To Enforce or Not to Enforce? The UBS John Doe Summons and a Framework for Policing U.S. Tax Fraud Amid Conflicting International Laws and Banking Secrecy
Volume 83, No. 1, Fall 2010
By Emily Ann Busch

In early 2007, disgruntled former employee Bradley Birkenfeld blew the whistle on Switzerland’s largest bank, United Bank of Switzerland (“UBS”), uncovering one of the largest tax evasion scandals in U.S. history and leading to the IRS investigation of nearly 52,000 possible U.S. tax evaders. UBS assisted its wealthy U.S. clients in concealing nearly $20 billion of assets from the IRS. In February 2009, UBS paid $780 million to the United States through a Deferred Prosecution Agreement (“DPA”) for its responsibility in defrauding the United States. The IRS then issued a John Doe summons to UBS seeking the names of U.S. taxpayers with undeclared accounts between 2002 and 2007. Nearly 52,000 UBS clients met this description. Never before has the IRS issued such a large-scale John Doe summons, and questions abound as to its legality. No precedent comparably parallels either the egregiousness of the violation, the reliability of the evidence, or the number of names sought.

UBS, Switzerland, and the United States came to an agreement in August 2009 before the U.S. court ruled on the enforcement order, under which Switzerland and UBS together would turn over 4,450 names to the IRS in exchange for the United States withdrawing the summons. Nevertheless, whether UBS will comply with the deal remains unclear, though likely. A Swiss court’s January 2010 ruling had the potential to invalidate the August 2009 agreement by declaring parts of the agreement illegal and preventing Swiss authorities from disclosing a U.S. citizen’s identity to the United States. The ruling threatened to set a pivotal precedent that would effectively preclude Switzerland from complying with the August 2009 agreement, thereby unraveling the entire deal. However, the Swiss Parliament recently ratified the deal, making compliance nearly certain.

Whether Switzerland complies with the deal and produces the 4,450 names by August 24, 2010 will not affect the utility of the following analysis. If Switzerland does not comply with the deal, then the United States can and likely will revive proceedings. At that time, the U.S. District Court for the Southern District of Florida may again face a motion to quash the summons, but this time will have to rule on it. Alternatively, if Switzerland does comply, then the IRS will issue similar summonses to other banks. Regardless, a U.S. court will likely face the issue shortly.

This Comment analyzes whether the U.S. court should enforce the UBS summons and provides a comprehensive analysis for evaluating similar summonses in the future. The UBS John Doe summons raises three paramount issues. The first is whether a U.S. court can enforce a summons when compliance with the summons requires a foreign summonee to violate its country’s laws and therefore subjects the summonee to prosecution in the foreign country. With UBS, compliance with the summons requires UBS employees to violate Switzerland’s banking secrecy laws which forbid disclosing this information. The second issue is whether the summons is too broad to enforce. Finally, this Comment addresses whether the Double Taxation Treaty between Switzerland and the United States precludes issuing the John Doe summons, as the Treaty arguably provides an alternative method for exchanging information.

Part II.A details UBS’s pertinent history of dealings with the United States, including: UBS’s role and responsibilities to the United States under the Qualified Intermediary Agreement; UBS’s tax fraud scheme; the John Doe Summons; the DPA; the August 2009 agreement between the United States, Switzerland, and UBS; and the Swiss ruling that threatens to unravel the agreement. Part II.B sets out the prior law regarding issuing, enforcing, and quashing summonses, such as abuse of process, overbreadth, conflicting foreign laws, and treaties. Part II.C summarizes the arguments of UBS, Switzerland, and the United States.

Part III of this Comment argues that if the August 2009 agreement unravels and if the United States revives proceedings, a U.S. court should enforce the summons if faced with a motion to quash. Part III analyzes the factors set forth in United States v. Powell, the statutory requirements, and why the UBS court should reject UBS’s attempts to quash the unprecedented summons based on overbreadth, comity, and the relevant treaty. In doing so, this Comment creates an analytical framework that future courts may apply.

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