REVscene Automotive Forum - U.S. Wants UBS to Break Swiss Law By Naming Clients, Bank Says

Feb. 21 (Bloomberg) -- U.S. efforts to force UBS AG, Switzerland’s largest bank, to disclose the names of 52,000 American customers would require the bank to violate Swiss sovereignty and criminal law, bank lawyers said.

A U.S. lawsuit filed yesterday improperly seeks to enforce summonses from the Internal Revenue Service for the identities of account holders and would trample on Swiss sovereignty, according to a UBS filing yesterday in federal court in Miami.

“Swiss law strictly prohibits UBS and its employees from disclosing to the IRS the account information located in Switzerland that the IRS seeks,” UBS lawyers wrote. “The IRS’s petition does not acknowledge these restrictions and instead simply ignores the existence of Swiss law and sovereignty.”

The filing is the bank’s first legal response to a lawsuit that would enhance tax collection by striking a blow at historic Swiss bank secrecy. The U.S. sued one day after Zurich-based UBS agreed to pay $780 million and disclose the names of about 250 customers to defer prosecution on a charge that it conspired to help wealthy Americans evade U.S. taxes over several years.

By trying to force disclosure, the IRS seeks to expose bank employees to “substantial prison terms, as well as fines, penalties and other sanctions,” bank lawyers wrote. The IRS also wants a judge to force UBS “to violate Swiss law in a manner that will expose it to penalties, civil liability and the possible revocation of its banking license.”

323 Account Holders

UBS claimed the Justice Department is bypassing “carefully negotiated” treaties that lay out procedures for the IRS to get information on tax fraud in Switzerland by U.S. taxpayers. It said that UBS already has given information on 323 U.S. account holders to the IRS since last July.

“The IRS asks this court to rewrite the relevant treaties between two sovereign nations,” according to the filing. “To the extent that the IRS is not satisfied with treaties that the U.S. government has negotiated, that concern should be remedied through diplomacy, not an enforcement action.”

In a response yesterday, the Justice Department urged the judge not to delay the case.

“Delay serves the cause of those U.S. taxpayers who continue to hide behind the actions” of UBS and “its spurious claims that it can do business within the United States with impunity, and still rely on Swiss bank secrecy law,” according to the Justice Department filing.

‘Impunity’

The IRS “should not have to sit idly by while thousands of its citizens violate U.S. law with impunity,” according to the filing by Justice Department senior litigation counsel Stuart B. Gibson.

Alicia Valle, spokeswoman for the U.S. attorney for the Southern District of Florida, R. Alexander Acosta, declined to comment.

In its filing, UBS argued that it signed an agreement with the IRS in 2001 that allowed it serve as a “Qualified Intermediary” that would permit it to withhold the identities of U.S. taxpayers from the federal tax collectors.

“The IRS seeks to repudiate its own contract and demands the production of the very account information that the IRS agreed would remain confidential,” wrote UBS lawyers from the law firm of Stearns Weaver Miller Weissler Alhadeff & Sitterson in Miami. They are working with lawyers from Wachtell, Lipton, Rosen & Katz in New York.

In avoiding prosecution, UBS admitted a series of lapses, including extensive violations of the Qualified Intermediary agreement while pursuing a cross-border banking business to woo wealthy Americans, according to a statement of facts.

Encrypted Laptops

As many as 60 Swiss-based private bankers who were not licensed to operate in the U.S. traveled to the United States with encrypted laptop computers to maintain client secrecy and got training on how to avoid detection by U.S. authorities, according to the statement filed Feb. 18.

The Justice Department response urged the judge to note that “only two days ago UBS admitted to conspiring with its U.S. clients to violate that agreement, and thereby assist U.S. taxpayers to evade their U.S. tax obligations.”

On July 1, a judge in Miami authorized the IRS to issue so- called “John Doe” summonses for the identities of UBS account holders. The lawsuit filed yesterday asks a judge to enforce that summons.

In its filing yesterday, UBS asked U.S. District Judge Alan Gold to deny the IRS request to handle the matter on an expedited basis. Gold has scheduled a telephone conference for Feb. 23.

The bank asked Gold to lay out a schedule for written arguments, the collection of evidence, “the nature of the hearing that might take place in this matter, and the role of the governments of both Switzerland and the United States in these proceedings,” according to the filing.

The case is U.S. v. UBS AG, 09-20423, U.S. District Court, Southern District of Florida (Miami).