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Old 02-19-2009, 10:14 AM   #1 (permalink)
genuinegirly
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Swiss Bank Confidentiality

It's over, folks. No more hiding American money in Swiss banks.

Quote:
Swiss bank secrecy under threat after UBS tax deal
By Lisa Jucca and Jonathan Lynn Lisa Jucca And Jonathan Lynn

ZURICH/BERNE (Reuters) – Switzerland fought on Thursday to defend a landmark decision allowing bank giant UBS to transfer client data to the United States in a tax settlement that experts say will dilute bank secrecy laws.

UBS, the world's biggest bank to the rich, agreed late on Wednesday to pay a hefty $780 million fine and disclose the identity of some clients after U.S. investigators accused it of helping wealthy Americans to dodge taxes. The deal had the blessing of the government and the financial regulator.

Some experts say the settlement, a new step in the growing global fight against tax evasion, opens cracks in the country's tough bank secrecy laws and could potentially undermine $7-trillion global offshore banking industry.

Swiss newspapers said the U.S. authorities had cracked Swiss bank secrecy, accusing the government of "capitulating."

"For Switzerland, (the settlement) is a true catastrophe for the country's first industry, that is to say the banking sector," Geneva lawyer Charles Poncet, a former member of the Swiss parliament, told Radio Suisse Romande.

Finance Minister Hans-Rudolf Merz, also Swiss president under a system which rotates the position each year, said the government had no choice but to let UBS settle the case to avoid criminal charges which could have threatened its existence and undermined Switzerland's economy. UBS and its rival Credit Suisse's combined liabilities are equivalent to about seven times Switzerland's gross domestic product.

"It became evident that if the American authorities would bring UBS to an indictment ... the whole threat would have been falling also on our economy," Merz told journalists, but added that Swiss bank secrecy remained in place.

The probe had added to uncertainties hanging over UBS, which has written down more toxic assets than any other European bank during the credit crisis and suffered billions of dollars in client withdrawals. Shares in UBS rose after news of the deal.

Switzerland does not consider tax evasion a crime, and Swiss law prohibits disclosure of client data or names unless the country's authorities believe the client has committed a serious crime such as money laundering or tax fraud.

Both Merz and UBS Chairman Peter Kurer said on Thursday the data exchange concerned solely cases of tax fraud.

"We tolerated a company culture which did not respect foreign laws," Kurer admitted on television on Thursday.

But the unprecedented step in this case was that the data was handed over before a Swiss administrative court had the chance to say whether any fraud had been committed.

"The agreement between UBS and the U.S. department of justice raises serious questions about the rule of law," Swiss business group Economiesuisse said. "It is irritating that among friendly states the legal ways are bypassed by the U.S."

MOVE Toward TRANSPARENCY

The financial crisis is adding pressure on offshore centers like Switzerland, which alone manages one third of the world's undeclared wealth, to stop helping clients hide their money from the taxman as governments seek funds to pay for more spending.

Thousands of wealthy westerners avoid taxes by hiding assets in Switzerland and other offshore centers, and U.S. lawmakers say tax havens deprive Washington of $100 billion a year.

The UBS tax settlement 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.

Germany has said it wants Switzerland put on a tax haven blacklist and launched a probe last year into its nationals stashing assets in Liechtenstein. The German Finance Ministry said it had taken note of the UBS deal but had no more comment.

U.S. President Barak Obama also wants to get tough on tax havens and helped introduce a Senate bill in 2007 to this end.

Former UBS banker Bradley Birkenfeld, who once smuggled a client's diamonds into the United States in toothpaste, said he and other UBS bankers helped the bank earn $200 million a year managing $20 billion in assets held in offshore tax havens.

POSITIVE FOR UBS

UBS's $780 million fine was lower than some media reports had predicted and its shares rose 4.7 percent to 12.79 francs by 9:55 a.m. EST, outperforming the DJ index of European bank stocks, which was up 1.2 percent.

Vontobel analysts said in a note: "It is very positive for UBS to have closed off the case now as it will enable them to move forwards again and to start build up its reputation."

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 suggesting the fine could be up to 2 billion Swiss francs ($1.7 billion).

The settlement was the most prominent for UBS since it and domestic rival Credit Suisse paid $1.25 billion after failing to return wealth to relatives of Holocaust victims.

Swiss financial regulator FINMA, which played a key role in the settlement, said UBS had to hand over a limited quantity of client data to avert criminal charges.

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

Swiss media say UBS turned over 250 client names out of an estimated 17,000 U.S. clients who concealed their identities and the existence of their accounts and hold $20 billion in assets.

The agreement settles the criminal investigations against the bank but not a civil case by IRS, the U.S. tax collector. The IRS is seeking the names of thousands of UBS clients.

What did you think when you heard about this?
What do you think it means for the world economy?


When I heard about this last night, I was exceptionally confused. The first article that I read on the matter didn't give any indication of why they would release client information. When I read this article, I learned it was the result of a lawsuit. I was pretty happy that this article has a bit more information on the matter.

I'm curious to see who has been evading taxes and how this will affect the banking world.
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