Ethics and governance in the European Financial centers

Money Marketing has reported that Administrator PricewaterhouseCoopers is still assessing potential litigation for Keydata investors with missing assets in SLS Capital but says dividend prospects for creditors in the insolvent firm are currently ‘poor’.

In the framework of its strategy to combat tax evasion and fraud ( IP/06/697 ), today the European Commission adopted a proposal for a recast of the Regulation on administrative cooperation in the field of valued added tax, extending and reinforcing the legal framework for the exchange of information and cooperation between tax authorities. One of the key elements of the proposal is the creation of a legal base to set up Eurofisc: a common operational structure allowing Member States to take rapid action in the fight against cross border VAT fraud. The Commission today also adopted a report on the functioning of the administrative cooperation.

László Kovács, Commissioner for Taxation and Customs, said: "In the current economic situation it is more important than ever to fight tax fraud efficiently and a fully functioning administrative cooperation between tax administrations is key in that respect. My objective is to ensure that tax authorities have all technical and legal means to take action against European Union wide VAT fraud and to ensure that each tax administration is prepared to protect other Member States' tax revenue as effectively as their own."

Eurofisc

One of the most novel elements in the proposal is the creation of Eurofisc. It is set out to be an operational structure where Member States will in practice, fight fraud together. It should allow a very fast exchange of targeted information between all Member States as well as the setting up of common risk and strategic analysis. This will enable Member States to react timely to stop fraud and catch fraudsters, making it more difficult for new fraud schemes to emerge and spread around the Community

Joint responsibility for the protection of tax receipts

The proposal changes the approach of the protection of VAT revenues. In addition to giving Member States tools to cooperate more closely and to exchange information faster, the Recast regulation sets out that Member States are jointly responsible for the protection of VAT revenues in all Member States.

Direct access to databases

Tax authorities store a large amount of information regarding their own taxpayers in their databases; rapid access to this information can be very useful to other Member States in order to detect cross-border fraud schemes. The proposal grants tax authorities of other Member States a direct access to a defined set of information contained in these databases.

Quality of data

The proposal contains a framework to ensure the quality, comparability and usability of the information contained in national databases. It includes rules on registration, deregistration and rules on initial and regular risk analysis processes.

Information to taxpayers

In order to prevent them from being caught involuntarily in fraud schemes, taxpayers will benefit from an enhanced and secure system of validation of their counterparts' VAT number and identity. This will significantly increase the legal certainty of their business environment when making intra-community supplies.

Report on the functioning of administrative cooperation

The report drafted according to article 45 of Council Regulation 1798/2003 in cooperation with Member States is the first report since the entry into force of the Regulation. It outlines areas where administrative cooperation is functioning well and points out areas for improvement. Its conclusions have been taken into account in the proposal for the recast of the Regulation.

Read PR IP/09/1239

COUNCIL REGULATION on administrative cooperation and combating fraud in the field of value added tax

Report on the application of Council Regulation (EC) no 1798/2003 concerning administrative cooperation in the field of value added tax

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)