Private banks face tax evasion crackdown

Private banks face tax evasion crackdown

By Haig Simonian in Zurich

Published: May 8 2008 00:51 | Last updated: May 8 2008 00:51

The world’s leading private banks could be facing an international government crackdown on tax evasion.

This week’s admission by UBS that a leading private banker had been detained as a material witness by the US authorities followed German public prosecutors’ efforts to unmask citizens with undeclared accounts in Liechtenstein.

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U.S. tax evasion probe latest blow for UBS

One employee 'briefly detained' as the Justice Department investigates the Swiss bank's dealings with American clients

OTIS BILODEAU

Bloomberg News

May 8, 2008

UBS AG, reeling from record losses, says the U.S. Department of Justice is investigating whether the Swiss bank helped clients evade American taxes.

One senior bank employee was "briefly detained" by U.S. authorities as a "material witness," the firm said in an e-mailed statement. The Financial Times reported that the employee was Martin Liechti, the Zurich-based head of UBS's international wealth management business for the Americas.

Rohini Pragasam, a UBS spokeswoman in New York, declined to comment on the report. Mr. Liechti could not be reached for comment.

Clients pulled a net $12.1-billion (U.S.) from UBS's asset- and wealth-management units in the first quarter, the first withdrawal in almost eight years as the bank's writedowns swelled to $38-billion.

German prosecutors said in March that they're weighing a criminal investigation into whether UBS helped clients evade taxes.

"UBS has been hit by a perfect storm," said Edwin Merner, who oversees $2-billion at Atlantis Investment Research Corp. in Tokyo. "Clients may run away if they think they'll leak information to tax authorities in Germany and the U.S."

UBS fell 1.8 per cent in Swiss trading yesterday. The bank said Tuesday that it plans to cut about 5,500 jobs, including as many as 2,600 at its investment banking unit, which had 18.2 billion Swiss francs ($17.5-billion) of first-quarter losses. Chief executive officer Marcel Rohner told analysts that he expects "tough business conditions" to continue.

The U.S. Justice Department is investigating UBS's conduct in relation to services provided by Swiss-based client advisers to U.S. clients between 2000 and 2007, the bank said. The U.S. Securities and Exchange Commission is also investigating whether UBS employees in Switzerland who advised U.S. clients failed to register with the agency, as required.

The employee who was detained hasn't been charged with any wrongdoing, though will remain in the U.S. "pending discussions with the U.S. authorities regarding resolution of his status as a witness," the bank said.

UBS, which said it's co-operating with the probe, pledges on the website of its U.S. private bank to help meet objectives including income generation and "tax minimization." It doesn't offer tax or accounting advice.

UBS is also being investigated by the U.S. Attorney's Office for the Southern District of New York in connection with tax shelters sold to wealthy individuals from 1996 to 2000.

The Swiss bank is also among banks investigated by U.S. state officials into how they marketed auction-rate bonds to investors. Auction-rate failures led to surging costs for some borrowers after dealers stopped bidding for bonds investors didn't want.

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Swiss banks refuse blame for foreign clients' tax evasion

The Associated Press
Monday, May 5, 2008

GENEVA: Swiss banks cannot be expected to police foreign clients' tax affairs, one of the country's top banking officials said Monday, rejecting German demands for greater cooperation to catch tax evaders.

The president of the Swiss Bankers Association laid the blame for tax evasion squarely at the feet of governments that demand too much of their citizens' income.

"Countries which worry about tax evasion of their citizens should have a good think about the way they tax their people," Pierre Mirabaud told journalists in Geneva.

The European Union, in particular Germany, has been pressuring Switzerland to crack down on EU citizens who hide money in Swiss banks in order to avoid paying higher taxes at home.

Switzerland, which is not a member of the 27-nation bloc, fiercely protects the privacy of banking customers, including foreigners who have deposited more than 1 trillion Swiss francs (US$950 billion; €640 billion) in its vaults.

"It's necessary to clearly show Germany and the European Union where their sphere of influence ends and where our sovereignty begins," Mirabaud said, adding that his members don't regard themselves as responsible for their clients' actions.

"We are not a tax authority and we are not a police authority," he said.

Leading Swiss politicians and bankers reacted with outrage earlier this year when it was revealed that German intelligence had purchased confidential information on bank customers in neighboring Liechtenstein. Mirabaud said at the time that Berlin had used "Gestapo" methods to acquire the data, but later retracted his comparison to Nazi Germany's secret police.

The information led to a series of high-profile raids against individuals and businesses in Germany, as well as further investigations by authorities in Britain, France, Italy, Spain, Canada, the United States, Australia and New Zealand.

Switzerland, like Liechtenstein, provides no judicial assistance to foreign authorities in cases of tax evasion because it is considered an administrative offense subject only to fines rather than a crime punishable by a jail sentence.

A visit last week by German chancellor Angela Merkel to discuss the tax issue failed to change Switzerland's stance on the matter.

Mirabaud said criticism of Switzerland was misplaced, and largely driven by competitors jealous of the Alpine nation's success as a leading center for international finance.

"For any Anglo-Saxon newspaper, it's much easier to attack Switzerland than the United Kingdom or the U.S.," he said.

Mirabaud insisted that Switzerland has some of the world's strictest rules against money laundering and has done much in recent years to shake off its reputation as a safe haven for dictators to stash their funds.

Millions of dollars (euros) hidden in Swiss accounts by the late Nigerian dictator Sani Abacha and Philippines strong man Ferdinand Marcos have been returned to their governments, and Swiss authorities are seeking to do the same for money deposited here by former Haitian dictator Jean-Claude "Baby Doc" Duvalier.

But on the matter of tax evasion, Mirabaud said the solution is for countries to demand less from their citizens.

"Humans being what they are, if the tax burden becomes too high there will always be tax evasion," he said.