because of 
that legal framework?
    Senator Levin. Disclosure is one thing, but putting it in 
your own Palm, is that disclosure under your law?
    Mr. Branson. Yes.
    Senator Levin. That would be disclosure, putting it into 
your own record?
    Mr. Branson. If that became available to other parties.
    Senator Levin. Of course.
    Mr. Branson. Yes.
    Senator Levin. That is not what it says here.
    Mr. Branson. Putting it into your Palm would not be, but 
that----
    Senator Levin. It says here, ``Fortunately, you only stored 
very short remarks.'' It doesn't say ``disclosed.'' It says 
``stored.''
    Mr. Branson. Yes.
    Senator Levin. And no names.
    Mr. Branson. I think this kind of--as I understand--
obviously, I am not privy to the details of this training, but 
as I understand this kind of case study, this is talking about 
data protection, and I think in many different circumstances, 
data protection through lost Palms, lost BlackBerrys, lost 
mobile phones is one of the acute concerns of anybody in the 
services industry, especially the financial services industry. 
And I do believe that is exactly what this is referring to.
    Senator Levin. You have testified that you were going to 
address the current 19,000 accounts, approximately.
    Mr. Branson. Yes.
    Senator Levin. Can you just give us a little more detail as 
to what your intent is, as to how you are going to handle that 
and see to it that any wrongdoing in those accounts will be 
disclosed and taken care of and shared with the IRS? Can you 
give us that again?
    Mr. Branson. So in terms of----
    Senator Levin. The existing accounts.
    Mr. Branson. Existing accounts and any possible misconduct 
that may have occurred within UBS, we have an enormously 
comprehensive internal investigation into that, and obviously 
at the same time cooperating with the investigations of the 
U.S. Government into that potential misconduct. There are no 
final conclusions from what is an ongoing investigation. The 
preliminary conclusions, I think we have shared some of them 
with you here today. That investigation and that process which 
I referenced of working between the different governments and 
their authorities on the disclosure of client names where tax 
fraud is suspected, that is an ongoing process. We are 
supporting and we are assisting that process, and we expect it 
to bring results.
    Senator Levin. Are you going to be cooperating with the IRS 
now?
    Mr. Branson. Yes, we are.
    Senator Levin. In looking at these 19,000 names?
    Mr. Branson. We will be cooperating with the IRS on their 
summons.
    Senator Levin. Will you take a look at Exhibit 88?\1\
---------------------------------------------------------------------------
    \1\ See Exhibit No. 88, which appears in the Appendix on page 502.
---------------------------------------------------------------------------
    You have made reference to this notice to U.S. customers in 
your statement, and you said to the customers that you are 
going to need to do something here if you have U.S. securities 
in your account. ``Should a customer choose not to execute such 
a form, the client is barred from investments in U.S. 
securities. But under no circumstances will his or her identity 
be revealed.''
    Now, as I understand what you are saying to your U.S. 
customers, it is that you must either have these securities 
shifted to a different entity or you must get rid of these 
securities, you must sell them. And that is what you call 
``forced''----
    Mr. Branson. ``Forced sales'' of U.S. securities, yes.
    Senator Levin. U.S. securities. And you said under no 
circumstances will the identity be revealed. In other words, 
you would not maintain an account that continued to have U.S. 
securities in it without a W-9 form.
    Mr. Branson. That's correct.
    Senator Levin. But we know from the work that this 
investigation has carried out that the other option which was 
utilized was the creation of these sham companies, these other 
entities in whose name the securities would then be held and 
deposited. But the secrecy drive here is perhaps reflected as 
dramatically in that one line, I think, as anything else that 
we have seen.
    We have had a lot of folks who have asserted their rights 
under the Constitution today, and others did not appear at all. 
UBS, to its credit, not only appeared but you have taken 
responsibility for your actions, and you have changed your 
business and your business practices. And I just hope that LGT 
will take notice. I hope that other Swiss banks and other tax 
haven banks will take notice as well. UBS is the largest 
private bank in the world today, I believe, and by changing its 
stance, I hope that it will start a trend which will clean up 
the offshore community and stop tax haven banks from 
facilitating U.S. tax evasion.
    So before I call on Senator Coleman, I want to thank you, 
Mr. Branson, and I want to thank UBS for your cooperation with 
this Subcommittee's investigation. Senator Coleman.
    Senator Coleman. Thank you, Mr. Chairman. I also hope that 
others take notice and respond accordingly. I do have some 
questions.
    If I can get back to that Case 4, the study there, we are 
talking about data protection from law enforcement. That is 
what this is focused on. And what troubles me--and it is more a 
comment than a question. If you read this, Mr. Chairman and Mr. 
