Swiss Bank Under Fire For Naming ‘Wealthy’ Americans Who Allegedly Evaded Taxes

By ELIANE ENGELER, Associated Press Writer

BERN, Switzerland (AP) – Switzerland on Thursday desperately sought to reassure its citizens and international banking clients that it would safeguard a treasured tradition of confidential accounts after taking the unprecedented step of revealing over 250 tax cheats to U.S. authorities.

“Banking secrecy, ladies and gentlemen, remains intact,” President Hans-Rudolf Merz told reporters.

His claim, however, failed to convince many critics of a deal struck between Swiss bank UBS AG and the U.S. Department of Justice – which is investigating allegations the bank helped thousands of wealthy American evade taxes.

And the U.S. stepped up its legal offensive only hours after the agreement, as federal authorities filed another lawsuit in Miami, seeking identities of as many as 52,000 American customers of the bank who hid their accounts in violation of U.S. tax laws.

Merz said Swiss authorities handed over the files on 250 to 300 American clients of UBS who are suspected of committing tax fraud.

The transfer took place in the middle of the night in the Swiss capital Bern, just ahead of a U.S. deadline for Swiss cooperation, he said.

Experts said the decision to bypass the courts and give up customers before exhausting all legal options seriously endangers a pillar of the banking industry that helped transform Switzerland into one of the world’s richest countries.

Rainer Schweizer, professor of public law at the University of St. Gallen, said the foundations of Switzerland’s legal system have now been shaken.

Undeclared money was no longer safe in Switzerland, said Susan Emmenegger, professor of banking at the University of Bern.

Zurich lawyers immediately filed a suit against the head of Switzerland’s financial services authority FINMA, which authorized the transfer of files.

“This so-called agreement is a brutal demonstration for why banking secrecy should be guaranteed in the Swiss constitution,” said Hans Geiger, emeritus professor of banking at the University of Zurich, one of many leading Swiss experts on the industry to voice his opposition Thursday.

Switzerland’s largest bank and U.S. officials have been negotiating intensely since allegations surfaced last year that UBS helped wealthy Americans conceal up to $20 billion.

Merz, UBS and Switzerland’s financial regulator all insisted that Thursday’s handover was not a retreat from the principle of banking secrecy because it concerns only a small number of files that are linked to tax fraud – and not tax evasion.

Along with neutrality, banking secrecy is a pillar of Swiss national identity. Under a 75-year-old law, banking secrecy can only be lifted when individuals are deemed to have deliberately defrauded tax authorities as opposed to failing to declare all assets, a distinction only Switzerland and other tax havens make.

Banking secrecy “serves to protect privacy,” Merz said. “However, it does not protect tax fraudsters.”

Under Wednesday’s deal, UBS also agreed to pay a $780 million fine and cooperate further with U.S. authorities.

The Swiss Bankers Association said it regretted the settlement because it was agreed before a legal process initiated last year between U.S. and Swiss authorities had been completed.

The decision to act quickly, rather than wait for Switzerland’s often slow and costly legal system to approve the transfer of the files, follows intense pressure from Washington.

After indicting a former UBS official in May, American prosecutors stepped up their probe of UBS last November by indicting senior UBS banker Raoul Weil and warning that other top executives could face similar charges. One name mentioned was Peter Kurer, the bank’s former general counsel and current chairman.

Congress is expected to discuss UBS in a hearing on tax havens Tuesday.

Merz said U.S. indictments of the bank’s most senior staff, along with a wider investigation into its business practices in the United States, would have threatened the Swiss economy as a whole during a serious economic downturn.

The bank’s bankruptcy would cost the Swiss economy up to $250 billion, Merz said.

UBS lost 19.7 billion Swiss francs last year, the biggest corporate loss in the nation’s history, and received nearly $60 billion in a state bailout in October.

Bob McKenzie, a partner at Chicago law firm Arnstein & Lehr and former U.S. tax official, said Switzerland’s second-biggest bank, Credit Suisse Group, also is a possible target of American investigators.

But it was clear UBS was not in the clear yet, even if investors greeted the deal initially with optimism, sending the bank’s share price up by nearly 5 percent.

According to the U.S. government’s lawsuit in Miami, UBS was being pressed to provide information on accounts valued at about $14.8 billion in assets.

The company said it will fight in court to keep the names private, arguing bank secrecy laws shield those customers.

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Associated Press writers Balz Bruppacher in Bern and Frank Jordans in Geneva contributed to this report.

(Copyright 2009 by The Associated Press. All Rights Reserved.)