Swiss try to block US moves to end banking secrecy

• Right-wing politicians call for new confidentiality law
• US department of justice demands full disclosure

• Nick Mathiason
• The Guardian, Tuesday 24 February 2009
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Pressure is growing in Switzerland to pass new laws to protect the confidentiality of its banks, as a US court ruling against UBS threatens to blow open centuries of secrecy.

Right-wing political parties in the country have started the task of amassing 100,000 signatures to hold a referendum to legally enshrine banking secrecy in its constitution. But the move will trigger a fight for Switzerland's soul, with intellectuals, left-leaning lawyers and campaigners joining forces to demand the end to a centuries-old tradition to avoid becoming isolated at a time when international attempts to stamp out tax haven abuse are gaining momentum.

The debate comes in the wake of a potentially ruinous court case between UBS, one of the largest wealth managers in the world, and the US department of justice. Last week, the DoJ demanded the identities and details of 52,000 accounts held by rich Americans whom it believes may have illegally evaded taxes.

The case dates back to when a senior UBS banker revealed in a US court statement eight months ago that he had smuggled diamonds in toothpaste tubes, destroyed offshore bank records on behalf of clients and helped one Florida property tycoon evade millions of dollars of taxes.

The action by the DoJ has caused shockwaves in Switzerland, which also faced criticism from the UK's chancellor, Alistair Darling, in a strongly worded attack last weekend.

The Swiss government is increasingly agitated by international criticism and argues that many of the most aggressive tax avoidance strategies have originated in Delaware in the US and in the City of London. But it is worried that its banking industry, for centuries the bedrock of its economy, risks becoming an international pariah. It is furious that Switzerland has not been invited to participate in the upcoming G20 talks in London, aimed at reforming the world's financial system after the banking crisis.

Last week, UBS agreed to pay a fine of $748m (£520m) and hand over details of some 250 clients to US investigators. But the US went on to demand details of all UBS's American clients and filed a claim in Florida against UBS.

It is understood that the $748m fine levied on UBS would have been higher had it not been for the intervention of the US Federal Reserve, which argued that hitting UBS with a larger penalty would have destabilised the bank, which incurred the biggest write-downs of any European financial institution.

There is anger in the US that the Swiss government has refused to appear before the powerful US Senate permanent subcommittee on investigations, headed by Senator Carl Levin. UBS witnesses have also been called, though the bank has still to decide whether to attend.

The DoJ filings submitted as part of the department's claim have revealed at least three documents that appear to prove that UBS officials were aware that its wealth management strategies were illegal in the US.

The deposition cites a document that admits such actions could mean "the loss of US banking licence", while a memorandum from UBS's New York private banking arm to its counterparts in Basle advised "the provision of certain services by Swiss offices of the bank (in particular, brokerage services and investment advice) entail considerable risks for the bank".

The UBS defence is based on its national law strictly prohibiting the release of account information located in Switzerland. It also argues that the US request should be settled through diplomacy rather than "enforcement action" and that US tax law at the time protected the identities of wealthy individuals whose tax affairs were held offshore.