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UBS chief says banking secrecy ‘over’

The head of UBS has broken a taboo in Swiss financial circles by declaring that traditional banking secrecy in Switzerland is dead.

Published: 31 October 2012 19:33 CET
UBS chief says banking secrecy 'over'
Sergio Ermotti (Photo:UBS)

“I have said for a long time that banking secrecy, as we knew it ten years ago, is over,” said Sergio Ermotti, CEO of the country’s largest bank a day after announcing 10,000 job cuts.

Ermotti made the comments in an interview with the Zurich-based newspaper Tages Anzeiger, published online on Wednesday, in which he predicted that 20,000 jobs would be lost in Switzerland’s banking sector.

The Swiss financial industry has for too long defended banking secrecy “against all odds,” he said, adding that it needs to be adjusted with a “new strategy”.

The industry “must first be downsized before we can talk about growth again”.

UBS has paid a heavy price for its involvement with tax evasion by American clients made possible through Swiss privacy laws that provided cover for banker-client confidentiality.

After former employee Bradley Birkenfeld blew the whistle on the bank’s practices, it was forced in 2009 to pay American authorities $780 million to avoid prosecution for criminally aiding tax avoidance.

In addition, UBS agreed to give the names of 5,000 US clients with offshore accounts.

Ermotti took over as CEO last year and was not employed at the bank when the tax evasion affair blew up.

Subsequently, other Swiss banks have come under pressure from American authorities over tax evasion issues.

And other countries, such as Germany, have sought deals to prevent wealthy citizens from stashing their money in Switzerland to avoid taxes.

Ermotti said UBS “takes no money that we know is not taxed”.

However, he added that the bank cannot be expected to review information provided by clients.

“We are not an extension of the tax authorities.”

UBS on Tuesday announced 2,500 job cuts in Switzerland out of the 10,000 to be cut globally over the next three years as it restructures its investment bank.

The cuts came after the Zurich-based company announced a 2.2-billion-franc ($2.36-billion) loss for the third quarter.

The company’s overall staff is set to drop to 54,000 from 64,000 by 2015.
 
Ermotti said he expects major job cuts across the Swiss banking centre as the result of new regulations, “the cost of tax treaties with neighbouring countries” and a clientele that is more risk averse.

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FRANCE

Switzerland’s UBS faces €3.7-billion fine as crucial court ruling looms

A Paris court will rule Wednesday on whether Swiss banking giant UBS illegally tried to convince French clients to hide billions of euros in Switzerland, charges which prompted prosecutors to seek a record €3.7-billion fine.

Published: 19 February 2019 09:10 CET
Switzerland's UBS faces €3.7-billion fine as crucial court ruling looms
UBS denies charges it helped French clients evade tax and says it will defend itself "vigorously". Photo: AFP

The trial opened last autumn after seven years of investigations, launched when several former employees came forward with claims of unlawful conduct. 

The move came as authorities across Europe cracked down on tax evasion and dubious banking practices in the wake of the global financial crisis which erupted in 2007.

The pressure eventually forced Switzerland to effectively end its tradition of ironclad bank secrecy, by joining more than 90 countries which agreed to automatically share more client account information among each other.

In the UBS case, French authorities determined that more than €10 billion had been kept from the eyes of tax officials between 2004 and 2012.

The National Financial Prosecutor's office urged a €3.7-billion ($4.2 billion) fine, the largest ever sought in France, saying the bank and its directors “were perfectly aware that they were breaking French law” by unlawfully soliciting clients and helping them evade French taxes.

They also sought a €15 million fine for UBS's French subsidiary, and fines of up to €500,000 for six top executives, including Raoul Weil, the former third-in-command at UBS, and Patrick de Fayet, formerly the second-ranking executive for its French operations.

In addition, lawyers for the French state, which is a plaintiff in the case, asked for €1.6 billion in damages.

UBS, which was ordered to post €1.1 billion in bail, has denied the charges and said its operations complied with Swiss law.

It also says that it was “unaware” that some French clients had failed to declare assets in Switzerland, and that prosecutors have not produced any proof, such as client names or account numbers, to back up their fraud claims.

The case is being closely watched by industry executives at a time when Paris and other European capitals are hoping to lure multinational banks from London as Brexit looms.

'Milk tickets'

UBS is accused of organising or inviting prospective clients to prestigious outings such as the French Open or luxury hunting retreats, where UBS's Swiss bankers would meet their “prospects” — something they were not allowed to do under French law.

UBS France directors then used notes called “milk tickets” to keep track of how many “milk cans” – amounts of money – were transferred to Swiss accounts.

They say the system was merely a way to balance out bonuses due to French bankers who were effectively losing a client to their Swiss peers, and the notes were later destroyed.

But investigators claim the “milk tickets” were proof that UBS had a parallel accounting system for keeping the transfers off its official books.

Only one “milk ticket” was found during the inquiry, prompting defence lawyers to argue there was no proof to justify claims of a massive fraud.

Yet prosecutors pointed to the roughly 3,700 French UBS clients who later took advantage of an amnesty offer to regularise their tax declarations with the French authorities.

UBS has been embroiled in a series of similar cases, most notably in the United States, where the authorities said the bank used Switzerland's banking secrecy laws to help rich clients avoid taxes.

In 2009 it paid $780 million to settle charges it helped thousands of American citizens hide money from the Internal Revenue Service, and agreed to turn over information on hundreds of clients, severely denting Switzerland's long tradition of shielding banking clients and their operations from prying eyes.

That case was also prompted by a former American UBS employee turned whistleblower, Bradley Birkenfeld, whose book “Lucifer's Banker: The Untold Story of How I Destroyed Swiss Bank Secrecy” was published in 2016.

Last November UBS was again sued by US authorities, who accuse the bank of misleading investors over the sale of mortgage-backed securities in 2006 and 2007, just before the financial crisis struck.

UBS has denied the charges and said it will defend itself “vigorously”.