Swiss Parliament Approves UBS Tax Treaty, Ending Standoff
Swiss lawmakers approved a UBS AG tax treaty with the U.S., ending a two-year legal battle that threatened the American business of Switzerland’s largest bank.
The approval, by majority votes in both chambers of Parliament, came after week-long negotiations between the upper and the lower house during which deputies dropped a demand for the treaty to be opened to a nationwide referendum. UBS rose 1.4 percent in Zurich trading.
“It’s a breakthrough for UBS and for Switzerland as a financial center,” Peter V. Kunz, head of the business law department at the University of Bern, said today in a telephone interview.
The approval means the bank can complete the handover of client data of suspected tax dodgers by August, allowing the Zurich-based bank to close a chapter that the Justice Minister had called an “existential threat.” Almost 37 percent of UBS’s 65,233 employees worked in the Americas at the end of 2009. UBS’s Wealth Management Americas unit managed 690 billion Swiss francs ($604 billion) at the end of the year.
Switzerland agreed in August 2009 to hand over data on as many as 4,450 UBS clients suspected of tax evasion to the U.S. Internal Revenue Service. Parliamentary approval became necessary after a court ruled in January that the agreement couldn’t be enforced as it then stood. A referendum would have meant a deadline for disclosure of the information was missed.
The agreement was part of global efforts by countries such as the U.S. and Germany to crack down on tax evasion as budget deficits are ballooning in the wake of the economic crisis. Switzerland, Liechtenstein, Luxembourg and Austria agreed to facilitate the exchange of bank account data.
“Nothing now stands in the way of UBS client details being disclosed in cases where the decision handed down has taken legal effect,” the Justice Ministry said on its website. Efforts to meet the August deadline are “on course,” it said.
The Bern, Switzerland-based lower house voted 81 to 63 to endorse the treaty without the referendum option, with 47 abstentions. The upper house approved the accord earlier today.
UBS, Switzerland’s biggest bank by assets, said it’s “confident” it can meet all its obligations under separate deals with the U.S. Department of Justice and the Securities and Exchange Commission by the relevant deadlines in August, commenting in an e-mailed statement.
“I welcome the parliament’s approval of the state treaty,” UBS Chief Executive Officer Oswald Gruebel said. “I and the whole bank thank the government and those parliamentarians who lobbied for finding a solution in this matter.”
UBS gained as much as 2.9 percent before closing 21 centimes higher at 15.72 francs in Zurich. That gave the bank a market value of 60.2 billion francs.
“This is good for the sentiment on UBS,” said Georg Kanders, a WestLB analyst, who has a “neutral” rating on UBS. “The strong Swiss franc and relative security” will help the bank to stop outflows from its wealth-management businesses.
Though supported by the government and the Liberal and Christian Democratic parties, the agreement became entangled in partisan politics as both the nationalist Swiss People’s Party, or SVP, and the Social Democrats made their support conditional on their own agendas.
“This is a good result for the constructive forces in this Parliament,” Swiss Justice Minister Eveline Widmer-Schlumpf told reporters after the debate. “I’m relieved.”
The SVP dropped its initial opposition and its insistence on the referendum option, saying that rescuing the UBS treaty was in the country’s higher interest.
The Social Democratic Party remained opposed to the end, on the grounds the deal should have been linked to a tax on bankers’ bonuses and measures to contain the risk of failure at UBS and the second-biggest lender, Credit Suisse Group AG.
In February 2009, UBS avoided U.S. prosecution by paying $780 million, admitting it helped wealthy Americans evade U.S. taxes from 2000 to 2007, and handing over account data on more than 250 U.S. clients. The next day, the U.S. sued UBS, seeking data on 52,000 Swiss accounts.
Today’s vote removed the threat of further civil litigation against UBS and additional fallout under criminal law. The U.S. Justice Department agreed last year to defer prosecution of UBS.