Switzerland-based banking giant UBS AG announced that it has entered into a settlement with U.S. authorities to avert possible prosecution over its role in possible tax fraud.
As part of its “deferred prosecution agreement” with the U.S. Department of Justice, and consent order with the Securities and Exchange Commission, UBS will pay US$780 million (US$380 million in disgorgement and US$400 million in unpaid taxes, interest, penalties, and restitution for unpaid taxes). It will also complete its exit from the cross-border business that gave rise to these allegations, implement an effective program of internal controls, and it will provide information on clients that may have committed tax fraud.
In turn, the DOJ has agreed that any prosecution of UBS be deferred for at least 18 months. If UBS satisfies all of its obligations, the DOJ will refrain from pursuing charges against UBS relating to the investigation of its U.S. cross-border business. The agreements do not resolve issues concerning the pending “John Doe” summons which the IRS served on UBS in July 2008, it noted.
Additionally, UBS said that an investigation conducted by the Swiss Federal Banking Commission concluded that the bank violated the requirements for proper business conduct; as such, it barred UBS from providing services to U.S.-based private clients out of non-SEC registered entities. The SFBC also ordered UBS to enhance its control framework around its cross-border businesses and announced that the effectiveness of such a framework will be audited.
“UBS sincerely regrets the compliance failures in its U.S. cross-border business that have been identified by the various government investigations in Switzerland and the U.S., as well as our own internal review,” stated Peter Kurer, chairman of UBS. “We accept full responsibility for these improper activities. We are firmly committed to the terms of the settlement agreements we have reached with the DOJ and the SEC. We are determined to fully comply with the terms of these agreements and will complete the process without delay.”
With regard to the disclosure of client information, the firm said that under an order issued by the Swiss Financial Market Supervisory Authority, information will be transferred to the DOJ regarding accounts of certain U.S. clients, who, “based on evidence available to UBS, appear to have committed tax fraud”.
“Client confidentiality, to which UBS remains committed, was never designed to protect fraudulent acts or the identity of those clients, who, with the active assistance of bank personnel, misused the confidentiality protections embedded in the QI Agreement with U.S. authorities by providing false declarations regarding their tax status,” Kurer commented.
“It is apparent that as an organization we made mistakes and that our control systems were inadequate,” said Marcel Rohner, Group CEO of UBS. “We will strengthen our compliance programs. UBS seeks to achieve the highest standards of compliance throughout its organization and is committed to fulfilling its obligations under the laws and regulations in every country in which it operates.”
The cost for the settlement will be fully charged to the performance year 2008 and will be reflected in the audited results for 2008 to be published in March.
UBS could avoid tax fraud prosecution
Deal could result in the U.S. Department of Justice if the Swiss bank meets all its obligations
- By: James Langton
- February 19, 2009 February 19, 2009
- 10:47