UBS comes to agreement with IRS to release account info
#1
UBS comes to agreement with IRS to release account info
Originally Posted by WSJ
ZURICH (Dow Jones)--Switzerland's government Wednesday said the handover of confidential client data to settle Swiss bank UBS AG's (UBS) long-running legal dispute with the U.S. Internal Revenue Service falls within Swiss banking secrecy law.
The two countries Wednesday formally signed a pact to set aside the lawsuit - which the Swiss government said had increasingly threatened UBS' existence - by agreeing to hand over 4,450 sets of UBS client data, many of them identified as cases of tax fraud or serious offenses of evasion, the Swiss side said.
"With this agreement, we have managed to avoid a conflict between the sovereignty of two states," Swiss Justice Minister Eveline Widmer-Schlumpf told a media briefing detailing the settlement. She said the pact will fully comply with Swiss law and not violate banking secrecy, which she emphasized isn't meant to protect criminal behavior.
Specifically, the data handover will be carried out in accordance with Swiss law, meaning the U.S. will drop the John Doe summons it was pursuing to get access to 52,000 sets of client data. Instead, the IRS will submit a request to Swiss tax authorities to root out clients whose use of UBS to manage their money can be classified as "tax fraud and the like."
UBS, which earlier this year paid $780 million to settle a criminal tax probe, has already identified 4,450 cases as falling under that criteria, the government said.
However, the exact criteria won't be published for another 90 days at the IRS' request, which is an attempt to nudge more UBS clients into voluntarily coming clean with their taxes. A program that promises leniency to those clients coming forward with foreign accounts has been flooded with scores of citizens seeking to declare their taxes.
In turn, Switzerland's only concession appears to be pledging to process the U.S. request far more rapidly than in the past. Wednesday, the Swiss government launched a project group to evaluate and formally transfer each of the 4,450 cases to the U.S. within one year, led by Hans-Joerg Muellhaupt. Muellhaupt is a 66-year-old lawyer and former judge who was hired by the Swiss tax office last year as an expert to help evaluate the initial U.S. request for aid in going after alleged tax dodgers.
According to Widmer-Schlumpf, the Swiss government was compelled to free UBS, which was caught in an insoluble bind between the law in Switzerland and in the U.S., where the bank has considerable activities.
Had UBS complied with the initial U.S. order, it would have violated Swiss client secrecy law. Had the bank not done so, it would have run afoul of the U.S. legal system, leading to hefty fines and what Widmer-Schlumpf termed the specter of a life-threatening condition. As a result, the matter quickly escalated into a diplomatic one between the U.S. and Switzerland.
The new U.S.-Swiss treaty puts pressure on Switzerland to process the data within one year, which represents an administrative task of record proportions for the Swiss government. Justice Minister Widmer-Schlumpf said she is "optimistic" the project group can plow through the 4,450 accounts within the year.
The Swiss government's concession to the U.S. constitutes a "bending" of formerly iron-clad secrecy laws, which have come under intense criticism from other states, and also serves as a warning shot for other money managers, one expert said.
"It is a signal that as capital moves with light speed over national borders, tax agencies and other governmental authorities will not be far behind," said Anthony Sabino, professor of law and business at St. John's University in New York.
Widmer-Schlumpf said the pact is "tailor-made" for UBS and doesn't necessarily translate to other Swiss banks that manage money in Switzerland on behalf of wealthy Americans. She said the government assumes other Swiss banks haven't violated U.S. law like UBS, which admitted doing so in February.
With the settlement, UBS escaped what some analysts had initially feared might be a hefty financial penalty, which would have dented the bank's capital. Estimates for an IRS-imposed fine had ranged between CHF4 billion and CHF6 billion.
UBS welcomed the agreement, which allows the bank to begin putting one of the messiest and costliest chapters of its private bank behind it. The bank, which bled CHF123 billion in asset outflows in 2008, saw outflows pile up earlier this year after it handed over some data as part of a deferred prosecution, and continues to suffer heavy outflows as a result of the scrutiny.
"I am confident that the agreement will allow the bank to continue moving forward to rebuild its reputation through solid performance and client service," UBS Chairman Kaspar Villiger said in a statement.
UBS shares closed 1% lower Wednesday at CHF16.74, giving the bank a market capitalization of almost $51 billion. The shares are up by around 14% since the start of 2009 but have fallen 25% in the past year
The two countries Wednesday formally signed a pact to set aside the lawsuit - which the Swiss government said had increasingly threatened UBS' existence - by agreeing to hand over 4,450 sets of UBS client data, many of them identified as cases of tax fraud or serious offenses of evasion, the Swiss side said.
"With this agreement, we have managed to avoid a conflict between the sovereignty of two states," Swiss Justice Minister Eveline Widmer-Schlumpf told a media briefing detailing the settlement. She said the pact will fully comply with Swiss law and not violate banking secrecy, which she emphasized isn't meant to protect criminal behavior.
Specifically, the data handover will be carried out in accordance with Swiss law, meaning the U.S. will drop the John Doe summons it was pursuing to get access to 52,000 sets of client data. Instead, the IRS will submit a request to Swiss tax authorities to root out clients whose use of UBS to manage their money can be classified as "tax fraud and the like."
