Switzerland’s biggest bank admits tax fraud

19th February 2009, Comments 1 comment

Switzerland's business establishment is rocked after the Swiss regulator revealed that the case had not only threatened the existence of the bank, but also the country's fabled financial stability.

Geneva -- UBS has agreed to pay US authorities 780 million dollars and hand over customer details to settle charges of tax fraud in the United States that threatened the very existence of Switzerland's biggest bank.

The settlement rocked Switzerland's business establishment on Thursday after the Swiss regulator revealed that the case had not only jeopardised UBS but also the country's fabled financial stability.

The Swiss Financial Markets Supervisory Authority (FINMA) ordered the country's banking flagship to reveal the account details of customers targeted by the US investigation, raising questions about the future of banking secrecy.

US court documents revealed shell accounts, which UBS used to justify evading its reporting obligations and to help US taxpayers to continue concealing their identities and assets from the Internal Revenue Service.

UBS is bound by local legal requirements with its US business as well as by taxation agreements between the United States and Switzerland that cover tax fraud and oblige the bank to withhold income taxes on some US clients with foreign securities.

UBS "has entered into a deferred prosecution agreement on charges of conspiring to defraud the United States by impeding the Internal Revenue Service (IRS),” the US Justice Department said in a statement late Wednesday. "As part of the deferred prosecution agreement and in an unprecedented move, UBS ... has agreed to immediately provide the United States government with the identities of, and account information for, certain United States customers of UBS's cross-border business."

Swiss President and Finance Minister Hans-Rudolf Merz said about 250 to 300 customers were involved.

UBS's agreement to pay 780 million dollars in fines, penalties, interest and restitution was accepted Wednesday by a US federal judge in Florida.

The American government would recommend dismissal of the charges because of the bank's willingness to acknowledge responsibility and cooperate, provided UBS continued to do so, the Justice Department said.

The bank "sincerely regrets the compliance failures in its US cross-border business," said UBS Chairman Peter Kurer. "We accept full responsibility for these improper activities."

UBS announced in July that it was halting its offshore banking services for US citizens.

But the official Swiss financial watchdog revealed even deeper implications of the criminal charges first brought by a Florida court against a former UBS banker last spring.

"Such charges could have had drastic consequences for UBS and its liquidity situation and ultimately put its existence at risk," as well as for "the stability of the Swiss financial system," FINMA said in a statement.

It reprimanded the bank and banned it from future cross-border business with US clients.

UBS posted an annual loss of 17 billion dollars in 2008 and received state aid package after it was battered by the financial crisis and credit squeeze.

Under Swiss banking secrecy law, banks in Switzerland are prohibited from revealing any information to authorities about their clients, except in cases involving recognized criminal investigations.

"Banking secrecy remains intact," Merz said, adding that it "doesn't protect tax fraudsters."

However, the decision to hand over client details sparked a debate on the future of banking secrecy in Switzerland, which is also under pressure from its European neighbours, notably Germany, for encouraging tax evasion.

Dominant centre-right parties defended the secrecy law, but the Socialists and Greens called for changes and more cooperation with other countries.

The Neue Zurcher Zeitung newspaper described the UBS settlement as a "capitulation" to American pressure and said the Swiss financial services industry "had its back to the wall."

Peter Capella/AFP/Expatica

1 Comment To This Article

  • Jack loach posted:

    on 25th August 2009, 17:56:45 - Reply

    Madoff and Stanford. will spend the rest of their lives in prison.
    At least this is a start . Yet what about the “ Bankers.” who have caused people to lose their savings ,pensions , jobs , houses and in some cases their lives .Yet they continue to live in luxury.