Sunday, June 22, 2008

Laptop Searches -- Two Disturbing Case Studies, Part II

As reported by Lynnley Browning in the New York Times UBS finds itself in the middle of a sensational IRS investigation into the conduct of its private banking division and its U.S. clients. The bank is accused of advising, aiding and abetting evasion of U.S. taxes by wealthy U.S. clients. The bank is under pressure from the Department of Justice to turn over the names of no less than 20,000 U.S. clients of UBS. It is hard to imagine a worse nightmare for the venerable Swiss bank.

According to the Times report, one Bradley Birkenfeld, an American citizen and a former senior UBS private banker, has pleaded guilty in Ft. Lauderdale, Florida, to abetting tax evasion by U.S. clients of UBS. Birkenfeld has apparently submitted a statement of facts to the federal prosecutors describing, among other almost comical practices, smuggling a client's diamonds into the U.S. in a toothpaste tube, urging his clients to destroy offshore banking records, recommending the use of Swiss credit cards not discoverable by the IRS and recommending the characterization of withdrawals from clients' Swiss accounts as loans rather than withdrawals of the clients' own funds. In the words of one of Birkenfeld's former clients, "He's going to sing like a parakeet."

In the face of these astonishing disclosures UBS is understandably getting nervous about travel by its private bankers to and from the U.S. According to one report UBS has advised some of its U.S. clients to travel to Switzerland if they wish to confer with their advisers. The bank has taken the further prudent step of advising its private bankers not to travel to the U.S according to the Financial Times.

We do not know but we can assume that UBS has also advised its private bankers never to travel to the U.S. carrying laptops. It would be a simple matter for the IRS and the SEC to identify the entire UBS private banking staff, input their names to the IBIS databank, notify the CBP that when any of the names in the databank appear at the border they are to targeted for further examination including, in particular, search of their laptops, Blackberries and other digital storage media. As we know (see the prior posts to this blog) on the present state of U.S. law the U.S. border is not only a privacy-free zone it is a Constitution-free zone and the CBP need show no legal basis whatsoever for a laptop search other than the presence of the traveler at the U.S. border.

We can only speculate about the kinds of data stored on UBS laptops, but the IRS and the SEC do not need to speculate, they have the right to go in and find out. Whether this is a proper result of the CBP's right to engage in warrantless laptop searches at the border is a question that we hope will be addressed in the U.S. Senate Constitution Subcommittee hearings on June 25.

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