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DE RUEHSW #0098/01 0631548
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R 041548Z MAR 09
FM AMEMBASSY BERN
TO RUEHC/SECSTATE WASHDC 5692
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE
RHMFISS/DEPT OF JUSTICE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC

2009-03-04 15:48:00	09BERN98	Embassy Bern	CONFIDENTIAL		VZCZCXRO9450\
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DE RUEHSW #0098/01 0631548\
ZNY CCCCC ZZH\
R 041548Z MAR 09\
FM AMEMBASSY BERN\
TO RUEHC/SECSTATE WASHDC 5692\
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE\
RHMFISS/DEPT OF JUSTICE WASHINGTON DC\
RUEATRS/DEPT OF TREASURY WASHINGTON DC	C O N F I D E N T I A L SECTION 01 OF 02 BERN 000098 \
 \
SIPDIS \
 \
DEPT OF JUSTICE FOR B.SWARTZ \
 \
E.O. 12958: DECL: 03/04/2019 \
TAGS: ECON ETRD EINV SZ
SUBJECT: UBS CASE: SWISS PERSPECTIVE AND A WAY FORWARD \
 \
Classified By: CDA Leigh Carter for reasons 1.4(b) and (d). \
 \
¶1.  (C) Summary.  UBS' handover of client information to the \
Department of Justice incited criticism in numerous press \
articles and from several Swiss political parties calling the \
U.S. action one of extortion and blackmail.  However, the \
step was supported by elements of the moderate to left \
parties.  In discussions with econoff, several banking, \
business, and government representatives expressed disbelief \
at the extraordinary and criminal actions taken by UBS and \
surprise at the Swiss government's lackluster response and \
failure to fine UBS.  The press lamented that the UBS case \
will mark the beginning of the "end of banking secrecy", \
despite public assurances by President (and Finance Minister) \
Hans-Rudolf Merz to the contrary.  The Swiss public and \
government cherish banking secrecy as a (highly-profitable) \
national institution. The public's ire at the U.S. (and EU) \
for pressuring Switzerland should not be underestimated and \
could have a long-lasting negative backlash to bilateral \
relations and increased anti-Americanism.  President Merz's \
overtures for concessions and incremental changes to secrecy \
open the door for a way forward:  approaching Switzerland to \
discuss renegotiation of our bilateral agreement to \
incorporate the broader scope of coverage found in the \
U.S.-Liechtenstein tax agreement, specifically to include tax \
evasion.  End Summary. \
 \
PRESS CRITICIZE U.S. AS HEAVY HANDED \
------------------------------------ \
 \
¶2.  (U) UBS' handover of client information to the Department \
of Justice incited criticism in numerous press articles and \
from several Swiss politicians.  However, the step was \
supported by elements of the moderate to left parties.  As \
the continual lead story in most papers, the majority of \
quoted opinions recognize UBS' criminal conduct, however, \
they equally criticize the U.S. for exerting undue pressure \
in a time of global economic crisis to obtain documents prior \
to the conclusion of Switzerland's legal assistance \
proceedings.  Many articles cite "extortion", "bullying", and \
"blackmail" by the U.S. Department of Justice in forcing UBS' \
and the Swiss government's hand in violating their judicial \
proceedings and bank secrecy laws. \
 \
BUT UBS CONDUCT WENT TOO FAR! \
----------------------------- \
 \
¶3.  (C) Despite these press articles, business, banking \
industry and government representatives expressed disbelief \
at the extraordinary criminal conduct of UBS bankers.  Martin \
Naville, CEO of Swiss Amcham, told econoff that given the \
clear criminal actions, he was surprised by the Swiss \
government's reaction, which he opined made the situation far \
worse.  He criticized the government for failing to provide \
the documents immediately upon the Federal Council's public \
announcement to do so, which allowed the courts to become \
involved and slowed down the process further.  Naville, in a \
press interview, attempted to shore up U.S.-Swiss bilateral \
relations by stressing that the case is a U.S. domestic \
affair involving a bank licensed to do business in the U.S., \
with U.S. clients, and under U.S. laws.  He criticized, \
however, the U.S. for moving forward prior to the conclusion \
of the legal assistance proceedings. This same opinion was \
reiterated to econoff by Swiss National Bank Deputy Head of \
Financial Stability Juerg Blum and other government officials \
in the financial arena. \
 \
¶4.  (C) Bank representatives were equally surprised at the \
degree in which UBS skirted the law and the qualified \
intermediary agreement.  CreditSuisse Managing Director of \
Public Policy Rene Buholzer stated that Swiss banks' biggest \
concern is that the U.S. will capitalize on UBS' egregious \
conduct as fodder to renegotiate the tax treaty and qualified \
intermediary (QI) agreement.  Buholzer commented that the QI \
was riddled with loopholes that needed to be tightened, but \
regardless UBS had entered into criminal territory in \
exploiting them.  He also could not understand why the Swiss \