Branson, it talks about you begin to observe, you notice that 
some doubt if all the hotel employees are working for the 
hotel; in other words, you are being observed by law 
enforcement. And rather than saying at that point, let UBS--let 
them call the Justice Department, what is the problem here, you 
are directing your people to figure out a way to limit any and 
all cooperation with law enforcement. I mean, this to me ties 
in with--when you look at the other stuff, you look at folks 
coming into the country and putting on their entry forms here 
``For personal business,'' when it appears they were here for 
soliciting clients. You put it all together, and it is not a 
very comforting scenario. I just wanted to make that comment.
    UBS has great presence in Minnesota, good community 
citizens. What I am trying to understand is you have 20 client 
advisors coming in, over 300 trips, they are taking clients 
from American--from folks here. They are taking assets. I 
presume it is competitive. Everyone wants to build up their 
portfolio.
    Who in the United States was aware that these client 
advisors from Switzerland were coming in for the purpose of 
soliciting business in violation of U.S. securities law?
    Mr. Branson. I have no knowledge that anyone in the United 
States was aware.
    Senator Coleman. Wouldn't anybody have asked the question, 
``What are you doing here?''
    Mr. Branson. It may well be that they are not in the same 
geographic location, so I have no knowledge that anybody in the 
U.S. knew of specific visits.
    Senator Coleman. I find that troubling and really difficult 
to comprehend. If somebody has a UBS guy coming--if I am a UBS 
guy probably looking to build our portfolios, and somebody is 
coming in talking to a high-net-worth individual, I think I 
have to figure out what they are doing. I think I got to know 
what they are doing. And that piece has never been resolved, 
and I appreciate the steps you are taking now. I hope as you 
look internally that if you are really going to clean house 
that you raise those questions because they certainly are 
troubling.
    Let me just ask other questions about things that I am 
still a little unsure of or troubled by as I sit here.
    You have indicated that UBS attorneys advised the 
Subcommittee while some travel was permitted to the United 
States after November 2007, mainly if it had been previously 
planned, they told us in no event did any travel occur after 
January 2008.
    Our staff has reviewed data from the Department of Homeland 
Security that shows from January 2008 to April 2008, many of 
the same UBS bankers in the Wealth Management Unit that we have 
talked about before came to America 12 times. Six of those 
trips were listed as being for non-business purposes.
    Are you aware of folks in 2008 involved in the Wealth 
Management Unit coming to the United States and continuing to 
do business here?
    Mr. Branson. Obviously, what you refer to is data that we 
don't have access to, and obviously, to the extent that we 
could get access to that, then we can clear up these questions. 
There may be a number of reasons why that travel either was 
because it genuinely was for leisure purpose, because it was 
for business travel unconnected with clients, maybe because 
some of those client advisors are no longer within that unit. 
So there may be a number of reasons why that does not indicate 
a pattern which is inconsistent with that travel ban. If there 
was a pattern inconsistent with that travel ban that is shown 
by that data, I am sure we would take the appropriate action. 
It is completely inconsistent with our----
    Senator Coleman. But you are confident that your travel ban 
has been communicated and understood by UBS employees in 
Switzerland and the United States?
    Mr. Branson. Absolutely confident, yes.
    Senator Coleman. All right. And based on your knowledge of 
the program and the practices we described here today, is there 
anything that we described here today that you believe is 
different than other banks in Switzerland that fall into UBS' 
classes in terms of size. I am trying to figure out is it your 
sense that this has been the standard practice, the stuff we 
have seen here, or was UBS the exception?
    Mr. Branson. It is really impossible for me to generalize 
across other industry or competitors. Sorry, I just really 
would not have that experience or knowledge.
    Senator Coleman. It is certainly a competitive industry. 
You have an identified class of individuals that you are going 
after. I think I saw in one of the UBS documents, 222 
billionaires being part of the universe.
    Mr. Branson. I mean, certainly the business that we were 
in, as we pointed out, was a legal, legitimate business, so we 
certainly were not the only people in that business. That is 
for sure.
    Senator Coleman. One of the things that was talked about 
today was the gap between the know-your-client obligations and 
the QI obligations. We have been proposing changes to the QI 
agreement, which include strengthening audit provisions, 
requiring UBS to report all American client accounts, not just 
those containing U.S. securities. That is not the law today. 
And requiring UBS to apply what it learns through know your 
client (KYC), to its QI obligations, what would UBS do in 
response to those changes?
    Mr. Branson. Well, I guess, as I said, we are exiting the 
business. It, to some extent, would become a moot point under 
that. But I think your point is well made that there is a--
under the QI agreement, the QI definition of ``beneficial 
ownership'' and the KYC definition of ``beneficial ownership'' 
are not the same. I think that is something that you pointed 
out to Commissioner Shulman this morning as being an ambiguity, 
if you like, of the QI agreement set-up. It sounds as though he 
is going to be addressing that ambiguity, which obviously the 
more clarity there is in the rules, the easier it is to not 
slip into gray areas.
