A US law firm has taken a closer look at a case pitting the US authorities once more against the world's largest wealth management firm.

Recent moves by the US legal authorities to demand data on Singapore-based accounts of a UBS client – now living in China – show how Uncle Sam has opened a new front in its hunt for alleged tax cheats and is expanding attempts to override foreign banking regimes, according to a law firm.

As reported here yesterday, the Internal Revenue Service has asked a federal judge in Miami, Florida, to demand that the Zurich-listed bank - which settled civil and criminal charges with the US in 2009 for sheltering US accounts - divulge data on the Singapore account of Hsiaw Ching-Ye. (For more on this item, see here.)

“With a tactic not used in several years, this heralds the opening of a new front in the US enforcement effort against unreported foreign assets,” Caplin & Drysdale, a firm of attorneys with offices in New York and Washington DC, said in a note.

“Much of the activity in the last eight years has been aimed at Switzerland, where the US can declare victory. The Miami summons action reflects that the government will pursue money transferred out of Switzerland, particularly into Singapore, and that the IRS and DoJ [Department of Justice] have additional ways to overcome foreign bank secrecy laws, whether or not the taxpayer under scrutiny lives in the US,” the note continued.

The law said that the new case seeks to enforce what is called a "Bank of Nova Scotia" summons. This is a summons type named after an important 1982 appellate decision, where a court compelled the Miami branch of Scotiabank to produce records from the bank's Cayman branch notwithstanding Cayman secrecy laws. The bank complied in that case. If it had not done so, the court could have imposed substantial fines on the Miami bank until the Cayman records were delivered to the IRS, the note said.

“During the past eight years of aggressive US enforcement in the foreign account area, the Justice Department has not resorted to this method of obtaining foreign bank records. Instead, the IRS/DoJ issued 'John Doe' summonses, treaty requests, and 'required record' summonses to taxpayers under audit or criminal investigation, among other tactics. Now, the DoJ and IRS want records from Singapore, a bank secrecy jurisdiction long thought to have attracted money flowing out of Switzerland once the US crackdown began. Because the taxpayer lives in China, the IRS cannot serve a summons directly on him, and as the US and Singapore have no tax treaty, the government issued a 'Bank of Nova Scotia' summons. The IRS is demanding that the Miami branch of UBS retrieve from Singapore the sought-after bank statements, irrespective of Singapore law,” it said.

The Monetary Authority of Singapore, the regulator and de-facto central bank in the Asian jurisdiction, has insisted it is not a haven for illicit funds and that bank confidentiality cannot be used to shield criminal activity. The case does suggest that having dealt a mortal blow to Switzerland’s renowned bank secrecy laws, the US may try to achieve a similar victory at the expense of Singapore and other jurisdictions. To some extent, such measures may be sidelined by the arrival from 2017 of the so-called Common Reporting Standard, designed to facilitate exchange of data between countries. It has been argued that the US, which operates a worldwide system of tax - unlike most other countries - is guilty of hypocrisy over issues around tax transparency (see here).

In its commentary on the latest case, Caplin & Drysdale said: “The case is significant for many reasons, but three stand out. First, it is a tangible example of the vigorous US enforcement effort to 'follow the money' out of Switzerland to Singapore and other bank secrecy countries.

“This effort is enhanced by voluminous data provided by Swiss banks to the DoJ regarding 'leaver' accounts - those that closed when the US started to push against secret Swiss accounts. Second, to the extent the IRS or DoJ cannot otherwise easily obtain records, they will now implement a powerful tactic to attempt to override foreign secrecy laws; in most reported cases in this area, federal judges have ruled that US law prevails over foreign bank secrecy laws. Third, the US shows no sign of relaxing enforcement efforts simply because a taxpayer may live outside the reach of US legal jurisdiction,” it added.