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Switzerland Caves In To IRS Demands – US-FOREX.US

Forex-Publisher — Thu, 20 Aug 2009 03:14:32 +0000

To assist the U.S. government Switzerland has lifted its veil of secrecy and has agreed to give 4,450 banking client names to the Internal Revenue Service. The international crackdown on tax evasion has been gaining ever more momentum as governments, smarting from the economic crisis, seek to claw back as much revenue as they can. As a result, Swiss banking is crumbling and Switzerland’s reputation for financial discretion is suffering as well.The agreement between Switzerland and the United States announced on Wednesday could set a precedent for American authorities to go after more names, from more Swiss banks. Until now, Switzerland has, like other tax haven countries, only shared banking records with foreign law enforcement agencies if they’re investigating an action that would be considered criminal under Swiss law. Switzerland hasn’t changed any of its laws but has changed its interpretation of existing laws that cover “tax fraud and the like.” It won’t be known how far-reaching this precedent will be for another 90 days; Swiss and U.S. authorities are keeping some of it secret because the IRS is hoping that U.S. depositors in tax haven nations will come clean on their own.In its essence, Wednesday’s deal came from a diplomatic dance that saw Switzerland agree to reinterpret what it classed as tax evasion. It allows UBS
to give up account information requested by the IRS to the Swiss Financial Tax Administration to then release to the IRS, without breaking Swiss law. The newly tailored agreement is based on terms of a double-taxation agreement that has existed between the United States and Switzerland since 1996 but which on its own has done little to help the IRS identify tax evaders. Now clauses in the new agreement could allow the IRS go against other Swiss banks if they can assemble similar sorts of information to request of the Swiss government. “There are further avenues for the DOJ and IRS to pursue,” said Richard Murphy of the British tax consultancy Tax Research. Both Switzerland’s and UBS’ reputation for banking secrecy has already been permanently scarred. But confirmation that the IRS will get names from UBS will compel a flood of more wealthy individuals who have Swiss bank accounts to come forward to meet the voluntary disclosure deadline set by the IRS of Sept. 23, a date agency announced on Wednesday. Those who fess up after that deadline will face harsher penalties. Many offshore banking clients have until now been in wait-and-see mode for the outcome of the UBS case. Robert McKenzie, a partner at law firm Arnstein & Lehr and former officer with the IRS Collection Division, is currently advising approximately 50 such clients on the IRS disclosure issue-some are not clients of UBS but of other offshore banks and are concerned about the impact of the Swiss bank’s case.
Yet around 15 of them have wanted to wait for Wednesday’s final announcement. Unbelievably, there was hope that UBS might actually win its case against the IRS. McKenzie says a recurring comment among lawyer circles is that a surprising number of clients have been procrastinating on disclosure. Waiting seems to be a mistake, since UBS will notify only 500 clients within the next 90 days that their account details will be given to the IRS-most UBS clients will still be in the dark on Wednesday about whether they are one of the 4,450. “What happens if the IRS serves Credit Suisse
next,” said McKenzie, “and tells it to give us the clients that meet this criteria meet with Swiss government, and you’re past the Sept, 23 deadline?” Cue harsher penalties. UBS account holders will be allowed to appeal the decision to disclose their names in court, but three sources consulted by Forbes, including one at UBS, suggested that most of these appeals would be unsuccessful. Swiss banking clients may think that the best thing to do is consult their tax advisor, but that’s where things could also get complicated. “Every time I bring a person into the IRS for voluntary disclosure-let’s take a client with a Cayman Islands account-I have to give them the name of the tax advisor, or the people who advised those clients,” said McKenzie. With more advisors coming forward for voluntary disclosure ahead of the Sept. 23 deadline, the IRS has a growing database of advisors from whom it can request names of all U.S. clients they have assisted in setting up offshore banking accounts or trusts. McKenzie says appeals against such requests will fail-his own attempts to prevent the IRS from disclosing the names of tax clients advised by former accounting firm Arthur Anderson failed in September 2003. The DOJ’s recent statement on California resident John McCarthy, the fourth U.S. citizen to turn himself into the DOJ as a client with a secret bank account with UBS, also raises questions about people who have advised clients with such accounts. The DOJ’s statement on McCarthy says that UBS “worked closely with his Swiss lawyer to keep McCarthy’s funds from leaving Switzerland and helped McCarthy move additional monies out of the United States undetected by the federal government.” Assuming that Swiss lawyers who help Americans evade tax services are committing wire offenses, are they subject to extradition proceedings or even arrest if they travel to the United States? “If the U.S. decides to go down that route and make Swiss individuals criminally liable for what they’re doing, that’s going to have a radical impact on practice inside Switzerland itself,” said Murphy. There are currently 929 lawyers listed as financial intermediaries in Switzerland, according to the Swiss Financial Action Task Force.

