Wednesday, 28 January 2009
U.S. raises stakes in showdown with UBS over Swiss bank secrecy
Raising the stakes in a showdown over Swiss banking secrecy, U.S. prosecutors have given UBS “several weeks” to hand over scores of American client names or ultimately face potential indictment over its offshore banking services, a person briefed on the matter said Monday.
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U.S. raises stakes in showdown with UBS over Swiss bank secrecy
By Lynnley Browning
27 January 2009
Raising the stakes in a showdown over Swiss banking secrecy, U.S. prosecutors have given UBS “several weeks” to hand over scores of American client names or ultimately face potential indictment over its offshore banking services, a person briefed on the matter said Monday.
While no indictment is imminent, this person said, any refusal to turn over the names would lead prosecutors to ask a U.S. judge to order UBS, the world’s largest private bank, to comply with a prior summons demanding the names of American clients using hidden offshore accounts.
That in turn, if UBS refuses, would very likely lead to an indictment, perhaps within months, this person said.
Even if UBS ultimately turns over the names and averts indictment, it is almost certain to be forced into a deferred-prosecution agreement with a heavy fine, this person said, adding that “it can’t get better than a D.P.”
The bank could also face possible sanctions, from the U.S. Securities and Exchange Commission and banking regulators, that could limit its overall ability to conduct business in the United States, the person said.
Karina Byrne, a spokeswoman for UBS, declined Monday to comment on how it was dealing with the investigation. A Justice Department spokesman could not be reached for comment.
UBS, a giant in global financial services, is battling to maintain its centuries-old tradition of Swiss banking secrecy amid mounting legal pressure from the Justice Department to turn over up to 19,000 records of American clients who used hidden offshore accounts at the bank. While UBS has not turned over any client names, it has in recent months turned over, under a subpoena from the Manhattan district attorney, Robert Morgenthau, related records detailing U.S.-originating wire transfers to same-name accounts in Zurich.
The Justice Department’s criminal investigation is focused on UBS’s provision of cross-border private banking services to American clients. Prosecutors suspect that from late 2002 through 2007, UBS helped these clients hide $20 billion in violation of U.S. tax laws, thereby evading $300 million a year in taxes. UBS shut down the business, which it had run out of three offices in Zurich, Lugano and Geneva, last year amid the investigation and has been closing the accounts.
Prosecutors have so far identified around 300 wealthy American clients of UBS and are preparing to build criminal cases against them, charging tax evasion within a couple of months, according to the person.
The collision course between the bank and prosecutors is forcing the Swiss government, which considers UBS a strategic part of the Swiss economy, to confront tough choices.
Americans can use offshore accounts but have to disclose them and pay taxes on their holdings, similar to tax systems in other countries, including in the European Union.
But in recent months, UBS executives told the U.S. Justice Department that they could not hand over client names because doing so would violate Swiss laws on banking secrecy.
Last November, Mark Branson, the chief financial officer of UBS’s global wealth management and business banking unit, which had overseen the private cross-border business, told investors that the Justice Department’s request for client names was “a matter between Swiss and U.S. government authorities.”
But prosecutors recently rebuffed a suggestion by UBS that they deal directly with the Swiss government instead of the bank. The Swiss finance minister, Hans Rudolf Merz, is expected to press the case in Davos this week at the annual meeting of global business and political elite.
The investigation has not widened to other parts of the bank or to accounts held by Americans in other parts of the bank, this person said, rebutting a Wall Street Journal report on Monday. Instead, the Internal Revenue Service, the U.S. tax collection agency, is scrutinizing certain UBS “expatriate” checking accounts held by Americans who work overseas, in addition to the hidden offshore investment accounts, this person said. The agency declined to comment.
The pressure on UBS has further heightened since Raoul Weil, a top UBS executive who oversaw the bank’s cross-border services for Americans until 2007, was declared a fugitive this month, two months after being indicted on charges of conspiring to help wealthy American clients hide assets.
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