    Senator Coleman. Mr. Branson, based on your coming forward 
with a pretty full apology, with a commitment to exit the 
business, to restructure how UBS operates, I had a lot of 
questions about why you were doing the things that you are 
doing. I think it is pretty clear. You are doing it to develop 
customer relations with American clients in violation of U.S. 
securities law and other statutes. Let's look to the future.
    Again, I appreciate your coming forward. I still remain 
somewhat troubled by the fact that the scope of this activity 
and the limited number of folks that you were dealing with to 
me would have to have raised questions beyond folks just coming 
from Switzerland. So I do hope that you look very closely and 
aggressively at that if you are in the process of cleaning 
house.
    Thank you, Mr. Chairman.
    Senator Levin. Thank you.
    We have your commitment here this morning and your promise 
to cooperate with the U.S. tax authorities, and we assume that 
also would include a commitment to cooperate with the SEC, the 
American Securities and Exchange Commission.
    Mr. Branson. It does.
    Senator Levin. Relative to any possible security violation.
    Mr. Branson. It does.
    Senator Levin. We cannot reach all the banks. We obviously 
have reached yours, and that represents progress. The way we 
have to reach other banks, I am afraid, is going to have to be 
through our laws, our regulations. We cannot get them all in 
front of us to do what you have done today here. So we are 
going to continue that effort. We hope that what you have now 
decided to do will reverberate throughout that tax haven 
community. We are determined that we are going to end these 
abuses which cost so much money to the American Treasury, which 
are so unfair to the American taxpayer, and we are going to 
continue that process a week from tomorrow, on July 25. And we 
will adjourn until then.
    Thank you again, Mr. Branson.
    Mr. Branson. Thank you.
    [Whereupon, at 12:10 p.m., the Subcommittee was adjourned.]


                            TAX HAVEN BANKS
                        AND U.S. TAX COMPLIANCE

                              ----------                              


                         FRIDAY, JULY 25, 2008

                                 U.S. Senate,      
              Permanent Subcommittee on Investigations,    
                    of the Committee on Homeland Security  
                                  and Governmental Affairs,
                                                    Washington, DC.
    The Subcommittee met, pursuant to notice, at 10:05 a.m., in 
Room SD-106, Dirksen Senate Office Building, Hon. Carl Levin, 
Chairman of the Subcommittee, presiding.
    Present: Senators Levin and Coleman.
    Staff Present: Elise J. Bean, Staff Director/Chief Counsel; 
Mary D. Robertson, Chief Clerk; Robert L. Roach, Counsel and 
Chief Investigator; Ross Kirschner, Counsel; Zack Schram, 
Counsel; Gina Reinhardt, Congressional Fellow; Timothy Everett, 
Intern; Jeffrey Rezmovic, Law Clerk; Lauren Sarkesian, Intern; 
Spencer Walters, Law Clerk; Mark L. Greenblatt, Staff Director 
and Chief Counsel to the Minority; Michael P. Flowers, Counsel 
to the Minority; Adam Pullano, Staff Assistant to the Minority; 
Erica Flint, Staff Assistant to the Minority; Kelly Brannigan; 
and Thomas Caballero, Senate Legal Counsel's Office.

               OPENING STATEMENT OF SENATOR LEVIN

    Senator Levin. The Subcommittee will come to order. Sorry 
that we had to delay the opening because of two roll call votes 
on the Senate floor.
    Last Thursday, the Subcommittee broke through the wall of 
secrecy that surrounds tax haven banks to expose how UBS AG of 
Switzerland and LGT Bank of Liechtenstein, from 2000 to 2007, 
used an array of secrecy tricks to help U.S. clients hide 
assets from Uncle Sam. The hearing showed, for example, how UBS 
opened Swiss accounts for 19,000 U.S. clients with nearly $18 
billion in assets and did not report any of those accounts to 
the Internal Revenue Service. The hearing also presented 
multiple case histories of U.S. clients who used LGT accounts 
to stash millions of dollars in Liechtenstein. A former LGT 
employee, now in hiding for disclosing LGT client information, 
provided videotaped testimony describing a long list of secrecy 
tricks and deceptive practices used by LGT to hide client 
funds.
    UBS, to its credit, announced at the hearing last week that 
it would take responsibility for its actions. It apologized for 
past compliance failures, promised to close all 19,000 Swiss 
accounts unless the U.S. account holder agreed to disclose the 
account to the IRS, and announced it would no longer offer 
undeclared offshore accounts for U.S. clients. UBS also 
indicated that it was prepared to cooperate with the John Doe 
summons served on the bank by the IRS seeking the names of U.S. 
clients with undeclared accounts, pending negotiations between 
the U.S. and Swiss Governments on how it should comply. I hope 
our governmnent will accept nothing less than all 19,000 client 
names.
