Switzerland…. Neue Zürcher Zeitung has:
Switzerland: History shows that financial institutions can survive a prosecution in the USA – but often not for long.
In the debate on the ”Lex USA” the Swiss parliament faces uncomfortable compromises in solving the tax dispute. Much talked about was the question if a US prosecution against a Swiss bank really resembles a death sentence, which is the accepted idea. Primarily representatives for the regional banks have publicly doubted this idea. A historical perspective might give some hints. An American law firm has made an analysis of nearly a dozen cases the last thirty years to Switzerland’s financial circles, which seems to confirm the pessimists.
According to the analysis all except one of the prosecuted institutes have either been taken over or has totally disappeared – perhaps not immediately, but years later.
List of prosecuted:
The allegations were among other things fraud, forgery, money laundering, insider trading, bribery and financing of terror:
E. F. Hutton. US-Broker. Prosecuted 1985 Sold 1987 to Shearson Lehman.
Drexel Burnham.US-Investment bank Prosecuted 1989 bankrupt 1990.
BCCI. Major international bank. Prosecuted 1990 multiple charges bankrupt
Daiwa Bank. Prosecuted 1996 US-business has folded
Bankers Trust. Prosecuted 1999 taken over by Deutsche Bank.
Republic New York Corporation. Prosecuted 1999 Sold to HSBC.
Arthur Andersen. Accountant Prosecuted 2002 folded
Crédit Lyonnais. Prosecuted 2003 sold to Crédit Agricole.
Riggs Bank. US-Institute. Prosecuted 2005 later sold to PNC.
Bank Wegelin. Prosecuted 2012 sold to Raiffeisen Group.
The typical consequences of the prosecution were: Other banks avoids collaborating with the targeted institute, funding by the interbank market gets difficult to impossible, clients withdraw funds, staff gets insecure, no new customers are coming in.
The mentioned exception is the Canadian bank – Bank Nova Scotia. It was prosecuted in 1982 (tax questions) and exists today with a slightly changed name (Scotiabank). The charged were dropped for procedural reasons as the law firm’s analysis calls it. The survival of the bank is ascribed to ”special circumstances”.
Something struck a chord!
UBS has been in the searchlight despite getting the former CEO of Bundesbank Axel Weber as chairman of the board. Despite claiming that UBS AG (NYSE:UBS) does not assist and abet tax-evasion, lately they appear to experience some funding problems.
Now what could happen in such circumstances – and it is just speculation – is that dirty (or at least tinged) get scared and move their deposits to the regional banks (hence the optimism of the regional banks) that will now lend the international bank funds from their deposits – or that may be the plan; but it is unlikely the regional bank wants to partly attract attention or it is not totally convinced of the international banks future.
This would explain the German position that a settlement with the major banks is not that interesting. Here the German Finance Minister Wolfgang Schäuble is far from convincing in his lament that the Swiss-German agreement fell through. This was due to a refusal in the Bundesrat (approx. Senate) which is held (firmly) by the opposition as tax collection is a state – not federal – matter in Germany.
This does not mean that f.i. a Swiss private or regional bank must fold or get sold off after charges have been brought. The circumstances in each case make an important difference but history does indicate that the risks for an institute under investigation are large. Nevertheless it could be argued that a sale of healthy parts – like the Wegelin case – does not constitute a national economic drama. Sale of major private institutions or local banks would be considerably more difficult and have larger job losses as a consequence. The number of institutes also has a major role. If a number of banks were charged simultaneously the systemic effect on the confidence in the total financial market cannot be disregarded.
Switzerland Rough estimates
The parliament has to make a risk assessment. If the parliament does not pass a ”Lex USA” and leave the thorny question to the Bundesrat [”senate” in Switzerland] some risk may come up. How great is the risk that a Swiss judge would prevent the exchange of the demanded files? And what is the probability that the US justice system would react with a prosecution? Multiplied it would mean a probability of between 2% and perhaps 30% with an average of about 15% – which a person with public responsibilities cannot ignore. This back of envelope calculation is not to be taken at face value and ignores qualitative factors; but they may give an impression of what estimates are to be made.
Besides: There are other factors to consider. You could ask: Will the USA accept the legal framework of the double taxation agreement for the legal assistance concerning bank customer data falling apart? Or would the probable return without the ”Lex USA” to the principle of individual treatment for each bank be cheaper or more costly for the each bank than the offered US-framework. Such factors are difficult to calculate; but that does not mean that they can be ignored.
No doubt about it: Switzerland is in a bind.The Tagesanzeiger has this story:
The ominous”milk notebooks” from UBS France
Examples of codenames and weird bookkeeping crops up in a case against the subsidiary of a major bank accused of illegal acquisition of customers.
The plainly inevitable has happened – if surprisingly late: The French justice investigates after long deliberations now officially and formally UBS AG (NYSE:UBS) France. The Parisian investigation judge Guillaume Daïeff must have come to the opinion that he has gotten sufficient evidence and witnesses to prove foul play by UBS. The charge is abetting illegal customer acquisition. That is: The bank is supposed have helped dozens of UBS-investment brokers from Switzerland – the «amis suisses» – to tempt rich clients to hide their money in Switzerland. Clients in French show business, sports and the business community. The bank could also soon be investigated on the suspicion if abetting money laundering and tax fraud.
Up to now it is”only” the illegal systematic of acquisition, but if it hardens it could lead to rescinding the French banking licence and a large fine. 100 mio. EUR has been mentioned. In France the active acquisition of clients by investment bankers is only allowed provided the appropriate licences. In this case Swiss bank employees are supposed to have travelled incognito into France to encourage the desired clients to tax evasion at cultural- and sporting events specifically arranged for this purpose.
In the centre of the investigation are ominous and mysterious «carnets du lait» – or milk notebooks – in which illegal transactions between 2002 and 2008 are supposed to be noted. That is