Swiss leader says banking secrecy 'intact,' just not all the time

Switzerland's president declared Thursday that his country will uphold its treasured tradition of confidential bank accounts even as it took the unprecedented step of revealing at least 250 possible tax cheats to U.S. authorities.

"Banking secrecy, ladies and gentlemen, remains intact," President Hans-Rudolf Merz told reporters.

Merz said Swiss authorities handed over the files on 250 to 300 American clients of Swiss bank UBS AG who are suspected of committing tax fraud. The transfer took place in the middle of the night in the Swiss capital Bern, just ahead of a U.S. deadline for Swiss co-operation, he said.

Switzerland's largest bank and U.S. officials have been negotiating intensely since allegations surfaced last year that UBS helped as many as 17,000 Americans conceal up to $20 billion US.

Difference between tax evasion and tax fraud

Merz, UBS and Switzerland's financial regulator all insist that Thursday's handover is not a retreat from the principle of banking secrecy because it concerns only a small number of files that are linked to tax fraud rather than tax evasion, a detail that may not reassure every client with a secret account.

Under a 75-year-old law, Swiss banking secrecy can only be lifted when individuals are deemed to have defrauded tax authorities deliberately as opposed to failing to declare all assets, a distinction Switzerland and other tax havens make.

Banking secrecy "serves to protect privacy," Merz said. "However, it does not protect tax fraudsters."

Experts said the decision to bypass the courts and give up customers before exhausting all legal options seriously endangers a pillar of the banking industry that helped transform Switzerland into one of the world's richest countries.

"This so-called agreement is a brutal demonstration for why banking secrecy should be guaranteed in the Swiss constitution," said Hans Geiger, emeritus professor of banking at the University of Zurich.

UBS customers have lost a measure of security and trust through the move, he said.

Zurich lawyers immediately filed a suit against the head of Switzerland's financial services authority FINMA, which authorized the transfer of files.

Rainer Schweizer, professor of public law at the University of St. Gallen, said the foundations of Switzerland's legal system have been shaken.

UBS agrees to pay fine of $780 million

Undeclared money was no longer safe in Switzerland, said Susan Emmenegger, professor of banking at the University of Bern.

Under the deal, UBS also agreed to pay a $780-million US fine and co-operate further with U.S. authorities.

The Swiss Bankers Association said it regretted the settlement because it was agreed before a legal process initiated last year between U.S. and Swiss authorities had been completed.

The decision to act quickly, rather than wait for Switzerland's often slow and costly legal system to approve the transfer of the files, follows intense pressure from Washington.

After indicting a former UBS official in May, American prosecutors stepped up their probe of UBS last November by indicting senior UBS banker Raoul Weil and warning that other top executives could face similar charges. One name mentioned was Peter Kurer, the bank's former general counsel and current chair.

Merz said U.S. indictments of the bank's most senior staff, along with a wider investigation into its business practices in the United States, would have threatened the Swiss economy as a whole during a serious economic downtown.

Mark Pieth, a Swiss professor and one of the main investigators of UN corruption in the Iraq oil-for-food program, was more to the point, saying the United States "blackmailed" Switzerland.