Thursday 21 June 2012

U.S. prosecutor in Swiss tax probe to exit


Switzerland's flag is seen beside the logo of Swiss bank UBS. REUTERS Arnd Wiegmann










(Reuters) - The U.S. prosecutor most responsible for piercing the veil of Swiss bank secrecy has resigned, but tax experts said his exit was unlikely to slow Justice Department efforts to rein in American offshore tax evasion there.

Kevin Downing, 46, who for several years has led the department's criminal probe of the Swiss banking industry, will leave effective June 4 to become a partner at a major law firm, a source familiar with the matter said on Thursday.

The source would not identify the law firm, but tax lawyers said Downing, with 15 years at the Justice Department, has had offers from several major law firms over the years.

Scott Michel, a tax lawyer at Caplin Drysdale in Washington, D.C., called Downing "one of the most important and impactful tax prosecutors in the country in the last 15 years." Michel credited Downing, along with other Tax Division lawyers and special agents from the IRS's Criminal Investigation Unit, as having almost single-handedly penetrated "the decades-old wall of Swiss bank secrecy."

Scrutiny of Swiss banks by the Justice Department and the Internal Revenue Service has intensified. Eleven banks, including Credit Suisse AG, are under criminal investigation. Dozens of Swiss private bankers and their American clients have been indicted in recent years.

Peter Hardy, a former federal prosecutor who is now at Post & Schell, a law firm in Philadelphia, said that while Downing's departure "might seem to take some of the air out of the offshore evasion campaign, it's far enough along at this point that it has a life of its own. It's his legacy."

NEGOTIATIONS STALL

Negotiations with Swiss officials appear to have stalled in recent months over whether some of the 11 Swiss banks should be forced into deferred-prosecution agreements. Swiss officials want a global, civil settlement for the more than 300 banks in the Swiss banking sector, with no more criminal dispositions.

Mario Tuor, a spokesman of the State Secretariat for International Financial Matters in Zurich, declined to comment on Downing's departure.

Tax lawyers and sources briefed on the matter said Downing's departure for the more lucrative private sector was not prompted by any dissatisfaction with the pace of the negotiations.

Downing's functional replacement is expected to be Mark Daly, a trial attorney for the Northern Criminal Enforcement Section of the Justice Department's tax division, government sources said. Daly has played a growing, behind-the-scenes role in the scrutiny of Swiss banks, the sources said. Daly did not return calls requesting comment.

Eileen O'Connor, head of the Justice Department's tax division from 2001-2007, described Downing as "dynamite but more vigorous than some defense attorneys were comfortable with". O'Connor, now in private practice at Pillsbury Winthrop Shaw Pittman in Washington, D.C., promoted Downing to his current job of senior litigation counsel.

UBS CASE

Stephen Kohn, executive director of the National Whistleblower Center, said Downing was "hostile toward whistleblowers" and considered his client, former UBS AG private banker Bradley Birkenfeld, "merely a tipster" ra t her than a key to unlocking the case against UBS.

Birkenfeld provided information about the bank's dealings with tax-evading clients and exposing what Downing later called in court papers a "massive tax fraud scheme" at the bank.

In 2005, under Downing's direction, UBS entered into a deferred-prosecution agreement and paid a $780 million fine for tax-evasion services sold through its private bank to wealthy Americans. In January 2010, Birkenfeld began serving a 40-month prison term in Pennsylvania for admitting to conspiracy in helping a former wealthy client, California property billionaire Igor Olenicoff, conceal large sums at UBS.

Downing joined the Justice Department in 1997, and first made his name by leading the investigation of banks, accounting firms and law firms that sold bogus tax shelters to retail investors. Under his direction, that probe culminated in a deferred-prosecution agreement with KPMG, a Big Four accounting firm, in 2005.

KPMG averted indictment by admitting to criminal wrongdoing and paying a $456 million fine. Last February, also under Downing's supervision, Wegelin & Co, Switzerland's oldest private bank, was charged with enabling wealthy Americans to evade taxes on at least $1.2 billion hidden in offshore bank accounts.  

(Reporting by Lynnley Browning; additional reporting by Andrew Thompson in Zurich)


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