UBS The Good Days Are Gone – US-FOREX.US

Forex-Publisher — Tue, 04 Aug 2009 16:46:10 +0000

UBS might be lagging behind its European peers in banking, but it still manages a lot of the world’s wealth: The Swiss bank looks after 1.65 trillion Swiss francs worth of assets for private individuals worldwide. Yet that number is in constant flux now that private banking clients from the U.S. and Europe are getting spooked by its ongoing case with the Department of Justice over allegedly helping Americans evade taxes. Swiss media reports say UBS, which has 71,800 employees and a market capitalization of 39 billion, may reach a settlement with the U.S. in which it will hand over 5,000 client names who are most heavily suspected of tax evasion. Though that’s a lot less than the 52,000 or so that the Department of Justice is demanding, even that concession will likely have a long-term, damaging effect on the bank’s crucial reputation for secrecy. “Each time we have huge media coverage on this issues, this has a direct impact on our net new money because people get concerned,” said a UBS
spokesman. “The clients are now not sure what is going on.”So what to do? UBS could take advantage of the fact that its Swiss-domiciled clients have no such concerns about having their details handed over to the state. There was a marked slowdown in outflows from UBS’ Swiss-domiciled private banking clients in its second quarter results on Tuesday. Of the 1.55 trillion in private banking assets that UBS manages, some 328 billion Swiss francs or around 20% of that is from people who are domiciled in Switzerland, a hefty chunk. Marco Bider, a Swiss fund manager who owns shares in UBS, thinks the firm ought to seek out more private banking clients who have permanent residence in Switzerland, where the global crackdown on tax evasion from the likes of the G20 and G8 have not had an impact.
Yet even while Switzerland is teeming with wealthy individuals, that market is already heavily saturated by both UBS and arch rival Credit Suisse
. The bank’s biggest deposits still come from its U.S. private banking division, which accounts for 695 billion Swiss francs under management, and UBS’ international operations which account for 633 billion Swiss francs , according to the spokesman.UBS’ chief executive, Oswald Gruebel, even admitted on Tuesday that the market would see “less growth in European offshore private banking for the foreseeable future.”"There’s just no way you can cut this and believe this is a positive for the business,” said Fox-Pitt, Kelton analyst David Williams of the IRS case. “UBS is going to have to step up their compliance regime to ensure that its clients are fully compliant with their laws domestic situation and any other jurisdiction with which they come into contact.” Gruebel had said during a conference call on Tuesday that protection of the bank’s reputation was “a cornerstone of future strategic direction, and it includes deep and inevitable commitment to strict legal compliance.” He added that UBS would be able to win back the trust of clients and shareholders by better integrating the bank’s divisions and improving its reputation. UBS could turn around if it could build “reliable clients within earning streams.”For UBS to find clients that are reliable, though, it needs to appear reliable and trustworthy itself with their data. So long as there is the threat that it will have to hand over client data to governments like the U.S., it may be all but impossible to regain the same kind of trust it once enjoyed.

