Europe, U.S. Battle Swiss Bank Secrecy

Investigations into UBS and a proposed law against tax havens are ratcheting up pressure against Switzerland's banking regulations

Martin Liechti, a senior executive with the private banking division of major Swiss bank UBS, worked through his business appointments in New York with his usual efficiency. A subsequent trip to the Bahamas for a meeting in late April was also pure routine. In the Caribbean paradise, Liechti was scheduled to attend a supervisory board meeting of UBS (Bahamas) Ltd., and to take a closer look at the options for doing business with America's super-rich, including parking their money in Swiss trust accounts. But Liechti, a man known for his abrasive manner, never arrived in the Bahamas. US officials abruptly ended his trip when he was about to change planes in Miami. Since then, Liechti has been barred from leaving the country because the American authorities are investigating his employer for allegedly helping clients to evade taxes.

Liechti's former colleague Bradley Birkenfeld, as well as Mario Staggl, an executive with a trust company in Liechtenstein, are under indictment for allegedly helping American billionaire Igor Olenicoff evade taxes. According to the indictment, a fortune of about $200 million (€129 million) was sheltered from tax authorities "in secret bank accounts in Switzerland and Liechtenstein." Prosecutors allege that Staggl's attorney in Gibraltar even helped Olenicoff hide the details of his ownership of a "147-foot yacht."

The accused are alleged to have forged special forms that Swiss banks use to report their US customers' capital gains to the US tax authority, the Internal Revenue Service (IRS). Both Birkenfeld and Staggl have declined to comment on the charges.

"UBS is walking a thin line. On the one hand, it has to show a willingness to cooperate. On the other, it is trying to protect its customers' banking secrets," says Robert Heim, an attorney in New York and a former investigator with the US Securities and Exchange Commission.

"The Justice Department will urge the two to cooperate," says Heim. "The more information they provide, the less severe their penalties will be." He expects that their testimony will soon lead to further indictments and arrests. "This is a very bad development for UBS," says Heim.

According to Heim, the United States is by no means the only place where Swiss high finance and the country's banking secrecy laws are coming under growing pressure. Foreign authorities around the globe are increasingly taking sharper action against tax evaders. Swiss financial institutions, often in tandem with partners in Liechtenstein, play a central role in helping the ultra-rich avoid paying billions in taxes.

An almost unimaginable fortune of more than €3 trillion ($4.7 trillion) is currently sitting in Swiss bank accounts. The discreet Swiss allow vast amounts of money to disappear into trusts, offshore companies and bank accounts, money that is often protected by Switzerland's banking secrecy laws.

"Criminal Support of Economic Crime"

Because of these laws, foreign officials on the hunt for untaxed riches are often forced to end their quests at the Swiss border — to the anger and dismay of the world's finance ministers, and others. Rudolf Elmer, a controversial former executive with the private bank Julius Bär, condemned the dubious methods employed by Switzerland's financial institutions at a press conference in Berlin last week. He sharply attacked his native Switzerland, accusing it of engaging in "criminal support of economic crime."

Many politicians agree. The most recent challenge comes from French Finance Minister Eric Woerth, who plans to dry up the profit sources of Alpine "tax robbers," as he announced in a recent interview. The Frenchman has called for an initiative against tax havens and wants Switzerland to guarantee "maximum transparency and the exchange of information."