    UBS' surprise stance at the hearing provides a dramatic 
example of how congressional oversight can help stop offshore 
abuses. UBS is now apparently the subject of criticism in 
Switzerland for agreeing to cooperate with U.S. tax enforcement 
efforts and disclose client names. This criticism shows how 
cynical Swiss secrecy has become. It is used today not only to 
protect account holders' privacy, but to hide wrongdoing by 
both account holders and the banks that help them. The United 
States is losing perhaps $100 billion in tax revenues each year 
due to offshore tax abuses. Swiss bankers should be stopped not 
only from aiding and abetting such lawlessness, but from 
profiting from it. If UBS lives up to its promises, it is 
prepared to trade in bank secrecy for transparency, the rule of 
law, and tax cooperation. The rest of the banking industry in 
Switzerland and elsewhere should follow its lead.
    In contrast to UBS, three other witnesses invited to appear 
at last week's hearing were notably absent. LGT, which is not 
subject to the Subcommittee's subpoena power, did not show. 
Though LGT met privately with Subcommittee investigators, the 
bank chose not to discuss and defend its practices at an open 
hearing, perhaps because those practices are not defensible. 
LGT issued a statement before the hearing that its practices 
have changed from those described in the Subcommittee report. 
Count me skeptical that LGT has stopped selling secrecy to its 
clients.
    Another scheduled witness, Peter Lowy, was not in the 
country last week despite being notified of the hearing. 
Following our notice to him of the Subcommittee's intention to 
subpoena him, he determined to appear today.\1\ The final 
witness, Steven Greenfield, failed to comply with a 
Subcommittee subpoena that was served on him requiring his 
attendance at the hearing last week. The Subcommittee announced 
at the hearing that it was considering initiating contempt-of-
Congress proceedings with respect to Mr. Greenfield. Prior to 
doing so, the Subcommittee offered him a final opportunity to 
appear today.\2\
---------------------------------------------------------------------------
    \1\ See Exhibit No. 122, which appears in the Appendix on page 699. 
Exhibit includes July 18, 2008, letter identifying matters the 
Subcommittee requested Mr. Lowry to address at the July 25, 2008, 
hearing.
    \2\ Communications between the Subcommittee and counsel for Mr. 
Greenfield that took place during the period between July 18 and July 
24 are included as part of Exhibit No. 121, which appears in the 
Appendix on page 683.
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    Our objective today is to take testimony from Mr. 
Greenfield and Mr. Lowy to complete the Subcommittee's hearing 
record. Both men were involved with the formation of 
Liechtenstein foundations with the help of LGT. Their 
foundations then opened LGT accounts with millions of dollars 
in assets. In both cases, LGT took measures to hide their 
ownership interests in those accounts. Both cases are now under 
scrutiny by the IRS.
    The Greenfield and Lowy case histories unfold like spy 
novels, with secret meetings, hidden funds, shell corporations, 
captive foundations, and complex offshore transactions spanning 
the globe from the United States to Liechtenstein, Switzerland, 
the British Virgin Islands, Australia, and Hong Kong. What they 
have in common is that LGT bank officials acted as willing 
partners to move a lot of money into their bank while obscuring 
the ownership and origin of the funds.
    The first case history being examined today involves Harvey 
and Steven Greenfield, father and son, two New York businessmen 
who specialize in importing toys. Internal LGT documents show 
that, in 1992, LGT helped Harvey Greenfield establish a 
Liechtenstein foundation, for which he is the sole primary 
beneficiary and for which Steven Greenfield held power of 
attorney. As shown in this chart which we are putting up, which 
is Exhibit 3,\1\ the Greenfield foundation used two British 
Virgin Island corporations that they controlled as conduits to 
transfer funds which, at the end of 2001, had a combined value 
of about $2.2 million.
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    \1\ See Exhibit No. 3, which appears in the Appendix on page 211.
---------------------------------------------------------------------------
    In March 2001, LGT records show that LGT held a 5-hour 
meeting at its Liechtenstein offices attended by the 
Greenfields, three LGT private bankers, and Prince Philipp, 
Chairman of the Board of the LGT Group and brother to the 
reigning sovereign in Liechtenstein. The meeting was primarily 
a sales pitch to convince the Greenfields to transfer another 
$30 million to their LGT foundation from a Bank of Bermuda 
account in Hong Kong.
    A LGT memorandum describing the meeting, Hearing Exhibit 
54,\2\ states in part the following:
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    \2\ See Exhibit No. 54, which appears in the Appendix on page 367.