UBS Plays The Confidence Game – US-FOREX.US

Forex-Publisher — Tue, 04 Aug 2009 13:46:10 +0000

While its European rivals post a homecoming to profit, UBS is still stuck in the wilderness of losses. The Swiss banking giant, which is reportedly close to a settlement with the U.S. Internal Revenue Service over accusations that it helped thousands of Americans evade taxes, posted its third-straight quarterly loss on Tuesday. The second-quarter deficit of 1.3 billion Swiss francs was wider than expected, and the result of 2.3 billion Swiss francs in write-downs. While other European banks like Barclays
and HSBC have been experiencing a revival in investment banking, UBS has been busy cutting costs and marking down hard-to-sell assets. Indeed it could be a few quarters yet before UBS returns to profit, says Swiss fund manager Marco Bider, and it is likely that the bank’s management have effectively written off 2009 as they look to a recovery next year. Its biggest challenge now, he said, is regaining the confidence of private banking customers.First, UBS must overcome being the victim of bad timing. With its investment bank smarting from billions of write-downs related to the subprime mortgage crisis, clients of its stalwart private bank are being scared off by UBS’ ongoing tax duel with the IRS and the U.S. Department of Justice. The IRS has been demanding since February that UBS hand over the details of around 52,000 American clients who are suspected of tax evasion. The Swiss and U.S. government reached a deal on “major issues” on Friday, details of which are still being thrashed out and are expected to be announced in the coming days. Swiss media reports have said that UBS will avoid a fine to the IRS, but will still have to hand over the names of 5,000 clients for which there is strong evidence of tax evasion.
“UBS’ customers are quite sensitive to this,” said Jean Sassus, a banking analyst at Raymond James. “To see a real turnaround for net new money we need to see the U.S.-Switzerland agreement finally working.”The effect of the case is clear from the movements of money coming in and out of UBS’ private banking division. While outflows from Swiss clients slowed dramatically in the second quarter to 188 million, from 9.6 billion in the first quarter, they increased among international clients to 15.3 billion, from 12.4 billion. Yet there are some encouraging signs from UBS
, ironically also from the private banking arm. The bank said that the value of invested assets at the division had increased by 3%, quarter-on-quarter, to 961 billion Swiss francs , driven by “higher market performance.” Sassus sees this as a signal that UBS has reached a bottom for its business. “With this kind of [growth], cost-cutting is going to produce an effect in the third quarter,” he said. Also, UBS’ Tier-1 Capital ratio, a measure of the bank’s liquidity and capital strength, had risen to 13.2% in the second quarter-still not on par with the 15.5% level boasted by arch rival Credit Suisse
-but higher than its 10.5% mark in the first quarter. It was also above the expectations of both Sassus and fund manager Bider. Being better-capitalized should technically inspire more confidence in wealthy clients to put their money back into UBS, particularly if it reaches a straightforward settlement with the Department of Justice. It’s also the bank’s bread and butter, since UBS is currently making more money from the management of assets at its private banking division, than from the securities and underwriting services it does at its investment banking arm. Its wealth management and Swiss bank division accounted for 877 million in pre-tax profit in the second quarter, while its investment banking arm posted a loss of 1.7 billion. UBS Chief Executive Oswald Gruebel would not comment on the ongoing U.S. tax case during a conference call with analysts on Tuesday morning, but the company’s finance chief John Cryan said he saw “encouraging signs” in the second-quarter results. Sassus said management generally seem more self-assured than they did in the first and second quarter. “It’s nothing like optimism, but it seems they are starting to get through the troubles.” Shares of UBS slid by 5.4%, or 86 Swiss centimes , to 15.14 Swiss francs , in Zurich on Tuesday morning. The bank’s American Depository Receipts have more than doubled since early March, when UBS consolidated much of its write-downs and a 780 million fine to U.S. tax authorities into a 18 billion loss for 2008, in an effort to put the bulk of its most costly problems behind it.

UBSU.S. Strike Last-Minute Deal – US-FOREX.US

Forex-Publisher — Fri, 31 Jul 2009 19:46:12 +0000

UBS has narrowly avoided a court hearing after reaching an “agreement in principle” with U.S. authorities over a tax conflict that has mired the bank’s road to recovery.The agreement was reached on “major issues” while outstanding issues were expected to be resolved in the coming week, UBS said in a statement on Friday. It follows a telephone conversation between Stuart Gibson, a lawyer representing the U.S. Department of Justice, and Alan Gold, a U.S. district judge in Miami, Fla. Shares of UBS
surged 4.4%, to 15.68 Swiss francs , in Zurich, reflecting investor relief that a two-day hearing meant to commence on Monday was avoided.UBS, the Swiss government and the Department of Justice have been engaged in a public tussle since February, after the IRS demanded that the bank hand over the details of some 52,000 U.S. citizens in an investigation into tax avoidance. While UBS has handed over the details of some 300 clients as part of a separate settlement, the Swiss government has warned that it could be forced to seize the information, or even prosecute UBS should the information be handed over as it violates Swiss secrecy laws. The apparent unwillingness of either the Swiss or U.S. government to bend left UBS in an unenviable position, facing penalties in either locality.
Three U.S. citizens have already pleaded guilty to avoiding taxes, based on the information that UBS provided in the earlier settlement. The latest development came as U.S. Secretary of State Hillary Clinton met with Switzerland’s foreign minister, Micheline Calmy-Rey.

