US, UBS in battle over banking secrecy

Friday 20 February 2009 10.35
US tax fraud - UBS won't reveal US clients
US tax fraud - UBS won't reveal US clients

Swiss bank UBS and US authorities are locked in a high-stakes legal tussle over banking secrecy despite a pact meant to settle a gigantic tax fraud case shaking the Swiss banking industry.

The showdown came a day after UBS admitted to US tax fraud and agreed to pay $780m as part of a provisional deal to settle charges by the US government that it helped thousands of US clients use Swiss accounts to evade US taxes.

Ratcheting up the pressure on Switzerland's biggest bank, the US government filed a lawsuit yesterday seeking a court order for UBS to disclose to the Internal Revenue Service (IRS) the identities of as many as 52,000 US customers who allegedly evaded taxes.

According to a UBS document filed with the lawsuit, those secret accounts held about $14.8 billion in assets and the American clients had failed to pay taxes on income earned in those accounts.

'At a time when millions of Americans are losing their jobs, their homes and their health care, it is appalling that more than 50,000 of the wealthiest among us have actively sought to evade their civic and legal duty to pay taxes,' said a senior attorney with the Justice Department.

But UBS, Switzerland's banking flagship, refused the US government's demand for information on the US clients, saying it had 'substantial defences' and 'intends to vigorously contest the enforcement of the summons in the civil proceeding.'

The bank said that the objections were based on US law as well as terms of its agreement with the IRS and provisions of Swiss financial privacy and other laws, as well as international obligations.

UBS, the world's largest manager of private wealth, stressed that information about undisclosed accounts maintained by Americans at the bank in Switzerland were protected from disclosure by Swiss financial privacy laws.

US legislators have accused UBS and other banks of helping wealthy Americans hide about $1.5 trillion in overseas tax havens.

According to the US lawsuit, Swiss-based bankers actively marketed UBS's services to wealthy American customers within the US. UBS documents filed with the lawsuit show that its bankers came to the US to meet with clients nearly 4,000 times per year in violation of US law.

The US government alleged that UBS trained its bankers to avoid detection by US authorities and engaged in cross-border securities transactions it knew violated US security laws, according to court documents.

The lawsuit also alleged that UBS helped hundreds of US taxpayers set up dummy offshore companies, to make it easier for those taxpayers to avoid their reporting obligations under US tax laws.

As part of a 'deferred prosecution agreement' announced earlier this week, UBS agreed to immediately provide Washington with the identities of, and account information for, certain US customers of UBS's cross-border business. The Swiss Financial Markets Supervisory Authority ordered UBS to reveal to US authorities account details for about 250 to 300 customers.