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Switzerland court rules UBS disclosure of client information was illegal

By Bernard Hibbitts (editor) and University of Pittsburgh School of Law students.

[JURIST] The Federal Administrative Court of Switzerland ruled Friday that the Swiss Financial Market Supervisory Authority (FINMA) violated the law in February 2009 when it ordered UBS to disclose information to the US on more than 250 of the bank's clients. FINMA issued the order after the US Department of Justice (DOJ) accused UBS of assisting Americans in hiding accounts from the Internal Revenue Service (IRS). The court stated that FINMA lacked the authority to authorize the release of information, and that the issue should have been addressed by the Federal Council. FINMA contends the move was necessary to ensure the stability of the Swiss banking system stating: FINMA based its decision on Articles 25 and 26 of the Swiss Banking Act, which give it the authority and obligation to impose unspecified preventive measures if it has reasonable grounds to suspect serious liquidity problems. These measures may affect individual creditors' rights same as payment moratoriums or payment bans which, unlike the "preventive measures", have been specified in law. Following consultation with the Federal Council, the FINMA Board of Directors ordered the disclosure of the client data as it considered this as the only way to avoid the real threat of the US authorities starting proceedings against the bank, which would have threatened its existence and seriously worsened its liquidity situation which, in turn, would have impacted the Swiss economy. FINMA has indicated they will consider appealing the decision to the Federal Supreme Court. This ruling comes as the US seeks to put an end to tax-evasion through the use of overseas accounts. In November, the DOJ and IRS announced that more than 14,700 Americans have reported to the IRS previously hidden overseas bank accounts in response to a temporary forgiveness program, allowing delinquent taxpayers to avoid criminal prosecution for tax evasion by paying all overdue taxes and penalties. In September, the US and Switzerland signed a treaty that would increase the amount of information shared between the two nations on would-be tax evaders. The agreement, constructed in accordance with Article 26 of the Model Tax Convention, came one month after a Swiss banker and lawyer were indicted in US federal court for helping clients hide assets. Earlier in August, the US reached a preliminary agreement with Switzerland over the identification of anonymous accounts in Swiss banks, which would aid US officials in identifying those who seek to evade taxes.

Full post as published by JURIST - The Paper Chase on January 08, 2010 (boomark / email).