The Swiss banking industry is facing what many analysts reckon as ‘the moment of truth’ after a US court gave UBS, the banking behemoth, time till April 30 to respond to a fresh legal challenge on the disclosure of identities of 52,000 American clients who allegedly parked their funds in Swiss accounts to evade taxes.
Last week, UBS agreed to cough up a fine of $780 million and agreed to reveal some names a “deferred prosecution” agreement. But a day after the agreement, the US Justice Department raised the bar further, by suing UBS to divulge the identities of 52,000 Americans, much more than the initial estimate of 19,000 accounts that were maintained by UBS, analysts said.
US District Judge Alan S Gold of Miami pronounced on Monday that UBS has time till April 30 to defend its case.
Meanwhile, the UBS episode, which challenges the tradition of Switzerland as a safe banking haven, has sparked a major political debate. Some Swiss right-wing parties are also preparing ground for a referendum that would pave the way for banking secrecy to be legally enshrined in the country’s Constitution.
However, liberal intellectuals and left-wing parties are expected to join forces in demanding an end to the controversy surrounding the age-old veil around banking secrecy laws in the face of growing international pressure. At a meeting ahead of the G-20 leaders meeting in London, key European leaders vowed to press for a crackdown on tax havens. The G-20 meeting is expected to call for a coordinated drive against such places, according to British Prime Minister Gordon Brown.
Pulled in opposite directions, the Swiss government and its banks are not sure which way the winds will blow in the coming days. “I do not believe this will automatically result in banking secrecy being surrendered,” said Mark Pieth, a Swiss criminal law expert, in an interview to Swissinfo.
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“But the authorities must think again about how to react to the demands of the US or the European Union ,” he said suggesting that there is a clear tension between Swiss constitutional procedures and giving in to US pressure.
UBS also became the largest victim of the sub-prime mortgage meltdown in Europe, having lost over $40 billion. Though UBS was rescued by the Swiss National Bank, it continues to face a major challenge from foreign depositors, who started withdrawing funds on an unprecedented scale.
The latest figures released by the Swiss National Bank show total deposits fell by $1.21 trillion, to around $3.6 trillion , the lowest since August 2005. Deposits from foreign customers fell sharply by $ 860 billion, due to mounting concerns about ongoing scandals and challenges to the offshore banking industry.