Swiss gov't to block UBS record transfer to US

ZURICH: The Swiss government has vowed to go all out to prevent banking giant UBS from releasing client data to US tax authorities and will seize the information itself if necessary, documents showed on Wednesday.

In a filing to a US District Court in Miami, Bern also accused US officials of seeking to "provoke international conflict" through a lawsuit to force UBS to divulge names of 52,000 US clients clients suspected of tax evasion.

"The government of Switzerland will use its legal authority to ensure that the bank cannot be pressured to transmit the information illegally," said the Swiss government in its filing.

This includes "if necessary by issuing an order taking effective control of the data at UBS that is the subject of the summons and expressly prohibiting UBS from attempting to comply" with the US authorities.

UBS, one of Switzerland's biggest banks, has argued that it cannot comply with the US demand as such a move would mean violating Swiss banking secrecy law and could therefore make it liable for prosecution in Switzerland.

In its court filing, the Swiss government backed up UBS's claim, saying the company was "unable to comply with the summons without violating Swiss law" and stressed that it was ready to intervene if necessary.

"It is hoped that it will be unnecessary for the government of Switzerland to take the extraordinary action of issuing an order to seize the information at issue, but such an action should be expected if the IRS (Internal Revenue Service) continues to pressure UBS to violate Swiss law," the government said.

Caving in to strong international pressure against its banking secrecy rules, Switzerland earlier this year agreed to negotiate bilateral deals to help foreign authorities clamp down on tax cheats.

But such deals would allow for information to be swapped only on cases where there is evidence of the offence and prohibits automatic data transfer.

Swiss Minister for Economic Affairs Doris Leuthard also warned in a speech delivered to the Swiss American Chamber of Commerce in New York Wednesday that one such bilateral deal negotiated between Switzerland and the US may be blocked if the UBS case was not settled.

"Before entering into force, the agreement must be approved by parliament, and perhaps even by popular vote. Chances of approval will be small, if the legal action against Switzerland's biggest bank, UBS, will not be solved," she said.

Meanwhile, the Swiss government also took issue with the US claim that while Switzerland had strong interests in its banking secrecy, the court must consider those interests in light of UBS's actions, particularly since the bank had earlier admitted in February to tax fraud in the United States in another case.

The bank then agreed to pay 780 million dollars (560 million euros) under a provisional deal to settle charges that it helped US clients evade taxes.

For Switzerland, Washington's claim means that US interest is "always preeminent" and ignores foreign interests entirely.

"The Government of Switzerland did not condone the actions for which UBS has been punished... but that does not create a basis... to abandon the respect that should be accorded between nations to avoid conflicts of sovereignty," it said in its court filing.

Swiss President Hans-Rudolf Merz on Tuesday suggested that UBS could resolve the issue by paying taxes claimed by the US on behalf of its clients.

"Rather than the clients who have withheld assets from the American tax authorities, UBS can pay," he told Swiss radio DRS.

UBS, which has posted losses reaching 17 billion dollars last year, warned in June of further losses in the second quarter. It also sought 3.8 billion Swiss francs in fresh capital to bolster confidence.