TPT November 2009

G lobal M arketplace

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)

The UBS deal Will Switzerland’s culture of discretion in banking matters never again be the same? Or, will it forever be the same?

Nils Merkel

The Swiss banking system will be forced to change

“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

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

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N ovember 2009

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