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The names of those people were turned over to the U.S. government as part of the bank’s massive tax evasion settlement, the source said. And while the Romney campaign has said Gov. Romney paid all appropriate taxes on his Swiss account, the other American political figures likely did not — the source explained that the accounts revealed by UBS to the U.S. government were “undisclosed,” meaning that information about them was not previously transmitted to the IRS.
UBS, like other global banks, applies heightened scrutiny to the accounts of customers in various countries including the United States who qualify as “Politically Exposed Persons,” or PEPs in banking jargon. A wide range of officials meet that definition, including people who are not current office holders or who are simply related to prominent political players.
The international effort to monitor PEP accounts stems from concern that the bank accounts of high ranking political figures could be conduits for corruption and bribery. Tracking PEPs is one way banks protect themselves from being dragged into money laundering investigations, generally through beefed up “know your customer” efforts and enhanced due diligence.
Although the term “PEP” is most often used in the context of rogue regimes and third world countries, where corruption can be endemic, international banks’ PEP compliance efforts also apply to any American official who may have an account overseas. That’s why the existence of American PEPs is a potentially explosive political issue — voters would likely demand to know why those accounts were set up overseas, and what the source is of the funds they contain.
A spokesman for UBS declined to disclose the names of the politically connected Americans who had accounts with the bank.
In a 2011 interview conducted at a federal prison in Pennsylvania, former UBS banker Bradley Birkenfeld told CNBC that he learned of a secret unit inside the bank that handled American political accounts. “There was a dedicated desk in Zurich for this,” Birkenfeld said. “And we had people who staffed that. Because these people were so politically sensitive that they had to be ring fenced within the Swiss bank secrecy of Switzerland. There was an American PEP desk out of Zurich. I know that for a fact, because we had people who knew it existed, but it was so cloak and dagger. It was held in secrecy. Beyond secrecy.”
Birkenfeld, who turned over information on 19,000 alleged tax cheats to U.S. authorities, is serving a 40-month prison sentence for his role in a tax scheme. CNBC has not previously aired his comments about American PEPs at UBS. Spokespeople for other banks with operations in Switzerland declined to say whether or not their PEP monitoring efforts included American PEPs.
A spokesman for HSBC [HBC 40.31 -1.40 (-3.36%) ] told CNBC that the bank will not disclose whether it holds accounts for any American PEPs, citing client confidentiality. The spokesman explained that HSBC, which was cited by a U.S. Senate subcommittee in July for years of lax anti money-laundering efforts, applies the recommendations of the intergovernmental Financial Action Task Force as it monitors its PEP accounts. Those recommendations include bank’s “obtaining senior management approval for establishing (or continuing, for existing customers) such business relationships.” And the guidelines suggest that banks “take reasonable measures to establish the source of wealth and source of funds” in any PEP account.
Asked whether the bank held accounts in Switzerland for any American PEPs, a spokesperson for Credit Suisse said simply, “we are not going to be able to provide any specific info about PEPs.” She noted, however that Credit Suisse’s [CS 16.64 -0.33 (-1.94%) ] definition of a “PEP” included highly influential people in a given country who do not necessarily hold official public positions.
For its part, UBS says it defines as a PEP any person holding prominent political roles, such as presidents, prime ministers and high ranking national politicians. And the bank also includes high ranking officials in government, the judiciary, the military, national political parties, and top ranking managers of state run companies. Also included: people linked to prominent figures through family, personal or business connections.
According to the source, a handful of Americans with secret accounts in Switzerland qualified as PEPs, and would therefore have been monitored by the Swiss bank more closely. The source cautioned that there were not likely to have been famous politicians on the list turned over to the U.S. government. “It’s not by far as interesting as one might think,” the source said.
The accounts of the American political figures were closed after UBS announced it would exit the so called “cross-border” business for U.S. customers in 2008, the source said. What happened to the money held in the accounts is unclear. “Usually when the bank closes a relationship, the client gets asked what the bank is supposed to do with the assets i.e.: transfer to another account, cash withdrawal, etc.,” the source told CNBC in an email Monday. That suggests that the accounts could have been transferred back to the United States, or to another account elsewhere in the world.
UBS agreed to a $780 million settlement of tax evasion charges with the U.S. government in 2009, and agreed to turn over the names of some of the thousands of Americans who used their Swiss accounts to dodge U.S. taxes. Also in 2009, the IRS announced an amnesty program for Americans to disclose their offshore accounts and eliminate the risk of criminal prosecution. That effort has brought in billions of dollars in back taxes to the U.S. Treasury.
In January, the Romney campaign disclosed that a blind trust in his wife Ann Romney’s name placed $3 million in an account at UBS in 2003, but said that account had been closed in 2010.
In an email to CNBC, the Romney campaign said the account was “never part of the controversy between UBS and the IRS.”
“The IRS amnesty program was for undisclosed accounts that did not pay taxes,” the Romney campaign statement said. “This account was disclosed to the IRS and did pay taxes each year when due in a timely manner.”