UBS, the world's largest private banking group, stunned the financial world yesterday when it shelved all its offshore banking services for US residents and appeared to rip up the traditional Swiss franchise of secrecy, saying it was co-operating with the US's tax authorities to expose tax cheats.
Caught up in the same do ent sweep from the LGT Bank in Liechtenstein that exposed the private banking dealings of Australia's Frank Lowy, a UBS executive fronted a congressional inquiry in Washington DC and announced a stunning about-face.
"I am here today to make it absolutely clear that UBS genuinely regrets any compliance failures that may have occurred," said Mark Branson, UBS's Zurich-based chief financial officer of global wealth services.
"We have decided to exit entirely the business in question," he said of questionable banking services for US residents. "That means UBS will no longer provide offshore banking or security services to US residents through our bank branches."
But he also announced that UBS was now working with the US Government to "identify the names of US clients who may have engaged in tax fraud".
He said while Swiss banking laws prevented client disclosure, "such privacy protections do not apply when disclosure of client names is requested in connection with an investigation of tax fraud". Mr Branson said the 80,000 worldwide employees of UBS -- the investment bank has a substantial presence in Australia -- were alarmed by reports of misconduct.
"They want to know that such misconduct does not belong in UBS and that the firm's ethics match their own. I am here today to tell you and to tell them that no, that kind of misconduct does not belong in UBS," he said.
The Senate Permanent Subcommittee on Investigations' report claimed that UBS and the LGT Bank, located in Liechtenstein and owned by the principality's royal family, helped many US citizens dodge taxes.
The committee, chaired by Michigan Democrat Carl Levin, said that through elaborate schemes at many banks in tax havens around the world, US citizens annually avoided up to $US100 billion ($103 billion) in tax payments. The report accused tax haven nations of engaging in "economic warfare against the United States and honest hard-working American taxpayers".
The subcommittee said UBS had an estimated 19,000 "undeclared accounts" for US citizens hiding $US18 billion in assets from the Internal Revenue Service. The effect of the UBS's change is that it will now direct US clients to the wealth management operations of its US-regulated businesses, rather than branches of its Swiss-domiciled businesses, which operate under Swiss law and allows the avenue of hiding assets from US tax authorities.