---------------------------------------------------------------------------
    ``Bank of Bermuda has indicated to the client that it would 
like to end the business relationship with him as a U.S. 
citizen. Due to these circumstances, the client is now on the 
search for a safe haven for his offshore assets. . . . The Bank 
. . . indicate[d] strong interest in receiving the U.S. $30 
million. . . . The clients are very careful and eager to 
dissolve the Trust with the Bank of Bermuda leaving behind as 
few traces as possible.''
    So LGT pitched itself as a ``safe haven'' for the 
Greenfields' offshore assets and offered specific suggestions 
for how the Greenfields could move their $30 million from Hong 
Kong ``leaving behind as few traces as possible.'' One LGT 
suggestion was to transfer the $30 million through the two BVI 
corporations that the Greenfields controlled to channel assets 
into their Liechtenstein foundation. The documents we obtained 
stop in 2001; we do not know whether the $30 million transfer 
actually took place.
    The Lowy case history illustrates additional LGT secrecy 
practices. LGT documents disclose that Frank Lowy was an 
existing client of LGT when he asked, in 1996, about setting up 
a new foundation to conceal assets from Australian tax 
authorities.
    LGT documents describe three meetings held between LGT and 
the Lowys, in Sydney, Los Angeles, and London, to discuss the 
structure, funding, and investment portfolio of a new 
foundation. According to a LGT memorandum, the Los Angeles 
meeting took place in January 1997 and was attended by LGT 
representatives, Frank Lowy, and his sons David and Peter Lowy.
    LGT actually formed Luperla Foundation in April 1997. To 
hide the Lowys' ownership interest, LGT employed a number of 
secrecy tricks.
    First, LGT did not include the Lowy name in any of the 
official Luperla documents. Although internal LGT documents 
state that Frank Lowy and his sons were the intended 
beneficiaries of Luperla, the only name on the foundation 
documents was that of their attorney, Joshua H. Gelbard.
    Second, funds from other Lowy-related entities were not 
directly transferred into the Luperla account. Instead, LGT 
routed the funds through a British Virgin Islands transfer 
corporation, called Sewell Services Inc., to hide the trail of 
funds.
    Third, LGT and the Lowys designed a unique mechanism to 
hide the fact that the Lowys were the beneficiaries of the 
Luperla Foundation. The key to the plan was a Delaware 
corporation named Beverly Park Corporation, which the Lowys 
controlled.
    Beverly Park was formed in January 1997, the same month the 
Lowys met with LGT in Los Angeles. Beverly Park has a complex 
ownership chain that ultimately ends with the Frank Lowy Family 
Trust. Beverly Park's President and Director since its 
inception is Peter Lowy. The key Luperla provision states that 
the foundation's beneficiaries would be named by the last 
company in which Beverly Park held stock. That meant that 
Luperla had no official beneficiaries at the time it was formed 
or in the following years, except, of course, for the financial 
beneficiaries that were named in the documents of LGT. This 
ingenious set-up allowed the Lowys to deny with a straight face 
that they were foundation beneficiaries, while controlling the 
Delaware corporation that would eventually be used to name 
those beneficiaries.
    This chart which we are putting up, which is Exhibit 
114,\1\ shows how the Luperla Foundation was initially funded 
and what happened to those funds 4 years later. First, the 
hidden money trail into Luperla, that is the top half of the 
chart. The trail starts with $54 million in Lowy funds whose 
origin is unclear. One LGT document states that the $54 million 
``originate[d] from a relatively complex transaction, with the 
goal of bringing shares listed in the stock market back into 
the [Lowy] family's possession, which was successfully 
completed.'' Another LGT document reports that the funds 
``stem[med] from a credit financing of the LGT Bank in 
Liechtenstein that at the time was carried out through a 
company called Crofton.'' In any event, at some point, the $54 
million made its way into a LGT account that had been opened in 
the name of Crofton, a company which LGT documents indicate was 
under the control of the Lowys.
---------------------------------------------------------------------------
    \1\ See Exhibit No. 114, which appears in the Appendix on page 629.
---------------------------------------------------------------------------
    In May 1997, the $54 million was moved from the Crofton 
account at LGT to the LGT account opened in the name of Sewell 
Services, the BVI transfer corporation that LGT had 
established. From there, the $54 million was immediately 
transferred to the LGT account for Luperla.
    Additional transfers through Sewell Services added to the 
Luperla account over time and by 2001, 4 years later, the 
Luperla account had grown to $68 million. At that point, the 
Lowys apparently decided to dissolve Luperla and move its funds 
to Switzerland. That gets us into the bottom half of the chart 
which shows the hidden instructions that led to the transfer of 
Luperla's funds to Switzerland.
