Will pay $780 million penalty to the US Justice Department.
UBS, the Swiss banking behemoth, will pay a $780 million penalty to the US Justice Department and disclose the names of many secret account holders as part of an agreement to avoid prosecution, in a major change from traditional client secrecy.
The penalty is due to the bank’s help in enabling, goes the charge, thousands of Americans to evade income tax, in breach of regulations, a charge that UBS has partially accepted.
"UBS sincerely regrets the compliance failures in its US cross-border business that have been identified by the various government investigations in Switzerland and the US, as well as our own internal review," said Peter Kurer, the bank’s chairman, in a statement.
"We accept full responsibility for these improper activities," he added, suggesting that "client confidentiality, to which UBS remains committed, was never designed to protect fraudulent acts."
In a separate development, the Swiss Federal Banking Commission has pronounced that "UBS violated the requirements for proper business conduct." The bank also got a severe rap from the Swiss Financial Market Supervisory Authority, which said UBS has "severely breached" its obligations under law.
The bank would have faced prosecution by US authorities if it had not reached this agreement. The US will drop the charge in 18 months if the bank will turn over an agreed number of names, helps prosecutors and pays the penalty. The penalty would have been much larger if the bank hadn’t been also making record losses; it has announced major job cuts, got out of parts of debt trading and in commodities and posted a loss of about $6.5 billion in the last quarter
This development is bound to undermine Switzerland’s status as the world’s leading tax haven. Germany and Britain are preparing ground for a concerted crackdown on tax havens, particularly Switzerland. They are expected to join forces for a major agreement on a tough regulatory framework to stop tax and banking fraud, to be discussed at the upcoming G-20 heads of nations meeting on April 2 in London, analysts said.
The major charge against UBS is that it conspired to defraud the US tax authorities which were denied access to funds held by rich Americans. The US authorities says about 17,000 of 20,000 cross-border clients held funds to the tune of $ 20 billion to evade taxes.
The Swiss government’s okay to this admission by UBS is a new development. Till now, the Swiss government did not share data with foreign tax authorities in cases concerning tax evasion.
With inputs from Bloomberg
In the US, tax evasion is a crime. Swiss law does not regard it so; they view tax fraud as a serious offence. For some time now, the US and Germany have been pressing Switzerland to give up its tax secrecy laws. This agreement between UBS and the US tax authorities marks a watershed in the secrecy laws that helped build the world’s most powerful offshore banking center in Switzerland.
"For Switzerland, it is a true catastrophe for the country’s first industry, that is to say the banking center," Charles Poncet, a Geneva-based attorney and former lawmaker, told Reuters.
The agreement would have far-reaching implications for Switzerland’s effort to stay as the world’s leading offshore banking center, analysts said.
