Swiss Government Rebuked Over UBS Affair

by Ulrika Lomas, Tax-News.com, Brussels

03 June 2010

A Swiss parliamentary committee has sharply criticized the government's role in the UBS tax evasion scandal, which now threatens to punch a hole in Switzerland's banking secrecy laws.

Following a 15-month long enquiry into the UBS affair, the Swiss parliament's two control committees published a report on May 31 which concluded that the federal government failed to recognize the ramifications of the US probe into tax evasion by UBS clients, which has led to the drawing up of an agreement to hand over confidential data to the US authorities.

"The significance of the transfer of the bank data of some US clients of UBS was not recognised until too late," the joint committees said.

The joint committees' report also accused the government of being slow to react when the bank encountered financial difficulties as a result of its investment in illiquid mortgage-backed securities.

In August 2009 UBS agreed to a fine of USD780m and agreed to discuss the transfer of data on 4,450 accounts to the US Internal Revenue Service, although this was far short of the 52,000 names originally sought. On March 31, 2010, in discussions with the US, the Swiss government agreed to amend its double tax agreement with the US to allow for the exchange of tax information in cases of extreme tax evasion. This amendment will facilitate the exchange of tax data on account holders with the largest outstanding tax liabilities to US authorities.

The agreement must be approved by the Swiss parliament before it can be ratified, and the upper house of the Swiss parliament is due to discuss the issue on June 3, followed by the lower house next week. A majority of lawmakers are expected to back the deal, however, after the conservative People’s Party removed their opposition to the agreement in an attempt to prevent a tax on bankers' bonuses.

FINMA, the Swiss financial regulator, was also criticized in the report for its part in the regulatory failures, although the authority said that it "welcomes the Control Committees' thorough analysis of the events and of how they were handled by the federal authorities."

"The Control Committees have drawn up a well-supported and detailed overview of the facts in regard of the highly complex events for all parties involved. FINMA supported the Control Committees with its work by disclosing all the records and documents they requested. In addition, FINMA assisted further by conducting numerous formal hearings, providing written statements and organising meetings to assess the findings," a FINMA statement said.

FINMA intends to respond to the report's conclusions and recommendations by the end of 2010.

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