IRS v. UBS

Karl Denninger wants the US government to show the finger to the Swiss government. He got irked obviously by the following snippet from Reuters:

ZURICH, July 8 (Reuters) – Switzerland has vowed to prevent UBS from handing over client information to U.S authorities, in an attempt to defend bank secrecy, saying a tax case targeting its main bank is souring diplomatic ties.Wealth management giant UBS is facing a court hearing in Miami next week after refusing to disclose data on 52,000 Americans holders of secret Swiss bank accounts to U.S. tax authorities.

The Swiss Justice Ministry said on Wednesday that Swiss law prevents UBS from handing over client information and the government would seize UBS client data, if necessary, to stop that happening.

In general I agree with his assessment of the situation. UBS broke laws in the US and will have to pay a price for that. In the criminal case, it would get away fairly cheaply with the Deferred Prosecution Agreement (see below), considering – at least in my understanding – that the bank could face the stigma of being labeled a Racketeer Influenced and Corrupt Organization and being treated as such.

As I side note, it seems that Swiss companies are in the habit of not handing over information even if asked to by the relevant authorities, just ask Nestlé.

Unfortunately for the Swiss population, UBS is in Switzerland what Goldman Sachs is in the US. Key positions in the Swiss government are filled with former UBS executives, for details see my previous post.

Normally there is no such thing as criminal investigations of executives of swiss multinationals, as long as they don’t commit acts detrimental to the interests of employers. This is especially true for UBS, Credit Suisse, Swiss Re, Zurich Financial Services, Novartis and NestlĂ© and a few more.

It is also instructive to check the boards of these corporations and compare who is sitting in them. For example UBS. Its the list of the usual suspects.

Swiss law does indeed forbid UBS to hand over such documents. This is article 47 of the Swiss Banking Act of 1934, which states:

(1) Is imprisoned for up to three years or fined whoever intentionally:
(a) reveals confidential information, that was brought to his attention or he found in his function as an member, employee, trustee or liquidator of a bank, or as member or employee of an auditor ; or
(b) willfully causes someone else to release such confidential information.

(2) Whoever committed the offence negligently, shall be fined with not more than CHF 250,000.

However, as we have seen in the past, the only Swiss financial regulator, the Finma (Financial Markets Authority), did authorize the transfer of several hundreds of these documents just recently. The legality of that act is currently under judicial review by the Federal Adminstrative Court.

It looks like the UBS executives are now stuck between a rock and a hard place as they do have the choice of being imprisoned or fined either in the US or in Switzerland.

For me I would have no problem with UBS getting clobbered in US courts and some executives being handed jail terms if found guilty.
However, I would hope that US government administer the same treatment to Goldman Sachs, JPM, and the likes, otherwise it will lose any credibility it might still have.
Will the US have its coming out and admit that it is a banana republic or will it find its way back to the ideals of 1776?

Defered Prosecution Agreement:

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