Business

Swiss bank secrecy under threat after UBS tax deal

21:20 pm on 20 February 2009

Switzerland defended on Thursday its landmark decision allowing bank giant UBS to transfer client data to the United States in a tax settlement that experts say will dilute bank secrecy laws.

UBS AG agreed late on Wednesday to pay a hefty $US780 million fine and disclose the identity of some clients in a deal that had the blessing of the government and the financial regulator.

US investigators had accused it of helping wealthy Americans to dodge taxes.

Some experts say the settlement, a new step in the growing global fight against tax evasion, opens cracks in the country's tough bank secrecy laws and potentially could undermine the $US7 trillion global offshore banking industry.

Swiss newspapers said the US authorities had cracked Swiss bank secrecy, accusing the government of "capitulating."

Finance Minister Hans-Rudolf Merz, who is also the Swiss president under a system that rotates the position each year, said the government had no choice but to let UBS settle the case to avoid criminal charges that could have threatened its existence and undermined Switzerland's economy.

The combined liabilities of UBS and rival Credit Suisse Group AG are equivalent to about seven times Switzerland's gross domestic product.

"It became evident that if the American authorities would bring UBS to an indictment ... the whole threat would have been falling also on our economy," Mr Merz told journalists, but added that Swiss bank secrecy remained in place.

Switzerland does not consider tax evasion a crime and Swiss law prohibits disclosure of client data or names unless the country's authorities believe the client has committed a serious crime such as money laundering or tax fraud.

UBS has written down more toxic assets than any other European bank during the credit crisis and suffered billions of dollars in client withdrawals. Its shares rose on news of the deal.