February 7, 2009 / 2:33 PM / 10 years ago

Swiss law expert: UBS US clients committed no fraud

GENEVA, Feb 7 (Reuters) - American customers of Swiss bank UBS AG UBSN.VX suspected of avoiding U.S. taxes did not commit a tax fraud, according to an investigation by a Swiss legal expert published in Swiss daily Le Temps on Saturday.

Instead they exploited a loophole known to the U.S. tax authorities, and so the Swiss are under no obligation to pass the customers’ names to the U.S. authorities, according to the study by Urs Behnisch, a law professor at Basel University.

Behnisch’s opinion, produced for lawyers of one of the affected clients, was originally published last month in Jusletter (www.weblaw.ch), a Swiss online law review.

The U.S. Justice Department wants the Swiss authorities to hand over confidential data on the wealthy clients to help its investigation into offshore services provided by UBS advisers to U.S. customers from 2000 to 2007. UBS is accused of helping U.S. clients avoid taxes by hiding assets in Switzerland.

Swiss law prohibits disclosure of client data or names unless the country’s authorities believe the client has committed a serious crime such as money laundering or tax fraud. Switzerland does not consider tax evasion to be a crime.

Nearly one third of wealth kept abroad globally is in Swiss banks. The Swiss Bankers Association and consultants estimate this at $2.2 trillion, making the Alpine state the world’s biggest offshore centre.

But Swiss bank secrecy is under renewed pressure from the United States and other countries like Germany who are cracking down on tax evasion.

U.S. President Barack Obama has singled out UBS as one of the banks who helped “tax cheats”, and a U.S. indictment has alleged that Raoul Weil, the former head of UBS’s wealth management business, and other unidentified bankers conspired to help 17,000 Americans hide $20 billion of assets in Swiss bank accounts to avoid paying U.S. taxes.

Behnisch concluded in his study that the sums invested by U.S. clients with UBS were deductible rather than the result of a fraud, such as the use of falsified documents, which would require the Swiss authorities to help their U.S. counterparts.

Behnisch said Swiss banks had expressly drawn the attention of the U.S. authorities to the possible loopholes in the system of “qualified intermediaries”, introduced in 2001 to attract foreign investors to U.S. securities.

Under the scheme banks are supposed to identify investors, withhold tax on U.S. securities on their behalf and and send it to the U.S. tax authorities.

U.S. clients of UBS targeted by the Justice Department may have breached their duty to declare their holdings in companies wealth management companies or trusts through which they held U.S. securities, Behnisch found, according to the newspaper.

But they did not falsify their accounts, and the banks were only obliged to identify the wealth management companies holding U.S. securities, not the people investing in them. (Reporting by Jonathan Lynn; Editing by William Hardy)

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