US increases pressure on UBS and Switzerland


United States authorities are tightening the screw on Switzerland's largest bank, UBS, and the country's banking secrecy laws.

This content was published on February 20, 2009 - 10:02

US tax collectors issued UBS with a civil lawsuit on Thursday seeking the identities of about 52,000 US clients who allegedly kept billions of dollars at the bank to dodge the Internal Revenue Service. UBS has said it will fight the case.

The news sent the UBS share price tumbling at the bourse. In late morning trading on Friday it had fallen by about 17 per cent to an all-time low of SFr10.54 ($8.89).

It ended Friday at SFr11, down just over 14 per cent on the day.

The lawsuit, filed in Miami, came only a day after UBS agreed to pay $780 million and identify about 250 people in a deal to resolve criminal fraud charges that it helped wealthy Americans evade taxes.

"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 civil and legal duty to pay taxes," commented John DiCicco, acting assistant attorney general of the Justice Department's Tax Division.

After Wednesday's deal was announced, UBS chairman Peter Kurer said the bank accepted "full responsibility" for helping its US clients conceal assets from the IRS.

However, this does not mean that UBS will now hand over information on thousands of other accounts.

UBS will fight

It has said that except for the 250 to 300 US customers, it will fight to keep all other names private, arguing Swiss banking secrecy laws protect them.

Hours before the new lawsuit was announced, Swiss Finance Minister Hans-Rudolf Merz said Switzerland would continue to defend its tradition of confidential bank accounts.

"Banking secrecy, ladies and gentlemen, remains intact," he told a news conference in Bern.

Merz said the Swiss authorities had handed over the files on the 250 to 300 American clients, with the transfer shortly before a US deadline for Swiss cooperation.

According to Thursday's filing, the 52,000 accounts now at issue held about $14.8 billion in assets in the past decade.

Under a 75-year-old law, Swiss banking secrecy can only be lifted when individuals are deemed to have deliberately defrauded tax authorities, but not when there is a failure to declare all assets.

Press reaction

Friday's Swiss press was still swallowing Wednesday's settlement between UBS and the US tax authorities, generally arguing that the bank was putting enormous pressure on the future of banking secrecy, not to mention Switzerland's image.

The front-page headline of the Zurich mass-circulation Blick read: "UBS makes Switzerland a banana republic."

The Tages-Anzeiger put it this way: "Banking secrecy: it's now only a myth."

It was a clear case of blackmail by the United States, according to the Bund newspaper of Bern, pointing out that the Swiss government and the Swiss Financial Market Supervisory Authority (Finma) could not hide the fact.

And it argued, like many, that Wednesday's settlement had weakened banking secrecy.

Bowing to pressure

The Financial Times also felt that the Swiss had bowed to pressure.

"It seems the Swiss government... in effect told UBS to settle with the Justice Department rather than risk an indictment that would not only damage the bank but also Switzerland's global financial role and economy."

The Fribourg newspaper, La Liberté, said: "Pandora's box is now open. The European Union applauds and is already asking to be able to take advantage of the same generosity".

The Geneva newspaper, Le Temps, said once again the errors of UBS were forcing the country to change with the times.

"After having financed its rescue last autumn, the [Swiss] authorities are sacrificing banking secrecy for the survival of UBS. Former Finance Minister Kaspar Villiger said [banking secrecy] was not negotiable and the head of the Swiss Bankers Association described it in 2004 as 'in concrete' for the next 15 years."

The Wall Street Journal looked at the wider implication of the UBS case.

"The sudden inflation in the number of names now sought after by U.S. authorities could put Switzerland in an embarrassing position, notably if the 52,000 accounts only involve tax evasion.

"Much is at stake: The Swiss financial industry generates more than ten per cent of Switzerland's economic output and employs about five per cent of the work force."

swissinfo with agencies

The UBS case

In December 2007, an American billionaire property developer admitted filing a false tax return and had to pay $52 million (SFr54 million) in backdated taxes.

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. The US Department of Justice (DoJ) accused UBS of helping 20,000 US citizens evade $20 billion of taxes.

In July, a Miami court authorised the IRS 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.

In November, Raoul Weil, the head of UBS's Wealth Management International division, was indicted in the US for allegedly helping US citizens evade taxes. Weil later absconded from the US and was declared a fugitive.

In February, UBS and the Swiss authorities caved in to the DoJ to release client information. However, the IRS demand for further information remains unresolved.

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EU and the UBS settlement with the US

The spokeswoman of the European Union Taxation Commissioner László Kovács has welcomed that "Swiss assistance" to the United States was made possible .

"One would expect that a similar request from EU member states be treated in the same way," she commented.

However, the scrapping of Swiss banking secrecy is not on the agenda of bilateral talks between Bern and Brussels.

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