Judge asks Washington to respond in UBS case

The UBS case is due to go before a judge in Miami on Monday Keystone

A judge has ordered the United States government to say if it is prepared to shut units of Swiss bank UBS in the US as part of an ongoing battle between the two sides.

This content was published on July 9, 2009 - 09:27

The US Justice Department is seeking the identity of up to 52,000 secret accounts at UBS suspected of being used by Americans to avoid taxes.

US district judge Alan Gold, who is set to preside over a hearing on Monday of a suit seeking to force UBS to provide the information, asked specifically on Wednesday about "receivership and/or seizure of UBS assets within the United States".

Gold said such action might be requested of the court if UBS failed to comply or was prevented from complying by the Swiss government. He has given the US Justice Department until 6pm Swiss time on Sunday to respond.

Bern on Wednesday said it was forbidding UBS from handing over client information to the US tax authorities.

Banking secrecy

In a letter addressed to the Miami court where UBS faces a hearing next week, the government said UBS was prevented from disclosing the data under Swiss banking secrecy laws.

The Swiss justice ministry has said Swiss law prevents UBS from handing over client information and the government would seize UBS client data, if necessary, to stop that happening.

Washington has accused UBS of hiding nearly $15 billion (SFr16.3 billion) in assets in secret accounts. The tax litigation is also seen as crucial for the future of the multibillion-dollar wealth management industry.

Reuters news agency quotes a former US prosecutor, Peter D. Hardy, as saying that Gold may be pushing for a last-minute settlement in the case, but the judge was also putting the Justice Department in a tough spot.

"They're going to have to be very delicate and thoughtful in terms of how they respond to this," said Hardy, a partner at the Post and Schell law firm in Philadelphia.

Tax cheats

The UBS case, which comes at a time of a global campaign against tax cheats supported by the US administration, has damaged the UBS brand and could result in an expensive settlement for the bank.

UBS chairman and former Swiss Finance Minister Kaspar Villiger told Swiss television on Wednesday night that the case was no longer simply a conflict between the US taxman and UBS.

It was, he said, more a question of the relationship between two states and the question if two democracies were prepared to accept their respective legislation.

Although Swiss law prohibits banks from passing on client information, UBS and Bern made concessions on banking secrecy earlier this year.

UBS agreed in February to pay $780 million, admitted wrongdoing and disclosed about 250 client names to avert tax fraud criminal charges which the Swiss government said threatened the bank's survival.

And faced with the threat of possible sanctions from the G20 group of countries, Switzerland and other countries agreed to renegotiate tax treaties with the US and other countries and cooperate more on tax evasion.

"Serious crimes"

In a court brief last week, the US Justice Department said UBS had already acknowledged that its bankers committed "very serious crimes on US soil" and had therefore subjected the bank to the full jurisdiction of US law.

"Swiss banking secrecy is not an impenetrable wall," it said.

However, Bern said the fact that UBS had released some names in settling the criminal case and admitted wrongdoing did not undermine the legitimacy of Swiss banking secrecy as a whole.

A correspondent in New York, Rita Emch, points out that the UBS case is overshadowing the current visit to the US by Swiss Economics Minister Doris Leuthard.

Emch says, however, that is not affecting Swiss-US relations as much as assumed or presented in much of the media, adding that Switzerland continues to represent US interests in Iran and Cuba, which would not be the case if there were a problem of confidence between Washington and Bern. and agencies

UBS and the US

On May 14, 2008, former UBS employee Bradley Birkenfeld and a Liechtenstein businessman were charged by the US authorities with helping an American billionaire avoid paying taxes on $200 million of assets deposited in Swiss and Liechtenstein bank accounts.

Birkenfeld turned whistleblower, giving details of UBS private banking practices to US prosecutors.

In July, a Miami court authorised the Internal Revenue Service to issue a summons on UBS demanding the release of confidential information on clients the agency suspected of tax evasion.

In the same month, UBS told a congressional hearing that it would stop offshore banking activities for US clients.

UBS agreed to pay $780 million and name some United States clients to resolve criminal fraud charges against it.

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