US Claims 52,000 Accounts Hidden by UBS
By Adrian Cox in London, Frances Williams in Bern and Joanna Chung in New York
February 19 2009 22:09

As many as 52,000 American customers hid UBS accounts from the authorities in violation of tax laws, a US government lawsuit against the Swiss bank alleged on Thursday.

The Department of Justice filed a suit seeking to force UBS to disclose the holders of accounts with about $14.8bn in assets.

It alleged UBS, Switzerland’s biggest bank, engaged in cross-border securities transactions in the US that it knew violated security laws and helped US taxpayers set up dummy offshore companies.

UBS said it would challenge enforcement of the so-called John Doe summons, which seeks information on the accounts of thousands of US citizens at UBS in Switzerland, where such information is protected by financial privacy laws.

“UBS believes it has substantial defences to the enforcement of the John Doe summons and intends to vigorously contest the enforcement of the summons in the civil proceeding,” the bank said in a statement.

The suit came a day after UBS reached a landmark settlement with the US government in which the Swiss bank admitted having enabled clients to evade taxes, agreed to pay $780m in fines and turn over about 250 client names to the US.

The settlement provoked intensive questioning over the future of Switzerland’s famously-secretive banking industry as international pressure mounts for more transparency.

Hans-Rudolf Merz, the country’s president, said the UBS settlement would not compromise the confidentiality of the Swiss banking industry.

“Banking secrecy remains intact,” Mr Merz, also Switzerland’s finance minister, told a press conference in Bern.

He noted that banking secrecy “does not protect tax fraud” and can be lifted if clients are suspected of a crime that counts as a crime in Switzerland as well as abroad.

Switzerland’s banking system has thrived under 75-year-old rules defending confidentiality. While banks have benefited from Switzerland’s economic stability and political neutrality, they have had a significant competitive advantage in being able to protect customers from the prying eyes of hostile home governments, associates and tax authorities.

The Swiss system is dealing with a threat to secrecy, the credit writedowns that caused losses at its biggest banks and a state bail-out for UBS.

“The Swiss financial centre is on its knees,” said Karel Lannoo, chief executive of the Centre for European Policy Studies.

Critics said the distinction between tax fraud, which is a crime under Swiss law, and tax evasion, which is not, can be difficult to draw.

Mr Merz said it was “very clear” that the 250-300 dossiers involved in the settlement involved tax fraud. Some of the cases had been examined by his ministry, he added.

Nevertheless, it seems the Swiss government bowed to US pressure and in effect told UBS to settle with the justice department rather than risk an indictment that would not only damage the bank but also Switzerland’s global financial role and economy.

Appeals to Switzerland’s top court against the handing over of bank records to the US justice department are still pending, Mr Merz said.