Ethics and governance in the European Financial centers

The US Attorney’s Office in California has recently released details of a case involving a man from Malibu whose name is John McCarthy that used the services of UBS to evade tax.

According to court documents, Switzerland’s largest bank, UBS AG, turned over records showing that McCarthy was the beneficial owner and, therefore, had a direct financial interest in a UBS bank account opened in Switzerland in 2003 in the name of COGS Enterprises, Ltd., a Hong Kong entity. In court documents, McCarthy admitted skimming money from his domestic business and, after funneling the money through a U.S. account, wire transferring the skimmed funds into his COGS Enterprises account in Switzerland. McCarthy admitted that, with the assistance of UBS representatives and his Swiss lawyer, he directed the investment activities and transfers of funds into and out of the COGS UBS Swiss bank account, as well as from other UBS Swiss accounts he controlled. UBS representatives worked closely with his Swiss lawyer to keep McCarthy's funds from leaving Switzerland and helped McCarthy move additional monies out of the United States undetected by the federal government, according to the plea agreement

McCarthy admitted that he transferred more than $1 million of money skimmed from his business to the COGS Enterprises account at UBS in Switzerland. As a result of the money transfers, McCarthy admitted that he failed to pay at least $200,000 in federal income taxes and that he now owes the government interest and penalties.

“Tax prosecutors in my office, working with IRS-Criminal Investigation agents and Department of Justice attorneys, are aggressively pursuing those who shirk their federal tax obligations by hiding funds in secret bank accounts in Europe and Asia,” said United States Attorney Thomas P. O’Brien.

Eileen C. Mayer, Chief of IRS-Criminal Investigation, stated: “The prosecution of John McCarthy is the tip of the iceberg. In conjunction with the United States Attorney’s Office here in Los Angeles and prosecutors around the country, our agents continue to investigate existing leads, as well as develop and follow-up on additional leads uncovered in the course of their investigations on others similarly situated. Today's actions show the IRS is committed to pursuing people hiding income offshore. Anyone in this situation needs to immediately come in through our voluntary disclosure process and get right with your government or face stiff criminal and financial penalties”.

John McCarthy Plea Agreement was circulated on the internet.

Richard Murphy has analysed the agreement between UBS and its client John McCarthy.

He observes:

First, active involvement of UBS in what they knew to be tax evasion.

Second, active involvement of a Swiss lawyer in what he or she knew to be tax evasion.

And third repeated money laundering offences in Switzerland, Hong Kong, Cayman, Liechtenstein and the BVI.

As Richard says, this is not just a matter of a bank not identifying an offence: this is evidence of a bank being an active party in criminal behaviour.

A bank that was supported by TI for its Corporate Social responsibility:

“UBS was instrumental in creating the Wolfsberg Group, named after their own management training center in Switzerland. With the help of the anti-corruption organization, Transparency International, 12 of the worlds largest banks – banks which would normally be guarded about sharing internal procedures with their competitors, collaborated to develop and publish the “Anti Money Laundering Principles” called the “Wolfsberg Principles” …which have received worldwide recognition as good practice – filling gaps in national laws and regulations.”  (Jermyn Brooks, Director, Transparency International)