Corruption Scandal Roils Switzerland – US-FOREX.US

Forex-Publisher — Wed, 29 Jul 2009 19:46:02 +0000

A senior Swiss official accepting a 45,000 bribe? The U.S. citizen who made the allegation as he pled guilty to hiding money from the U.S. government might just has well have insulted all Swiss grannies. Switzerland prides itself on its clean image: the country ranks fifth on the 2008 Corruption Perceptions Index of Transparency International, which measures the perceived levels of corruption based on expert assessment and opinion surveys. The country also ranks third in the organization’s Bribe Payers Index, a survey which ranks countries in terms of their tendency to pay bribes abroad, starting with the least corrupt. However, the perception and the reality of corruption are quite different things, says Anne Schwoebel, managing director of Transparency International Switzerland. “We may not have many corruption cases but that doesn’t mean that corruption isn’t taking place. The ten or so cases that are prosecuted each year are just the tip of the iceberg,” she says.
Its Switzerland’s climate of secrecy that is probably contributing to its corruption problem. “Whistleblowers are not very well protected legally under Swiss law and can be dismissed, while the compensation they receive is small,” says Schwoebel, who added that a recent draft reform to improve the situation for whistleblowers was still well short of what was needed. “It’s a small country: people know each other and help each other. It’s very difficult to unearth corruption.” The reaction in Switzerland on Wednesday to the news out of the U.S. late on Tuesday was one of disbelief. As federal prosecutors said they were mounting an investigation, Hans-Rudolf Merz, the finance minister who currently holds the rotating presidency of Switzerland, expressed his skepticism about the accusations, warning it was important to distinguish “rumors” from “reality.”"There are different means to wage psychological warfare and – to say -it dramatically – some statements are made to exert pressure,” he told Swiss television. On Wednesday, a much anticipated trial commences in Florida, in which U.S. authorities will attempt to wrestle the details of some 52,000 UBS
clients in a dispute over tax evasion. On Tuesday, Jeffrey P. Chernick, a New York state resident pled guilty to filing false tax returns by hiding money in Swiss accounts. He said an unnamed attorney had told him thanks to a high ranking official his name would not be handed over to a U.S. tax probe, and that that official had been paid 45,000. However, his details were passed on as part of UBS’s 780 million settlement in February.

U.K.s Tax Well Running Dry – US-FOREX.US

Forex-Publisher — Tue, 21 Jul 2009 17:45:55 +0000

When Catherine Monahan of Clink! Wines wrote a letter to the British Prime Minister complaining about the increasing tax on alcohol in May, she was surprised to get a reply just two months later. Signed on behalf of the U.K. Treasury, a government official explained that the government wasn’t raising taxes to try and curb the country’s drinking problems. It just needed the money. Badly. The increased duties would “play their part in ensuring we can continue to fund the Government’s spending priorities,” the letter said. Unfortunately, higher duties on booze haven’t been enough to fill the 35.5 billion hole in Britain’s tax revenues. Britain’s revenue shortfall is skirting the highest levels seen since the 1920s, the latest report on its finances showed on Tuesday. The 2008-2009 fiscal year saw accrued revenue and tax receipts fall by 28.7 billion and 18.7 billion each, reducing the total tax revenue to 714.5 billion for the year.The government can thank deteriorating corporate earnings and rising unemployment for the widening deficit. “With fewer people in work, there’s less tax,” said Vimal Tilakapala, a tax lawyer at Allen and Overy. “We’re seeing the effect of the government’s tax policy driving companies and individuals out of the U.K., something we cannot afford.” Last week McDonalds announced it would be moving its European headquarters from the U.K. to Geneva later this year over tax concerns. The collapsing property market, high numbers of bankruptcy claims and a slide in consumer spending has cost the U.K.’s coffers 10 billion, 8.2 billion and 10.5 billion in stamp duty, corporation tax and value-added tax respectively in the last year. The National Audit Office, a public body responsible for auditing the government’s finances, found that in the 2008-2009 tax year, 7.5 billion of outstanding debts owed to the government had been written off because they were unrecoverable. Meanwhile the amount of “doubtful debt,” or debt that the government doesn’t expect to reclaim, rose to 27.1 billion from 12.9 billion, partly as a result of self-assessment tax forms and fraud.
Tony Dolphin, senior economist at the Institute for Public Policy Research, believes that there’s little the British government can do to patch up its finances in the short term. “The interest rate is almost at zero, fiscal stimulus has been all but used up,” he said. “It’s now down to the Bank of England and quantitative easing.”
However, the turbulent economic climate did prove to be profitable in some areas. Last year saw growth in capital gains tax —which is often paid by executors of an estate or the person responsible for an estate owners debts after death, after selling a property—as well as growth in petroleum revenue tax , which increased, thanks to higher oil and gas prices.