    To transfer the $68 million and dissolve their foundation, 
Luperla's beneficiaries had to be named. As explained earlier, 
the process for naming those beneficiaries had to start with 
Beverly Park, the Delaware corporation whose President was 
Peter Lowy. In the summer of 2001, Beverly Park secretly 
acquired the stock of a British Virgin Islands shell company 
called Lonas Ltd. Lonas Ltd. had been formed in July 2001; the 
Lowy attorney, Joshua Gelbard, was appointed Lonas' sole 
director. This information about Lonas is described in several 
LGT documents, including Exhibits 48 through 50,\1\ even though 
Beverly Park's own corporate minutes never mention its 
acquisition of this British Virgin Islands company.
---------------------------------------------------------------------------
    \1\ See Exhibit Nos. 48 thru 50, which appear in the Appendix on 
pages 342-352.
---------------------------------------------------------------------------
    On December 13, 2001, Beverly Park gave Mr. Gelbard a 
letter authorizing him to act on its behalf, even though he was 
not an officer, director, or employee of the company. A copy of 
this letter as well as other original documents related to 
Beverly Park were provided to Peter Lowy on the same day and 
then passed on to LGT, as shown in Exhibits 50 and 112.\2\ Over 
the next week, Mr. Gelbard worked with LGT to provide the 
information needed for Lonas Ltd. to name the recipients of 
Luperla's assets and to obtain the transfer of the funds of the 
foundation. On December 13, 2001, Mr. Gelbard provided a 
handwritten certification to LGT that Beverly Park did ``not 
hold shares of any corporation'' after Lonas Ltd. That was the 
signal that Lonas was then empowered to name the foundation's 
beneficiaries the recipients of its assets. Mr. Gelbard also, 
on the same day, provided written instructions to LGT for ``the 
disbursement of all assets of the foundation.'' Those documents 
are described in Exhibit 48.\3\
---------------------------------------------------------------------------
    \2\ See Exhibit Nos. 50 and 112, which appear in the Appendix on 
pages 352 and 601 respectively.
    \3\ See Exhibit No. 48 which appears in the Appendix on page 342.
---------------------------------------------------------------------------
    LGT documents show that even after receiving these 
instructions from Mr. Gelbard to transfer Luperla funds, LGT 
continued to view the Lowys as the true parties behind the 
foundation. For example, Exhibit 50 shows that after receiving 
instructions from Mr. Gelbard to transfer the $68 million to 
two accounts at a Swiss bank, LGT twice telephoned David Lowy 
to confirm the instructions. LGT even took the precaution of 
recording one of those telephone calls.
    After David Lowy authorized the transfer of the funds, on 
December 20, 2001, as shown in Exhibit 110, \4\ LGT emptied the 
Luperla account, transferring all $68 million in two transfers 
to Bank Jacob Safra in Geneva.
---------------------------------------------------------------------------
    \4\ See Exhibit No. 110, which appears in the Appendix on page 599.
---------------------------------------------------------------------------
    Frank Lowy has said publicly that the funds were 
``distributed for charitable purposes . . . some years ago,'' 
but he has refused the Subcommittee's request to name the 
charities involved or identify the dates and amounts of the 
donations. He has also declined the Subcommittee's invitation 
to supply additional information about Luperla Foundation or 
LGT Bank.
    In 2007, the Lowys were contacted by the IRS with inquiries 
about Beverly Park. In submissions to the IRS, Beverly Park 
claimed that it ``did not and does not own any entities,'' 
despite the LGT documents showing that it had owned Lonas Ltd.
    Today's hearing provides another opportunity to examine 
LGT's actions to help its clients hide assets. We hope our two 
witnesses, Steven Greenfield and Peter Lowy, will shed 
additional light on LGT's actions.
    The United States was not, of course, the only country 
victimized by LGT. LGT has apparently assisted people from 
dozens of countries in every corner of the globe to evade 
taxes. While the IRS is investigating 147 U.S. taxpayers with 
LGT accounts, British tax authorities recently announced they 
are on the trail of 300 million pounds in unpaid taxes on 1 
billion pounds hidden in Liechtenstein. In Germany, over 500 
people have admitted so far to failing to pay taxes on funds in 
a LGT account, and hundreds more are under investigation. LGT 
still promotes itself as ``the Wealth and Asset Management 
Group of the Princely House of Liechtenstein.'' It is ironic 
that a princely bank is the source of this international tax 
scandal.
    But we can do more than simply shake our heads at that 
bank's conduct. We can take action to stop offshore tax abuses, 
starting with enactment of S. 681--the Stop Tax Haven Abuse 
Act. Yesterday, our colleagues on the Senate Finance Committee 
held a hearing on how over 18,500 companies--as many as half 
from the United States--claim to have offices at a single 
building, the Ugland House in the Cayman Islands. It sounds 
like the Finance Committee is as fed up as we are with tax 
haven tricks, and it is time to join together this year to stop 
tax haven abuses.
