Published February 20, 2009

Tax fraud: UBS to give client data to US

Bank secrecy will remain despite UBS deal: Swiss minister

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(ZURICH) Switzerland embarked on an uphill battle to retain its treasured banking secrecy yesterday, hours after UBS agreed to hand over client data to Washington in a landmark settlement of tax-fraud charges.

With observers fearing the overnight deal marked the end of an era for the country's financial industry, Finance Minister Hans- Rudolf Merz told a press conference: 'It is evident there has been tax fraud (at UBS) . . . (but) bank secrecy will stay.'

UBS chairman Peter Kurer justified the move, saying that client confidentiality 'was never designed to protect fraudulent acts or the identity of those clients who . . . misused the confidentiality protections . . . by providing false declarations regarding their tax status.'

UBS agreed to pay US$780 million in Wednesday's settlement - a lower figure than some had expected - and admitted to helping US taxpayers hide accounts from the US Internal Revenue Service (IRS), the country's tax collection agency.

About 17,000 of 20,000 US cross-border clients concealed their identities and the existence of their accounts, with US$20 billion in assets, from the IRS, the US Justice Department said.

Under orders from Swiss market regulators, UBS agreed to immediately provide the US government with the identities, and account information, of between 250 and 300 US customers.

'Such charges could have had drastic consequences for UBS and its liquidity situation and ultimately put its existence at risk,' the authority said.

UBS also agreed to a speedy exit of the business of providing banking services to US clients with undeclared accounts.

The settlement could also have wide implications for the US$7 trillion offshore banking industry by making it harder to try to circumvent tax laws.

'The settlement in the US tax case is what we have been waiting for,' Vontobel analysts said in a note to clients. 'It is very positive for UBS to have closed off the case now as it will enable them to move forward again and start to build up its reputation.'

For Geneva lawyer Charles Poncet, the implications for the country's banking sector as a whole are less positive.

'For Switzerland, it is a true catastrophe for the country's first industry, that is to say the banking sector,' Mr Poncet, a former member of the Swiss parliament, told Radio Suisse Romande.

The tax spat had been closely watched by cash- strapped Western governments and could set a precedent for similar deals with other banks or by other jurisdictions.

'We highlight that any success by the US tax authority could encourage tax authorities in other jurisdictions to pursue a similar strategy,' Merrill Lynch analysts said in a note.

Shares in UBS were up 1.7 per cent by 1127 GMT, having shed the bulk of early gains but still outperforming the DJ index of European bank stocks, which was flat.

The shares rose sharply earlier yesterday as investors hoped the embattled Swiss bank would refocus on pressing restructuring issues after the settlement.

UBS said it will book the settlement charge in its 2008 accounts, which will be published in an audited form in March.

Officials described the agreement as one of the biggest tax settlements ever, although smaller than media reports that suggested the fine could be up to two billion Swiss francs (S$2.6 billion). -- Reuters, AFP