[Infowarrior] - Swiss bank secrecy under threat after UBS tax deal

Fri Feb 20 13:15:26 UTC 2009

Swiss bank secrecy under threat after UBS tax deal
Thu Feb 19, 2009 5:49pm EST

http://www.reuters.com/article/rbssFinancialServicesAndRealEstateNews/idUSTHO95689820090219?feedType=RSS&feedName=rbssFinancialServicesAndRealEstateNews&rpc=22&sp=true

By Lisa Jucca and Jonathan Lynn

ZURICH/BERNE, Feb 19 (Reuters) - Switzerland defended on Thursday its  
landmark decision allowing bank giant UBS to transfer client data to  
the United States in a tax settlement that experts say will dilute  
bank secrecy laws.

UBS AG (UBSN.VX: Quote, Profile, Research, Stock Buzz)(UBS.N: Quote,  
Profile, Research, Stock Buzz) agreed late on Wednesday to pay a hefty  
$780 million fine and disclose the identity of some clients after U.S.  
investigators accused it of helping wealthy Americans to dodge taxes.  
The deal had the blessing of the government and the financial regulator.

Some experts say the settlement, a new step in the growing global  
fight against tax evasion, opens cracks in the country's tough bank  
secrecy laws and potentially could undermine the $7 trillion global  
offshore banking industry. [ID:nLJ100097]

Swiss newspapers said the U.S. authorities had cracked Swiss bank  
secrecy, accusing the government of "capitulating."

"For Switzerland, (the settlement) is a true catastrophe for the  
country's first industry, that is to say the banking sector," Geneva  
lawyer Charles Poncet, a former member of the Swiss parliament, told  
Radio Suisse Romande. [ID:nLJ412106]

Finance Minister Hans-Rudolf Merz, who is also the Swiss president  
under a system that rotates the position each year, said the  
government had no choice but to let UBS settle the case to avoid  
criminal charges that could have threatened its existence and  
undermined Switzerland's economy. The combined liabilities of UBS and  
rival Credit Suisse Group AG (CSGN.VX: Quote, Profile, Research, Stock  
Buzz) are equivalent to about seven times Switzerland's gross domestic  
product.

"It became evident that if the American authorities would bring UBS to  
an indictment ... the whole threat would have been falling also on our  
economy," Merz told journalists, but added that Swiss bank secrecy  
remained in place.

The probe added to the uncertainties hanging over UBS, which has  
written down more toxic assets than any other European bank during the  
credit crisis and suffered billions of dollars in client withdrawals.

UBS shares rose on news of the deal.

Switzerland does not consider tax evasion a crime and Swiss law  
prohibits disclosure of client data or names unless the country's  
authorities believe the client has committed a serious crime such as  
money laundering or tax fraud.

Both Merz and UBS Chairman Peter Kurer said on Thursday the data  
concerned solely cases of tax fraud.

"We tolerated a company culture which did not respect foreign laws,"  
Kurer admitted on television on Thursday.

But the unprecedented step in this case was that the data was handed  
over before a Swiss administrative court had the chance to say whether  
any fraud had been committed.

"The agreement between UBS and the U.S. department of justice raises  
serious questions about the rule of law," Swiss business group  
Economiesuisse said. "It is irritating that among friendly states the  
legal ways are bypassed by the U.S."

MOVE TOWARDS TRANSPARENCY

The financial crisis is adding pressure on offshore centres such as  
Switzerland, which alone manages one third of the world's undeclared  
wealth, to stop helping clients hide their money from the tax man as  
governments seek funds to pay for more spending.

Thousands of wealthy Westerners avoid taxes by hiding assets in  
Switzerland and other offshore centres and U.S. lawmakers say tax  
havens deprive Washington of $100 billion a year.

The UBS tax settlement could set a precedent for similar deals with  
other banks or by other jurisdictions.

"We highlight that any success by the US tax authority could encourage  
tax authorities in other jurisdictions to pursue a similar strategy,"  
Merrill Lynch analysts said in a note.

Germany has said it wants Switzerland put on a tax haven blacklist and  
launched a probe last year into German nationals stashing assets in  
Liechtenstein. The German Finance Ministry said it had taken note of  
the UBS deal, but had no more comment.

U.S. President Barack Obama also wants to get tough on tax havens and  
helped introduce a Senate bill to this end in 2007.

Former UBS banker Bradley Birkenfeld, who once smuggled a client's  
diamonds into the United States in toothpaste, said he and other UBS  
bankers helped the bank earn $200 million a year managing $20 billion  
in assets held in offshore tax havens. [ID:nN18464440]

POSITIVE FOR UBS

UBS's $780 million fine was lower than some media reports had expected  
and its shares were up 4.7 percent to 12.79 francs by 1455 GMT,  
outperforming the DJ index of European bank stocks, which was up 1.2  
percent .

Vontobel analysts said in a note: "It is very positive for UBS to have  
closed off the case now as it will enable them to move forwards again  
and to start to build up its reputation." [ID:nLJ100097]

UBS said it will book the settlement charge in its 2008 accounts,  
which will be published in an audited form in March.

Merz said in an interview with Swiss television that UBS did not need  
another cash injection because of the fine.

"Its capitalisation is quite OK. Its capital ratio is above 11  
percent," Merz said, adding that liquidity was available and that  
January had been a good month.

UBS, which took $49 billion in writedowns in 2007 and 2008 due to the  
credit crisis, had to be rescued by the Swiss state last year through  
a 6 billion Swiss franc ($5.19 billion) cash injection.

Officials described the agreement with the United States as one of the  
biggest tax settlements ever, although less than media reports that  
suggested the fine could be as high as 2 billion Swiss francs ($1.7  
billion).

The settlement was the largest for UBS since it and Credit Suisse paid  
$1.25 billion after failing to return wealth to relatives of Holocaust  
victims.

Swiss financial regulator FINMA, which played a key role in the  
settlement, said UBS had to hand over a limited amount of client data  
to avert criminal charges.

"Such charges could have had drastic consequences for UBS and its  
liquidity situation and ultimately put its existence at risk," the  
authority said.

Swiss media say UBS turned over 250 client names out of an estimated  
17,000 U.S. clients who have concealed their identities and their  
accounts and hold $20 billion in assets.

The agreement settles the criminal investigations against the bank but  
not a civil case by the Internal Revenue Service, the U.S. tax  
collector. The IRS is seeking the names of thousands of UBS clients.  
(Additional reporting by Rupert Pretterklieber, Jason Rhodes,  
Stephanie Nebehay and Katie Reid; Writing by John Stonestreet; Editing  
by David Holmes, Erica Billingham and Andre Grenon) ($1=1.173 Swiss  
Franc)