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82
N
ovember
2009
www.read-tpt.com›
The UBS deal
Will Switzerland’s culture of discretion in
banking matters never again be the same?
Or, will it forever be the same?
“UBS’s mistakes have opened a gaping hole in banking secrecy
that can no longer be closed. The US has blown up a dam that was
considered unshakeable and without weakness.”
This analysis, attributed to the Swiss newspaper
Le Temps
by
an English-language website of Swiss Broadcasting Corp, refers
to the persistent and ultimately successful effort of the US to
wrest from Switzerland’s largest bank, UBS, the names of some
Americans suspected of dodging taxes through the use of secret
accounts. On 11 August, it was reported that negotiators from
the two countries had reached a settlement that averted a legal
showdown over Washington’s request for a federal court ruling
compelling UBS compliance.
In brief, UBS, the world’s second-biggest manager (after Bank
of America) of money for high-net-worth individuals, in February
2009 acknowledged criminal wrongdoing in selling offshore banking
services that might have enabled American citizens to evade their
tax obligations. The bank consented to pay $780mn in penalties
and also to share with the US Internal Revenue Service (IRS) the
names of some 250 UBS clients. A day later, the IRS sued the bank
for information on as many as 52,000 of its clients.
On 31 July the US and Switzerland said they had reached an
agreement in principle on the lawsuit. This was followed quickly
by word of the settlement and, on 19 August, by publication of
its amended terms: UBS would turn over the names of 4,450
American clients suspected by the IRS of employing Swiss
accounts for tax evasion.
Enthusiastic response
This resolution of the landmark challenge to Swiss bank secrecy
was widely applauded. IRS Commissioner Doug Shulman was
quoted as saying that the agreement “protects the US government’s
interests.” For the Swiss, Eveline Widmer-Schlumpf, who heads
the Federal Department of Justice and Police, issued a statement
that the “compromise” was “in the interests of both states”. Even
UBS chairman Kaspar Villiger professed himself pleased, saying
the bank was “grateful” for the agreement, which came a scant
week before the scheduled opening of a trial in the case, after
three postponements.
And the agreement appeared likely to hold.
Washington Post
staff writer David S Hilzenrath cited the assurance of US Justice
Department lawyer Stuart D Gibson that it had been initialled by the
parties, and that they would ask the federal judge presiding in the
case to dismiss the matter when the final documents were signed.
This outcome had not seemed to be in the cards. As noted in the
Post
when the initial breakthrough was announced: “[It] followed a
long-running legal battle that had already undermined Switzerland’s
legendary bank secrecy, exposed what the US alleged was a
conspiracy at the heart of Swiss banking giant UBS, and threatened
to damage relations between two otherwise friendly countries.”
Now some closure had been achieved, to the rejoicing of everyone
except, perhaps, the 4,450 American clients of UBS whose names
were to be made known to the IRS.
A spoilsport question
But just how much change can be expected in the Swiss banking
industry’s culture of discretion? While American authorities assert
that their pursuit of tax evaders will not stop at UBS, the cautionary
impact of the deal reached in August is far from certain. As noted
by reporter Lynnley Browning of the
New York Times
, “Smaller
Swiss banks say they are confident that they can blunt its effects
and continue to profit by finding new, more elaborate ways to
protect the privacy” of clients. (“Names Deal Cracks Swiss Bank
Secrecy,” 20 August)
For that matter, how much peril looms for the 4,450 “names” of
interest to the IRS? UBS is obliged to give them up to the Swiss
tax authority for forwarding to Washington. But, under the terms of
a new tax treaty between the US and Switzerland, full transmittal
of the names could take more than a year. In the meantime,
UBS will have notified these clients, who may then appeal the
disclosures in Swiss courts.
In light of the “new political climate” in the US, another
Times
contributor acknowledged that we may expect to see a few rich
Americans “shifting uncomfortably.” But, Graham Bowley wrote:
“Although the United States is supposed to learn the identities
of a few thousand tax evaders, those names will go first to an
intermediate tax administration in Switzerland for review. The actual
process of recovering the names may become lost in bureaucracy
and foot-dragging.” (“A Privileged World Begins to Give Up Its
Secrets,” 23 August)
Of related interest . . .
›
A survey by specialist consultancy Scorpio Partnership of
14,000 private bankers and 7,000 wealthy individuals showed
that private wealth managed by banks and investment managers
around the world decreased nearly 17% to $14.5tn in 2008 from
a year earlier. The fall in managed wealth, the first since 2002,
highlights the industry pressures of the global financial crisis and
weakening bank secrecy in offshore centres after years of buoyant
growth. (ecommerce-journal.com, 6 July)
Pacific Rim
Enjoying the rewards of its prudence,
Australia has also become increasingly
dependent on China
Because Australia moved quickly and aggressively to switch its
monetary and fiscal policy to stimulus, Australian banks were
not exposed to the consequences of unwise lending practices
G
lobal
M
arketplace
The Swiss banking system will be forced to change
Nils Merkel