US lawsuit violates sovereignty: SZ

ZURICH: Switzerland has called on the United States to drop a move to sue Swiss bank UBS for client data as it "violates Swiss sovereignty" and forces the bank to break Swiss banking secrecy laws.

It also disregards a tax treaty between the two countries and could hurt negotiations for revising the treaty, the Swiss Federal Office of Justice said in response to a lawsuit brought by the US against the country's biggest bank.

In an attempt to crackdown on tax cheats, the US tax authorities have filed a lawsuit to force UBS to hand over information on 52,000 clients.

"This proceeding has a direct bearing on the Swiss-American Double Taxation Convention, as well as on the Swiss legal system and Swiss sovereignty," said the Swiss justice department's statement.

It noted that the case would "violate Swiss sovereignty since the information in question is located in Switzerland."

"Furthermore, such an attempt might force UBS to violate Swiss law. Finally, the Swiss government emphasizes that no other state would hand over data on that scale and in that way," it said.

Swiss banking secrecy laws prohibit banks from revealing client information except in criminal cases.

The government also warned that if the US Justice Department were to pursue the case, it could harm negotiations between Bern and Washington to revise the tax treaty to extend the exchange of information to include tax evasion.

"Switzerland is... concerned that the pending civil court proceeding against UBS might prejudice the successful conclusion of these negotiations and jeopardize ratification of the new treaty," said the justice office.

According to a copy of the submission to the US courts, Switzerland said: "For the foregoing reasons, the Government of Switzerland respectfully urges the Court to deny the petition to enforce the summons."

In a separate submission, UBS also called on the court to reject the case, citing similar issues raised by the Swiss authorities, such as the bilateral tax treaty and Swiss banking laws.

Switzerland and the United States are holding negotiations on the double-tax exemption treaty after Bern recently agreed to relax its traditional bank secrecy rules to provide more information on foreign tax cheats.

The country has come under intense pressure to ease banking secrecy rules and cooperate with foreign governments to clamp down on tax cheats.

UBS has come under intense scrutiny after it admitted guilt to US tax fraud in February and identified some 300 US clients suspected of fraud by the United States. It also paid a fine of 780 million dollars (587 million euros).