banking authority, FINMA, did not fine UBS as well, and only \
gave them a slap on the wrist.  Roland Marxer, Liechtenstein \
Deputy Foreign Minister, who has spent the last year working \
with the Liechtenstein-U.S. Tax Information Exchange \
Agreement (TIEA) and its impact on Liechtenstein's banking \
secrecy laws, also expressed shock that FINMA did not impose \
criminal fines on UBS. \
 \
 \
THE DEMISE OF BANKING SECRECY? \
------------------------------ \
 \
 \
BERN 00000098  002 OF 002 \
 \
 \
¶5.  (C) The media and pundits have questioned whether the UBS \
case will mark the end of banking secrecy.  President Merz, \
on the other hand, stated in his press conference that the \
UBS case is an individual incident, involving criminal \
behavior that was always covered by the U.S.-Swiss bilateral \
arrangement, and therefore does not call into question \
banking secrecy.  He compared it to money laundering and \
other financial crimes, and reminded the Swiss that banking \
secrecy is not designed to protect criminal behavior. \
Despite Merz' confident assurances in the institution of \
banking secrecy, the Federal Council created a task force to \
delve into the UBS criminal case and to determine the best \
path forward on the pending civil case. \
 \
¶6.  (C) The industry appears less concerned than expected \
regarding the fate of banking secrecy.  Buholzer stated that \
he does not equate "the end of secrecy with the end of \
banking."  BSI Bank Director General Vincenzo Piantedosi \
agreed with this assessment, although he cautioned that a \
"transition period" would be needed to "absorb excess labor \
forces" as the asset management business dwindled.  Marxer \
noted that Liechtenstein has not experienced any fall in \
current wealth management assets since the TIEA was signed, \
but that the rate of new deposits was declining.  Although \
SNB has not completed a study on the impact of secrecy on \
wealth management, Blum estimated it would have "some \
impact", but did not think its loss would affect "too many \
banks." \
 \
¶7.  (C) Bankers did warn that a level playing field was \
necessary to end bank secrecy without undue financial harship \
to the Swiss.  Both Buholzer and Marxer cited Singapore as a \
prime player that would benefit from the demise of secrecy in \
Europe.  Piantedosi was not so concerned with non-European \
countries' markets since they do not offer the same history \
of reliability and stability, but did express reservations if \
other European havens, such as Austria, remained secrecy \
strongholds, while Switzerland did not. \
 \
¶8.  (C) While the bankers provide an optimistic view should \
secrecy be abolished, the Swiss public and government cherish \
banking secrecy, not just as a contributor to the financial \
sector and GDP, but as a national institution and part of \
Switzerland's cultural identity.  The Swiss government will \
push hard against the 52,000 John Doe summons, which they \
view as a fishing expedition, outside of legal assistance and \
in violation of their banking secrecy laws.  The public's ire \
at the U.S. (and EU) for pressuring Switzerland should also \
not be underestimated and could have a long-lasting negative \
backlash on bilateral relations and increased \
anti-Americanism. \
 \
THE WAY FORWARD \
--------------- \
 \
¶9.  (C) Both the Swiss and Liechtenstein governments, as well \
as bankers, have intimated at a solution that would provide \
them with much needed political cover and still allow the \
U.S. to breach the current tax fraud versus tax evasion \
cut-out in our bilateral agreements.  President Merz admitted \
at a recent conference that banking secrecy, while not at its \
end, must evolve to match current times.  He suggested that \
concessions must be made to stave off criticism and \
blacklistings.  Marxer confirmed that Liechtenstein also \
recognized secrecy was evolving, but he warned that changes \
needed to be incremental to allow citizens and financial \
institutions to adjust.  As an example, he cited \
Liechtenstein's expansion of exceptions to secrecy laws first \
through money laundering restrictions, then the QI, and \
finally the more recent TIEA. \
 \
¶10.  (C) Given President Merz's overtures for concessions and \
the incremental changes that have already occurred within \
Switzerland, post recommends that the USG approach \
Switzerland to discuss renegotiation of our bilateral \
agreement to incorporate the broader scope of coverage found \
in the U.S.-Liechtenstein TIEA, specifically to include tax \
evasion.  The Swiss government can spin the bilateral \
agreement as a further step in our relations that assists \
both countries in halting willful criminal conduct. At the \
same time, by not opening the door completely, it will enable \
the government to assure the public that secrecy exists \
absent criminal conduct, as well as provide the Swiss some \
defense against the EU's expected campaign to eliminate \
secrecy altogether. \
CARTER \v