    Before I call on our witnesses, I would like to turn to 
Senator Coleman. I want to thank him again for his ongoing 
support of this investigation and invite his opening remarks.

              OPENING STATEMENT OF SENATOR COLEMAN

    Senator Coleman. Thank you, Senator Levin, and I will have 
more abbreviated remarks today than we had last week.
    A week ago, this Subcommittee held a hearing on abuses in 
offshore tax havens. We found a series of masquerades and 
maneuvers that were shocking in their audacity. Today, as the 
Chairman noted, we continue that inquiry. At the outset, it is 
important to note the reasons for today's session.
    While last week's hearing was standing room only for those 
in the audience, just as notable were the empty chairs at the 
witness table. Mr. Greenfield was subpoenaed to appear before 
this Subcommittee last week, but he chose to defy the 
Subcommittee's subpoena and not attend the hearing. Mr. Lowy 
left the United States on a red-eye flight to Australia just 
before the U.S. Marshals Service could track him down and serve 
him with the Subcommittee subpoena. The third witness, LGT 
Global, also refused to appear even though it enjoys wide-
ranging access to U.S. financial markets.
    These actions stand in stark contrast to those who had the 
guts, the good sense, and the respect for this Subcommittee, to 
appear and answer for the conduct we have uncovered. We rightly 
gave credit to UBS for appearing as it did, for the candor with 
which it dealt with our Members and our investigators, and for 
its willingness to take both responsibility for past actions as 
well as a commitment to a principled path for how it would deal 
with these matters in the future. As the Chairman noted, UBS is 
prepared to trade in bank secrecy for transparency, the rule of 
law, and tax cooperation. We also recognize the actions of Mr. 
Marsh and Mr. Wu for appearing before us, for at a minimum they 
did not compound their apparent disregard for their tax 
obligations with disrespect for this process. And we now 
appreciate that Mr. Greenfield has, at long last, recognized 
the need to comply with the requests of this Subcommittee. And 
we also appreciate that Mr. Lowy returned from Australia to 
appear before us today. What we seek here today is what we ask 
of any person or entity that we engage with: A measure of 
candor and respect for the law.
    I want to note that, at the end of the day, the tax-
cheating schemes we have uncovered by the Subcommittee's 
investigation demonstrate one simple, undeniable fact: The 
actions of a few to scam their way out of tax obligations hurt 
all Americans. A privileged few believe they are entitled to 
shirk their obligations and heap their tax liability on the 
sagging shoulders of other Americans to make up for what they 
avoid.
    As Senator Levin noted last week, we cannot get to all the 
banks or all the tax cheats. But we can move the ball forward 
by uncovering this misconduct bit by bit, one by one. Make no 
mistake: Today's hearing demonstrates forcefully that we will 
not relent in our pursuit of those who continue to mock our 
justice, our courts, and our tax system.
    We will continue our efforts to ferret out those who avoid 
paying their fair share to the country whose freedoms they so 
richly enjoy. In holding this hearing today, we impart that 
message, upholding the traditions and integrity of the 
Subcommittee and, most importantly, ensuring that those who try 
to take advantage of the American people do not rest easy.
    Thank you, Mr. Chairman.
    Senator Levin. Thank you, Senator Coleman. Today's hearing 
is a continuation of the Subcommittee's hearing held last week 
on July 17. The purpose of today's hearing is to take testimony 
from two witnesses who were invited to testify last week but 
did not appear at that hearing. Our witnesses today are Steven 
Greenfield of New York City, and Peter Lowy of Beverly Hills, 
California.
    Pursuant to Rule VI, all witnesses who testify before the 
Subcommittee are required to be sworn.

       TESTIMONY OF STEVEN GREENFIELD, NEW YORK, NEW YORK

    Senator Levin. We first will call on Mr. Greenfield, if you 
would come forward, please, and raise your right hand. Do you 
swear that the testimony that you will give before this 
Subcommittee will be the truth, the whole truth, and nothing 
but the truth, so help you, God?
    Mr. Greenfield. Yes.
    Senator Levin. Thank you, Mr. Greenfield, do you have 
opening remarks?
    Mr. Greenfield. No.
    Senator Levin. And have you ever spoken to anyone at LGT 
Bank in Liechtenstein?
    Mr. Greenfield. Mr. Chairman, I respectfully assert my 
rights under the Fifth American of the U.S. Constitution and 
decline to answer.
    Senator Levin. Mr. Greenfield, do you have any corrections 
to the statement of facts in my opening statement or the case 
history in the report released by the Subcommittee last week?
