Stalemate extended as UBS court case postponed


A United States judge has, as expected, delayed a court hearing to determine if the bank UBS must hand over confidential client data to the US authorities.

This content was published on July 13, 2009 - 21:34

UBS along with the Swiss and US authorities had on Sunday requested a postponement until August 3 as all parties try to find a solution to the impasse that threatens a collision between the legal codes of both countries.

The US Department of Justice (DoJ) and the tax authority, the Internal Revenue Service (IRS), are demanding the identities of 52,000 UBS clients they suspect of illegally dodging taxes. The Swiss government last week said it would block the bank from handing over such data as it would violate Swiss banking secrecy laws.

UBS already paid a $780 million (SFr845 million) fine in February and handed over the details of around 250 clients, but final prosecution was deferred.

A federal court in Miami was due to reconvene the case on Monday after months of wrangling behind the scenes. But the parties were given an extra three weeks to negotiate a solution by the judge, Alan Gold.

Avoid the trial

The DoJ warned on Sunday that it would still pursue the names of the 52,000 UBS clients, but observers believe the legal "ceasefire" might herald a compromise solution.

Speculation is rife in the media that the government is trying to work out a way of handing over some data without violating Swiss law. Relations between the UBS board and Swiss Finance Minister Hans-Rudolf Merz were also reported to be a breaking point as the stalemate dragged on last week.

Peter Henning, a professor of law at Wayne State University in Michigan, told that a negotiated agreement was still likely despite the continued breast-beating of both sides.

"Neither side wants a trial so the judge is giving them one last opportunity to strike a deal. It should be negotiated because it is the kind of thing that judges are not very good at deciding," he said.

" Until this point the Swiss government has said 'not a chance' while the US has said 'we want all of the names'. It is just a question of how much each side is willing to give. There has to be common ground in there somewhere to allow reasonable people to come up with a solution where everyone saves a bit of face."

Legal tightropes

Judge Gold had publicly and pointedly revealed just what is at stake when he asked the US administration last week if they would be prepared to seize UBS assets.

But Henning does not believe it would reach this point. "The Swiss government does not want to look like it is caving in and giving up banking secrecy, while at the same time they would not want UBS to be put out of business in the US," he said.

"The DoJ and IRS have never been in this situation before and they are not going to let go. But it also would not do the US any good to put UBS out of business. In these economic times you do not invite major job losses. "

Market analysts are also waiting expectantly for a conclusion to the case, with uncertainty currently dragging down UBS business. The bank has suffered major withdrawals from its prize wealth-management business as rich clients baulk at the idea of their details being handed over to tax authorities.

"If the US case settles soon then definitely I believe the net new-money inflows will improve worldwide, slowly but surely, also in wealth management Americas," Vontobel analyst Teresa Nielsen told Reuters.

Matthew Allen,

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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