Update from Switzerland: Time Running out for UBS Accountholders
by Asher Rubinstein, Esq.
I landed in Zurich a few days ago, en route to speaking at an Asset Protection conference in neighboring Liechtenstein. My presence in Zurich coincided with the Swiss Parliament’s rejection of legislation that would have approved the UBS settlement agreement with the IRS. The Parliament vote was the talk of Zurich when I landed. I met with many Swiss bankers and lawyers, and they all wanted to discuss the American perspective, and what I thought might happen next in the UBS case.
First, I noted that Parliament’s rejection of the UBS settlement was due to political parties maneuvering and trying to add their special interests (such as tax on bonuses to bankers), rather than addressing the issue at hand, which is whether or not to approve the UBS settlement. Like in our US Congress, political interests often get tacked on to larger issues and cloud those larger issues. One Swiss lawyer at the Asset Protection conference called the parliamentary debate “political grandstanding”.
Next, I am hearing from Swiss colleagues, bankers and other attorneys, that the Swiss politicians expect to approve the settlement. In other words, apart from the other issues tacked on, there is an expectation that the settlement will pass Parliament, this week.
Much of the Swiss populace, however, is against the settlement because the Swiss people like banking secrecy and want it to continue. There is also an element of “stand up to the US”, or, in other words, don’t cave to the demands of the IRS and don’t compromise Swiss sovereignty. There is a possibility that if the settlement does not pass Parliament, it would have to be put to a public referendum across Switzerland. If that happens, it is expected that the UBS settlement would not pass public referendum because of the opposition of the Swiss people. And, if this does go to public referendum, a referendum would take months, which would cause UBS to miss its August 2010 deadline to hand over banking information to the IRS.
Yet another viewpoint in Switzerland is for Parliament to reject the settlement and to let UBS pay for its misdeeds. This viewpoint would sacrifice UBS, in return for Swiss sovereignty standing firm, and Swiss banking secrecy laws left standing.
If the settlement does not pass the Swiss Parliament, or if UBS does not otherwise comply with the settlement, then I can foresee two outcomes, both very negative.
First, the Department of Justice (DOJ) could bring UBS back to Federal Court in Florida, and argue that UBS is in “contempt of court”. UBS might counter with a defense of “impossibility”; in other words, UBS tried to comply with the settlement, but was prevented from complying by the Swiss courts and Swiss Parliament. UBS could even argue that it did what it agreed to do, i.e., deliver the banking information to the Swiss Federal Tax Authority (SETA), but the SFTA was prevented by Swiss law and the Swiss Parliament from passing the information to the IRS. I am not sure that a US court would agree with this argument, inasmuch as UBS and the Swiss government were both parties to the settlement agreement.
Second, the DOJ might argue that UBS violated the settlement agreement and is not cooperating. The consequences might include the revocation of UBS’ banking license in the USA, with severe effects on UBS and the stock market. Because some 50,000 Americans are employed by UBS in the US, this would have additional negative consequences in the US. The US federal court might also seize UBS’ significant assets in the US. This would have severe implications for UBS and the Swiss economy, with ripple effects outward in the broader economy.
Because of these potential consequences, it is expected that the settlement will pass the Swiss Parliament, this week.
Americans with undeclared accounts at UBS are mere hours away from exposure and the IRS obtaining account data. Americans with undeclared accounts at Swiss banks other than UBS may have some more time, but eventually, non-UBS accounts will be discovered as well.