    Mr. Greenfield. Mr. Chairman, I respectfully assert my 
rights under the Fifth American of the U.S. Constitution and 
decline to answer.
    Senator Levin. Mr. Greenfield, you have been asked specific 
questions about matters of interest to this Subcommittee. In 
response to these questions, you have asserted your Fifth 
Amendment privilege. Is it your intention to assert your Fifth 
Amendment privilege to any question that might be directed to 
you by the Subcommittee today?
    Mr. Greenfield. Yes.
    Senator Levin. Given the fact that you intend to assert a 
Fifth Amendment right against self-incrimination to all 
questions asked of you by this Subcommittee, you are excused. 
Thank you for coming today.
    Mr. Greenfield. Thank you.

    TESTIMONY OF PETER S. LOWY, BEVERLY HILLS, CALIFORNIA, 
              ACCOMPANIED BY ROBERT BENNETT, ESQ.

    Senator Levin. Our second witness is Peter S. Lowy, who is 
the Chief Executive Officer of the Westfield Group in the 
United States and a Group Managing Director of the Parent 
Company, Westfield Group in Australia.
    Mr. Lowy, would you come forward, please, and raise your 
right hand. Mr. Lowy, do you swear that any testimony you will 
give before this Subcommittee will be the truth, the whole 
truth, and nothing but the truth, so help you, God?
    Mr. Lowy. I do.
    Mr. Bennett. Mr. Chairman, my name is Robert Bennett, and I 
am counsel to Mr. Lowy. And I know Mr. Lowy is here. Could I 
just make one observation?
    Senator Levin. Not now. Perhaps you can make it afterwards.
    Mr. Bennett. All right. I will do it after he finishes?
    Senator Levin. That would be fine.
    Mr. Bennett. Thank you, Mr. Chairman.
    Senator Levin. Mr. Lowy, do you have any opening remarks?
    Mr. Lowy. No, sir.
    Senator Levin. Mr. Lowy, have you ever spoken to anyone at 
LGT Bank in Liechtenstein?
    Mr. Lowy. Senator, I am sorry and mean no disrespect, but 
on the advice of my counsel, I assert my rights under the Fifth 
Amendment to the U.S. Constitution and decline to answer your 
question.
    Senator Levin. Mr. Lowy, do you have any corrections to the 
statement of facts in my opening statement or the case history 
in the report released by the Subcommittee last week?
    Mr. Lowy. Senator, on the advice of my counsel, I assert my 
Fifth Amendment rights and decline to answer the question.
    Senator Levin. Mr. Lowy, you have been asked specific 
questions about matters of interest to this Subcommittee. In 
response to each question, you have asserted your Fifth 
Amendment privilege. Is it your intention to assert your Fifth 
Amendment privilege to any question that might be directed to 
you by the Subcommittee today?
    Mr. Lowy. Yes, sir.
    Senator Levin. Given the fact that you intend to assert a 
Fifth Amendment right against self-incrimination to all 
questions asked of you by this Subcommittee, you are excused.
    Mr. Lowy. Thank you.
    Senator Levin. Thank you for coming.
    Now, as to what your intentions are, Mr. Bennett, do you 
have a statement for the record that you can give to us?
    Mr. Bennett. Yes. I just want to make one correction that I 
feel is very important.
    Senator Levin. We are not going to have you testify in lieu 
of your client.
    Mr. Bennett. Well, I am not going to correct the facts. The 
Subcommittee has made a mistake in----
    Senator Levin. Then you will have to submit that then, and 
we----
    Mr. Bennett. Then I will, and I----
    Senator Levin. We will receive that, but we are not going 
to have you substitute yourself----
    Mr. Bennett. That is fine. I will deal with it outside this 
room, then.
    Senator Levin. I am sure you will anyway.
    Mr. Bennett. I will, Senator.
    Senator Levin. We expected that. We have already had you 
folks talk to the press instead of talking to us, so we are not 
the least bit surprised that you will do it outside this room. 
But we are not going to have you take the place of your client.
    Mr. Bennett. That is fine. But I do think the Subcommittee 
should be accurate----
    Senator Levin. Thank you.
    Mr. Bennett [continuing]. In its statements.
    Senator Levin. We all agree we should be accurate, and if 
there are any inaccuracies, that should be under oath by your 
client and not by his lawyer trying to testify in lieu----
    Mr. Bennett. The error is made by a Subcommittee member.\1\
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    \1\ See Exhibit No. 122, for correspondence between Mr. Lowy's 
attorney and the Subcommittee on this matter, which appears in the 
Appendix on page 699.
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    Senator Levin. We stand adjourned.
    [Whereupon, at 10:31 a.m., the Subcommittee was adjourned.]














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