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Letter from America | 7
UBS Under Attack
A massive legal row is brewing between
the US authorities and the Swiss bank
by Charles Lewis Sizemore, CFA
Chief Investment Officer,
Sizemore Capital Management LLC
L
ast month, in writing about the launched what could only be described as a administration, Switzerland is home to
proposed “Stop Tax Havens full frontal assault on Swiss banking giant approximately one third of the world’s $7 tril-
Abuse Act,” we expressed cau- UBS, demanding that the bank—in direct vio- lion in offshore assets. It is this all-important
tious optimism that the bill lation of Swiss law—hand over the names of reputation that has allowed Switzerland to dif-
would be off the legislative agen- 52,000 American account holders. ferentiate itself from other jurisdictions.
da for at least the next year, rea- In light of recent developments, including Should Switzerland’s reputation for discretion
soning that the Obama Administration simply the prospect of a hostile G20 meeting in April, and privacy be materially damaged, it is nearly
had too many other priorities that demanded it is now obvious that we were far too opti- certain that a not insignificant amount of
immediate attention. We also—admittedly mistic. The Stop Tax Havens Abuse Act may or those deposits would find a home elsewhere.
naively—took the President at his word when may not come up for congressional delibera- This has already been proven true in the case
he talked of repairing the United States’ image tion, but the Administration has made it very of UBS. Citing bad publicity from investments
in the world, believing that the Administration clear that it intends to forcefully attack off- gone wrong and the deepening tax evasion
would not assume the aggressive posture that shore financial jurisdictions even without the scandal as major contributing factors, The
the bill demanded. And, perhaps most ridicu- new Act. This will potentially affect hedge New York Times reports that clients withdrew
lously of all, we even suggested that the funds, insurance companies, and other finan- 123 billion Swiss francs ($105 billion) in
Administration would, in spite of all cam- cial intermediaries in addition to “onshore” 2008—nearly 8% of assets under manage-
paign rhetoric, initially pursue a “Reaganesque” companies with various offshore or out- ment. New figures have not been released, but
tax policy of maintaining the currently low tax sourced operations, and wealthy individuals it is safe to assume that the bank has lost addi-
rates on upper-income Americans in the belief seeking privacy and legitimate tax-minimiza- tional assets during the first three months of
that the economy was currently too weak to tion and lawsuit-protection strategies. 2009, and we will never be able to calculate
support tax increases. The Obama Administration’s prosecution of the potential assets lost to bad publicity, as
Alas, this is the problem with print media. UBS may yet surpass that of the Bush would-be investors decided to choose the next
The lead time between article submission and Administration against the offshore internet bank down the street.
printing can be as short as a few days, but at gambling industry, and the results of this The bank’s reputation within Switzerland—
the pace at which things are changing, a few prosecution will almost certainly be further and among its foreign account holders—was
days can be an eternity. Just days after we sub- reaching. At the root of the issue is a question perhaps irreparably damaged by its settlement
mitted last month’s article, the Obama of banking privacy and to a large extent a with the US Justice Department in which the
Administration proposed the biggest expan- question of national sovereignty and of juris- bank gave up the names of 250-300 US
sion of the Federal Government since Franklin diction in a globalised world in which capital account holders (and paid $780 million in
Delano Roosevelt’s New Deal and proposed is mobile. fines) to avoid criminal prosecution.
paying for this almost entirely with tax With its well-deserved reputation for stabil- Reputations, once damaged, are hard to
increases on high-income earners. It also ity, neutrality, first-class service and honest rebuild. UBS realises this, and it has acted
www.investmentinternational.com March 2009 Investment International
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