UBS, which earlier this year paid $780 million to settle a criminal tax probe, has already identified 4,450 cases as falling under that criteria, the government said.
However, the exact criteria won't be published for another 90 days at the IRS' request, which is an attempt to nudge more UBS clients into voluntarily coming clean with their taxes. A program that promises leniency to those clients coming forward with foreign accounts has been flooded with scores of citizens seeking to declare their taxes.
In turn, Switzerland's only concession appears to be pledging to process the U.S. request far more rapidly than in the past. Wednesday, the Swiss government launched a project group to evaluate and formally transfer each of the 4,450 cases to the U.S. within one year, led by Hans-Joerg Muellhaupt. Muellhaupt is a 66-year-old lawyer and former judge who was hired by the Swiss tax office last year as an expert to help evaluate the initial U.S. request for aid in going after alleged tax dodgers.
According to Widmer-Schlumpf, the Swiss government was compelled to free UBS, which was caught in an insoluble bind between the law in Switzerland and in the U.S., where the bank has considerable activities.
Had UBS complied with the initial U.S. order, it would have violated Swiss client secrecy law. Had the bank not done so, it would have run afoul of the U.S. legal system, leading to hefty fines and what Widmer-Schlumpf termed the specter of a life-threatening condition. As a result, the matter quickly escalated into a diplomatic one between the U.S. and Switzerland.
The new U.S.-Swiss treaty puts pressure on Switzerland to process the data within one year, which represents an administrative task of record proportions for the Swiss government. Justice Minister Widmer-Schlumpf said she is "optimistic" the project group can plow through the 4,450 accounts within the year.
The Swiss government's concession to the U.S. constitutes a "bending" of formerly iron-clad secrecy laws, which have come under intense criticism from other states, and also serves as a warning shot for other money managers, one expert said.
"It is a signal that as capital moves with light speed over national borders, tax agencies and other governmental authorities will not be far behind," said Anthony Sabino, professor of law and business at St. John's University in New York.
Widmer-Schlumpf said the pact is "tailor-made" for UBS and doesn't necessarily translate to other Swiss banks that manage money in Switzerland on behalf of wealthy Americans. She said the government assumes other Swiss banks haven't violated U.S. law like UBS, which admitted doing so in February.
With the settlement, UBS escaped what some analysts had initially feared might be a hefty financial penalty, which would have dented the bank's capital. Estimates for an IRS-imposed fine had ranged between CHF4 billion and CHF6 billion.
UBS welcomed the agreement, which allows the bank to begin putting one of the messiest and costliest chapters of its private bank behind it. The bank, which bled CHF123 billion in asset outflows in 2008, saw outflows pile up earlier this year after it handed over some data as part of a deferred prosecution, and continues to suffer heavy outflows as a result of the scrutiny.
"I am confident that the agreement will allow the bank to continue moving forward to rebuild its reputation through solid performance and client service," UBS Chairman Kaspar Villiger said in a statement.
UBS shares closed 1% lower Wednesday at CHF16.74, giving the bank a market capitalization of almost $51 billion. The shares are up by around 14% since the start of 2009 but have fallen 25% in the past year
#3
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Join Date: Aug 2005
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I'm glad the IRS is seeking out and chasing down some of the tax cheats and their advisors.
#4
It's the fact that the US government continues to use their bully tactics to pressure every one else into conforming to their wishes. It completely ruins the credibility and allure that Swiss bank accounts had at one point in time. You used to be able to open a swiss account, and the only name you'd ever be known as is Mr. 10935098247902134857019
I should be able to a foreign country and do whatever the hell I want (including opening a bank account) without the US government demanding to know what I am or am not doing with it. There are reasons people opted at some point to have secret bank accounts. Tax evasion is only a small portion. The good majority of people have continued to pay taxes on what assets they hold in offshore accounts.
The veil of offshore banking secrecy has been broken, and to be honest, it's a shame. Unfortunately, many other foreign banks are being pressured as well.
:ibmovetor&p:
I should be able to a foreign country and do whatever the hell I want (including opening a bank account) without the US government demanding to know what I am or am not doing with it. There are reasons people opted at some point to have secret bank accounts. Tax evasion is only a small portion. The good majority of people have continued to pay taxes on what assets they hold in offshore accounts.
The veil of offshore banking secrecy has been broken, and to be honest, it's a shame. Unfortunately, many other foreign banks are being pressured as well.
:ibmovetor&p:
#5
Registered but harmless
Join Date: Aug 2005
Location: Los Angeles, CA
Age: 59
Posts: 14,847
Received 1,107 Likes
on
765 Posts
It's the fact that the US government continues to use their bully tactics to pressure every one else into conforming to their wishes. It completely ruins the credibility and allure that Swiss bank accounts had at one point in time. You used to be able to open a swiss account, and the only name you'd ever be known as is Mr. 10935098247902134857019
I should be able to a foreign country and do whatever the hell I want (including opening a bank account) without the US government demanding to know what I am or am not doing with it.
I should be able to a foreign country and do whatever the hell I want (including opening a bank account) without the US government demanding to know what I am or am not doing with it.
The only issue with the UBS/Swiss banking fiasco is that there was lots of evidence of lots of money being sent offshore without any evidence of tax payment or justification for failure to pay taxes-- the IRS wouldn't care otherwise.
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