A US government lawsuit filed against Switzerland’s biggest bank, UBS, alleged that as many as 52,000 American customers hid Swiss bank accounts from the US authorities in violation of tax laws.
The Department of Justice filed the suit, more commonly known as the ‘John Doe summons’ to force UBS to disclose the holders of accounts with an alleged $14.8bn in assets. The allegations centre around UBS being engaged in cross-border securities transactions in the US that it was aware violated security laws and helped US taxpayers set up dummy offshore companies.
In Switzerland, information on the accounts of individuals is fiercely protected by privacy laws. A bank spokesman said, “UBS believes it has substantial defences to the enforcement of the John Doe summons and intends to vigorously contest the enforcement of the summons in the civil proceeding”
As a result of the lawsuit and the fact that investors are concerned that US tax authorities will widen their investigation, UBS shares fell more than 15 per cent.
The suit follows closely on the heels of UBS agreeing to pay $780m in fines and turn over approximately 250- 300 client names to the US government after the Swiss bank admitted having enabled them to evade taxes.
International pressure is increasing in the move towards greater financial transparency prompting questions as to how long Switzerland’s famously-secretive banking industry can resist change.
Hans-Rudolf Merz, the Swiss president, said the UBS settlement would not compromise the confidentiality of the Swiss banking industry stating that,” Banking secrecy remains intact,” and added that it “does not protect tax fraud”. Furthermore, Mr Merz said that the protection of Swiss laws would be removed for clients who are suspected of breaking Swiss tax laws.
Switzerland’s banking system has thrived under 75-year-old rules defending confidentiality. This led to Swiss banks having a significant competitive advantage over others in being able to shield customers from any interference from home governments, associates and tax authorities.
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It now appears that the ‘golden days’ are numbered. Karel Lannoo, chief executive of the Centre for European Policy Studies said, “The Swiss financial centre is on its knees.”
Tax evasion is not a crime in Switzerland but critics argue that the distinction between evasion and tax fraud, which is a crime under Swiss law, can be difficult to depict.
Mr Merz agreed that it was “very clear” that the 250-300 dossiers concerned in the settlement did involve tax fraud.
Furthermore, it appears that rather than risk a possible indictment that would not only damage Switzerland’s global financial role but also the Swiss government and the economy, UBS were advised by to settle with the US Department of Justice.