Americans Now Pariahs Of Foreign Banks – US-FOREX.US

Forex-Publisher — Tue, 14 Jul 2009 12:46:03 +0000

Move over Iran and North Korea: Americans are the new outcasts of banking. Swiss and other European banks have begun distancing themselves from American clients in the wake of UBS’ spat with U.S. tax authorities, either by closing existing accounts or rejecting new applications.Banks, particularly smaller Swiss ones, are “actively closing” accounts of Americans resident in Switzerland, as well as those of U.S. domiciled Americans, said David Treitel, tax director of London-based U.S. Tax and Financial Services. Similar cases have begun to spring up in Britain too. “Clients are being told ‘We’ll be closing your accounts, you have X-number of days left,’” he said, adding that Americans were becoming “increasingly unpopular” among large foreign banks. European banks have always treated American clients with caution, but their attitude has changed dramatically ever since the Department of Justice began demanding that UBS hand over the details of some 52,000 clients suspected of evading U.S. taxes. The dispute has left UBS
between a rock and a hard place: it will break Swiss secrecy laws if it hands over the information, but face punitive action from the U.S. government if it doesn’t . According to Don Curtis, chief executive of Geneva-based Curtis and Company, Swiss banks are closing accounts of American clients across the board, ranging from pension, to securities and current accounts. The placement of funds and securities have been the most affected, according to Stuart Hearn of Carouge, Switzerland-based Compta Center.A spokesman for UBS said that nothing had changed since last year, when the bank announced it would be exiting its offshore services for U.S. domiciled clients. Swiss-domiciled American clients would however continue to be able to open regular current or business accounts.
“Banks are very worried about the administration costs and financial regulation,” said Treitel. “They see taking the business as too costly or as too invasive of privacy.”

Taxing Times For UBS – US-FOREX.US

Forex-Publisher — Wed, 08 Jul 2009 11:46:20 +0000

If UBS had hoped for any let-up from the Swiss government that could ease relations with United States tax authorities demanding the details of some 52,000 clients, it will be sorely disappointed.The Swiss Federal Office of Justice rejected the claim by U.S. authorities last week that UBS would not have to expect a criminal proceeding against it if it handed over the client information. “The government of Switzerland respectfully submits that it is the most authoritative source of information on Switzerland’s law and enforcement policies,” it said in a filing released on Tuesday in Florida. By contrast the IRS had made its assertion “without performing any of its own research or retaining its own expert on Swiss law.” It said that it would take whatever steps necessary to uphold U.S. law, including by “issuing an order taking effective control of the data at UBS that is the subject of the summons” – effectively seizing the information. This latest development in the saga that began in February when the Department of Justice launched the legal case, highlights the impossible situation that UBS has found itself in. On the one hand it could face prosecution in Switzerland if it did hand over the details – in its filing, the Swiss government highlighted how it had taken to court a man who had cooperated with German authorities in handing over “protected information” to avoid a prison sentence in Germany being extended. On the other, U.S. authorities have shown no sign of relenting in their pursuit of the details of the accounts belonging to U.S. nationals, even though the two countries have signed another double taxation agreement. They’ve firmly denied media reports in the U.S. that they might let the bank off the hook. “We have always maintained that all issues on tax matters should be discussed and resolved between governments,” said UBS spokesman Serge Steiner. “The summons would require UBS to violate Swiss law.” The civil trial is set to start on July 13 in a federal court in Miami Florida. In February, UBS
agreed to pay 780 million in fines, and handed over the details of around 250 clients, in a separate case. (See “UBS Wont Play Ball On ‘John Does’.”