A risky game of brinkmanship among Swiss political parties could sink a key deal to settle a bitter US tax case against the UBS, triggering fresh legal action against the bank and shaking trust in Switzerland.
The government has said it has no backup plan if the Parliament kills an agreement clinched last August obliging Switzerland to hand 4,450 UBS client accounts to the US tax authorities to settle tax evasion claims against the Swiss bank.
Analysts say that if the deal falls through, it could be disastrous for UBS and potentially for other Swiss banks, rocking a financial sector that accounts for 12 per cent of the Alpine nation’s economy.
“There is a threat of legal conflict between Switzerland and the United States in the case of a rejection,” said Mr Michael Ambuehl, the Swiss top official who negotiated the UBS deal.
“The ratification process of the new double taxation agreement would also be in danger. That could have negative consequences for the whole of Switzerland’s economy,” he said.
Mr Ambuehl said his US counterparts had told him they would use all available options to get the data of the 4,450 clients whom bankers at UBS, the world’s No. 2 wealth manager, helped to hide money from the US taxman.
The right-wing Swiss People’s Party (SVP), Switzerland’s biggest, opposes parliamentary approval of the deal but does not have enough seats to block it alone.
The next-biggest Swiss party, the Social Democrats (SP), could make or break the deal. It says it will only support it if the government agrees to meet its demands for new measures curbing bank risks and bankers’ bonuses.
The Swiss government has suggested some measures in these areas but has so far been unable to appease the SP entirely.
Failure to win parliamentary backing for the deal would be a “catastrophe” for UBS and other Swiss banks at a time when the Alpine nation is already under international attack over its bank secrecy laws, a top Swiss financial executive told Reuters.
“That would put things back to where they were a year ago and would trigger the restart of the John Doe summons,” the executive said, referring to the US case to force UBS to hand over client data. “That could spell the end of UBS.”
UBS shares crumbled to an all-time low in the credit crisis as $52.5 billion writedowns on risky debts pushed the bank to the biggest annual loss in Swiss corporate history in 2008.
The US tax dispute also risked bringing UBS down and clients rattled by the legal dispute withdrew hundreds of billions of dollars from the bank.
UBS, still struggling to stem the gush of client money, would prefer to hand over the data to focus on rebuilding its image, said Mr Alois Pirker of consultants Aite Group. — Reuters