Legal News

Is UBS Stuck Between the Laws of Two Nations?

By Ashby Jones

Switzerland is a democratic country subscribing to most of the ideals with which the United States is identified. . . . It has played an increasingly important role in supporting the spread of democratic institutions and values worldwide, as well as providing humanitarian relief and economic development assistance. U.S. policy toward Switzerland takes these factors into account and endeavors to cooperate with Switzerland to the extent consistent with Swiss neutrality.

Based on this writeup, from the State Department’s Web site, you’d be inclined to think that U.S.-Swiss relations were humming along just swimmingly. But there could be trouble on the horizon, judging from an article in today’s WSJ by Carrick Mollenkamp.

The issue concerns the U.S. government’s recent court filing asking UBS AG to turn over the identities of 52,000 private accountholders. The filing was made on Thursday, a day after UBS agreed to settle a parallel criminal inquiry and cough up information on 250 U.S. citizens who used the bank to evade taxes.

On Friday, UBS responded (click here), arguing that the U.S. government’s filing puts it in a pickle. Swiss law, UBS argued, “strictly prohibits UBS and its employees from disclosing to the [IRS] the account information located in Switzerland.” The bank said the U.S. government’s petition “simply ignores the existence of Swiss law and sovereignty.”

UBS also argued in the filing that the IRS’s demand would require the rewriting of tax treaties between the two countries. “To the extent that the IRS is not satisfied with the treaties that the U.S. government has negotiated , that concern should be remedied through diplomacy, not an enforcement action.”

Said Milan Patel, a former IRS trial attorney now now in private practice in Geneva: “UBS may find itself caught in a Catch-22 between the U.S. District Court’s enforcement powers . . . and Switzerland’s bank secrecy laws.”

Neither UBS not the Justice Department provided comment to the Journal. But the DOJ made clear on Friday it objected to the bank’s request for more time to respond to the demand. Delay “serves the cause of those U.S. taxpayers who continue to hide behind the actions of UBS.”

Full post as published by Law Blog - WSJ.com on February 23, 2009 (boomark / email).