Switzerland pledged to maintain its tradition of banking secrecy yesterday after its authorities took the unprecedented step of revealing to US investigators the names of up to 300 American clients of troubled UBS bank who were suspected of tax fraud.
In what seemed a desperate attempt to limit damage from the disclosure, the Swiss President, Hans-Rudolf Merz, issued a statement proclaiming: "Banking secrecy, ladies and gentlemen, remains intact."
Mr Merz admitted Swiss authorities had delivered to US investigators the files of between 250 and 300 UBS customers suspected of tax fraud during a transfer in the Swiss capital, Bern.
The transaction took place early on Thursday to meet a deadline the US had set for Switzerland to meet its demands. UBS, the largest Swiss bank, began negotiations with the US last year after allegations emerged that the bank had helped up to 17,000 Americans conceal about $20bn (£14bn).
Mr Merz , UBS and Switzerland's financial regulator were adamant yesterday that the disclosure did not amount to a blatant infringement of the country's tradition of banking secrecy because it concerned a small number of foreign customers suspected of tax fraud rather than tax evasion.
Swiss law allows banking secrecy to be lifted in cases where individuals are suspected of having deliberately defrauded tax authorities, as opposed to cases where customers have failed to declare all of their assets.
Mr Merz justified the distinction and said banking secrecy protected privacy but "does not protect tax fraudsters". The unprecedented disclosures shocked Swiss banking experts.
Many said the decision to bypass the courts and surrender the names of clients to tax investigators seriously undermined a banking principle conceived in the Middle Ages which had enabled Switzerland to become one of the world's wealthiest nations.
Hans Geiger, a professor of banking at Zurich University, said UBS clients had lost security and trust as a result of the disclosures: "This so-called agreement is a brutal demonstration of why banking secrecy should be guaranteed under the Swiss constitution."
The Swiss Bankers' Association condemned the disclosures and said the names of the clients had been handed over before the legal process initiated last year between the US and Switzerland had been finalised.
Rainer Schweizer, a professor of law at Switzerland's St Gallen University, said the disclosure had shaken the foundations of the Swiss legal system.
Other experts declared the disclosure demonstrated that undeclared financial assets were no longer safe in Switzerland.
Mark Pieth, a Swiss professor and an investigator of corruption in the UN Iraq oil-for-food programme, accused the US of blackmailing Switzerland into revealing the UBS client names.
The disclosure follows months of pressure from the US tax authorities and the US Justice Department which had issued a summons demanding that the names of the suspected clients be revealed. Under the terms of a so-called deferred prosecution agreement, UBS and its executives could have been indicted had the Swiss bank refused to comply.
The Justice Department indicted a former UBS official in May last year and in November, Raoul Weil, one of the bank's senior executives was also indicted. US officials had warned that other banking executives could face similar charges.
Mr Merz conceded yesterday that further US indictments of senior UBS staff along with a threatened wider inquiry into the ailing bank's business practices in America would have posed a threat to the Swiss economy during the global economic downturn.
The potential number of US clients of UBS bank whose names were revealed as part of a tax fraud investigation.Reuse content