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UBS To Reveal Names Of Its American Clients. Banking May Never Be The Same Again

July 21, 2008

UBS To Reveal NamesThe world of banking may never be the same again: under pressure from the US government the giant Swiss bank, UBS, has agreed to reveal the names of its American clients who are suspected of tax fraud. Appearing at a US Senate hearing last week, UBS’s senior executive, Mark Branson, said that his group will hand over a list of names of American clients to US investigators. He also promised that UBS will eventually close all Swiss bank accounts of American customers and will no longer provide offshore banking facilities to US residents through its American branches.   The concessions announced by Branson startled the banking world and surprised even American officials, who were not expecting UBS to give in so dramatically to their pressure. A precedent has been created in dealing with the secretive world of Swiss banking and it may have far reaching consequences for other banks across the world.The US Justice Department has been pressing UBS for quite some time to come up with the names of around 19,000 people, who hold between them about $18 billion on their offshore accounts. Some of these people are suspected of withholding information from the US Inland Revenue Service about their income. The case was closely watched not only by other Swiss banks but also by a lot of people who keep their money in Switzerland and by governments that would dearly want to get information about the financial affairs of some of their citizens.

The Russian government for one has long been very keen on finding about the money that is kept by former Russian officials and suspected fraudsters in Switzerland. It is a known fact that billions of dollars of Russian state funds have been siphoned abroad in the 1990s and hidden on offshore bank accounts. Due to the discretion and secrecy provided by Swiss banks some of these funds have found their way to Switzerland.

It appears that the US Justice Department had an ace up its sleeve when it approached UBS and asked for the names of American customers to be revealed. Last year US prosecutors had brought charges against one of the bank’s former employees, Bradley Berkenfeld, for helping his clients to avoid paying taxes by hiding their assets on offshore accounts. It turns out that Berkenfeld struck some sort of a deal with prosecutors in exchange for a lighter sentence and, possibly, identified some of the people who have been involved in tax avoidance schemes. This is probably the main reason why UBS has decided to fully co-operate with the US government and even make a promise to wind down a large part of its offshore banking operation in the US.

I have been told about ten years ago that pressure from Americans on European banks had been growing to reveal information about the flow of money through offshore accounts. I’d been informed that the CIA was then mostly preoccupied with tracing funds of international drug cartels and illegal arms dealers who had been laundering their illegal proceeds. Pressure from Washington forced some of the major tax heavens to review their procedures and introduce stricter controls on the flow of money. For example, you could no longer put large amounts of cash into your accounts and keep it there for short periods of time, before transferring it to some other banks. After 9/11 most of the attention was diverted to funds that were used by terrorist groups and subversive organisations. Pressure on banks from US intelligence services to release details of all suspicious transactions increased further.

The latest dramatic developments surrounding UBS’s decision to give out the names of its American clients to the US government demonstrate that more Swiss banks could come under scrutiny soon. The question is: will there be an exodus of funds from offshore accounts and where will the money go?

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