Legal challenge to UBS data handover fading

The Federal Administrative Court in Bern has upheld 100 appeals against banking data being handed to US authorities Keystone

An appeal by hundreds of UBS clients against having details of their accounts handed over to United States tax authorities has largely flopped in the Swiss courts.

Only 100 cases have been upheld – or partially upheld – with 4,100 out of the 4,450 data transfer requests already honoured by Switzerland. An important test case in the US courts has also failed to give UBS clients legal protection.

In August 2009, the Swiss government concluded a treaty with the US to sidestep Swiss banking secrecy laws by handing over the details of 4,450 UBS clients to the US tax authorities.

The deal followed an admission by UBS six months earlier that it had systematically aided and abetted US citizens to evade tax.

While many UBS clients in the US accepted that the game was up by taking advantage of a tax amnesty to bring their assets into the open, some took legal action in an effort to block the handover of data.

Brick wall

The Swiss Federal Administrative Court last month revealed the limited success of the actions. Of the 380 appeals, only 100 met with success while 94 were rejected outright and the rest were withdrawn.

The Swiss Federal Tax Office has also denied transfer of around 200 other clients’ details on the basis that they failed to comply with the criteria of the treaty.

UBS clients have been met with a brick wall in the US, with an appeals court ruling in August that handing over account details would not violate constitutional rights that protect citizens against self-incrimination.

Swiss lawyers have been surprised by the lack of success in Switzerland, of both court hearings into the validity of the treaty and individual complaints.

“The courts appeared to act in an independent manner at first, but then performed a U-turn with later verdicts,” one lawyer, who did not want to be named, told swissinfo.ch. “It appears that the Swiss legal system of protecting banking secrecy has been turned on its head.”

Legal challenges

In January last year, the Federal Administrative Court ruled that the Swiss financial regulator (Finma) had acted beyond its powers by releasing an initial batch of 285 UBS client data to the US. But this verdict was overturned by a higher court earlier this year.

Another January 2010 administrative court ruling casting doubt on the legality of the Swiss-US treaty was nullified when the Swiss parliament passed an amended version of the deal five months later.

UBS clients’ hopes suffered another false dawn, also in January 2010, when the administrative court ruled in favour of an individual appeal against data transfer. The court ruled that insufficient evidence of fraud had been found, leading legal experts to again doubt whether the treaty could be put into effect.

But the ruling failed to herald a flood of other successful appeals, leading to one UBS client – a Swiss citizen living in the US – to turn to the European Court of Human Rights in Strasbourg.

Rights abuse

His lawyer, Douglas Hornung, said the case would hinge on whether Switzerland would be justified in handing over evidence of tax evasion against his client, which is a crime in the US but not in Switzerland.

“It is a basic duty of the state not to assist in the prosecution of its citizens in another country for an offence that is not even a crime in Switzerland,” he told swissinfo.ch.

The case could take up to four years to reach a judgment which would make it too late to have any impact on the UBS case. But Hornung is hopeful that a positive verdict could protect clients of other banks.

“It could possibly prevent Switzerland making further agreements of the same kind in future,” Hornung said.

Trusts in future

Around ten other Swiss banks have come under the radar of the US authorities for allegedly poaching UBS clients after data transfer treaty had been concluded with Switzerland.

The Tages-Anzeiger newspaper recently reported that the Swiss government is poised to hand over client data to the US from other banks. The Swiss authorities have refused to comment on the “speculation”.

In the meantime, lawyers are examining the implications of the 100 appeals of UBS clients upheld by the administrative court.

Most of these cases involved foreign controlled trusts that had put money into UBS. The court ruled that in some instances, this made it difficult to assess whether the beneficiaries of the trusts were US citizens.

Trusts are still seen by many observers as being the best way to avoid getting caught.

“The message to tax evaders is that they should stop opening accounts in Switzerland, but they should instead incorporate trusts in the Anglo-Saxon jurisdictions,” said Hornung.

Tax treaty timeline

June 2007: former UBS employee Bradley Birkenfeld is arrested in the US on tax evasion charges. He blows the whistle on the bank’s past activities in aiding tax evaders.

July 2008: a Miami judge grants a “John Doe” summons against UBS, ordering the bank to turn over the details of its US clients, numbering some 52,000.

February 2009: UBS bank admits it had helped US citizens to evade taxes and pays a $780 million fine.

The Swiss Financial Market Supervisory Authority (Finma) hands over 285 UBS client case files to the US.

August 2009: Switzerland agrees to hand over the details of 4,450 UBS clients in exchange for the dropping of the John Doe summons.

January 2010: the Federal Administrative Court rules that Finma overstepped its authority handing over UBS client files and that the Swiss-US tax deal has no solid legal basis. In the same month, the court rules in favour of a UBS client appealing against the transfer of data.

June 2010: the Swiss parliament ratifies an amended version of the tax treaty, thus sidestepping the January court verdict.

August 2010: the deadline for handing over 4,450 files to the US passes with most, but not all, cases having been dealt with.

July 2011: the Swiss Federal court rules that Finma was legally justified in handing over 285 files to the US in 2009.

Credit Suisse bank reveals that it is under investigation in the US for suspected tax evasion offences.

October 2011: the Federal Administrative Court draws a line under all appeals from UBS clients. Only 100 out of 380 appeals are upheld.