Switzerland Tax Evasion Cooperation – The Swiss government said Friday, March 13, it would cooperate on cases of international tax evasion, breaking with a long-standing tradition of protecting wealthy foreigners accused of hiding billions of dollars in the Alpine nation.

The government insisted it would hold onto its cherished banking secrecy rules, but said other countries could now expect Swiss cooperation in cases where they provide compelling evidence of tax evasion.

Switzerland passed its banking secrecy laws in 1934 during a worldwide depression and under the threat of espionage by France and Nazi Germany, which aggressively courted Swiss bank employees to divulge the names and data of customers. Strict penalties were imposed for violating bank confidentiality.

“We want assistance to be restricted to individual cases to prevent fishing expeditions,” President Hans-Rudolf Merz told a news conference, referring to the practice of seeking information about many individuals in the hope of discovering a few tax evaders.

A number of countries are hoping to avoid being blacklisted by world powers when they meet in April to discuss stepping up their fight against tax cheats. Austria and Luxembourg also said Friday they would step up cooperation on tax probes. But the greatest pressure has been on Switzerland, which is embroiled in a dispute with the United States over wealthy Americans that have stashed money in its biggest bank, UBS AG.

Swiss authorities have provided the U.S. with the bank details of up to 300 wealthy Americans suspected of tax fraud, but refuse to identify about 50,000 more U.S. account holders Washington wants.

The bank, and the government, have said further cooperation would violate Swiss law, which makes an unclear distinction between the serious crime of tax fraud and the minor offense of tax evasion.

“Banking secrecy does not protect tax crimes,” Merz said. The change, he added, “will increase the acceptance of the (Swiss) financial center and give customers greater confidence” and safeguard jobs in a sector that employs tens of thousands of people in Switzerland.

He said, however, that Switzerland will maintain banking confidentiality for clients unless foreign governments produce concrete evidence of tax evasion. Switzerland’s new cooperation will come into force after agreements with other governments that provide Swiss banks with new financial opportunities, he added.

Switzerland Tax Evasion Cooperation – Switzerland has been struggling to come up with a strategy for preserving banking secrecy while satisfying the demands of the United States, France, Germany and other foreign governments looking to crack down on tax evaders. The confidentiality of bank accounts is a sacred cow in the country, comparable to its long-standing neutrality, and has helped the country become one of the world’s richest.

The Swiss government also said Friday it would take part in a U.S. civil case against UBS, which is being accused of facilitating massive tax evasion by wealthy Americans. The Swiss will protect their “sovereign interests,” according to a statement.

The UBS case represents the most serious crisis in the Swiss banking community since the uproar in the 1990s over Jewish accounts left unclaimed after World War II. After reacting slowly, Swiss banks eventually agreed on a $1.25 billion out-of-court settlement with the descendants of Holocaust survivors.

UBS is the world’s largest private bank and Switzerland is the world’s largest offshore tax haven, with trillions of dollars in assets.

Tax evasion is not considered a crime in Switzerland. However, disclosing client names is a criminal offense under Swiss law and can expose bank executives and officers to fines, prison terms and other penalties.

The lawsuit accuses UBS and Switzerland’s financial regulator, the Swiss Financial Market Supervisory Authority, or Finma, of violating Swiss bank secrecy laws and of conducting what Swiss law considers illegal activities with foreign authorities. It also named Peter Kurer, the chairman of UBS, and Eugen Haltiner, the chairman of Finma, as defendants.

The suit stems from UBS’s agreement last week to turn over to U.S. authorities the names of 250 wealthy Americans suspected of using secret UBS offshore accounts and entities to evade taxes. See our previuus article…UBS Admits Tax Evasion Scheme

The suit, filed by a lawyer in Zurich, Andreas Rued, underscores the growing clash between Swiss banking secrecy laws and those of the United States. Mr. Rued could not be reached for comment.

UBS, the largest bank in Switzerland, agreed on Wednesday to divulge the names of well-heeled Americans whom the authorities suspect of using offshore accounts at the bank to evade taxes. The bank admitted conspiring to defraud the Internal Revenue Service and agreed to pay $780 million to settle a sweeping federal investigation into its activities.

The Securities and Exchange Commission (SEC) also reached an agreement to resolve claims that UBS acted as an unregistered broker-dealer and investment adviser to U.S. citizens who held accounts directly or in the names of others.

The US Justice Department announced late Wednesday:

“UBS admitted to conspiring to defraud the United States by impeding the IRS,”

“in an unprecedented move” based on an order by Swiss authorities has agreed “to immediately provide the U.S. government with the identities of, and account information for, certain U.S. customers of UBS’s cross-border business”.

The Justice Department had accused UBS of conspiring to defraud the U.S. by helping 17,000 Americans hide accounts from the Internal Revenue Service. UBS will immediately turn over names of about 250 clients, according to people familiar with the matter.

By gaining those names, the U.S. will pierce the veil of Swiss bank secrecy. The IRS, which has sought the names of all U.S. account holders since July, has met resistance from the Swiss government. The final number of account holders which UBS must disclose will hinge on future legal battles, according to the agreement.

UBS Chairman Peter Kurer, 59, said in a statement after the accord was unsealed yesterday in federal court in Fort Lauderdale, Florida:

“UBS sincerely regrets the compliance failures,”

“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.”

Settlement Estimates – The $780 million is lower than previous settlement estimates, which exceeded $1 billion. The U.S. government agreed to the lower amount because of the bank’s eroding financial condition, according to a person familiar with the matter.

UBS posted the biggest ever annual loss for a Swiss firm last Tuesday and is cutting some 2,000 jobs as it reported reported a 8.1 billion Swiss franc ($7 billion) net loss in the fourth quarter…UBS Makes Record Loss

Credit Suisse Reports Huge Loss -Today, it’s the turn of Credit Suisse, Switzerland’s second-largest bank after UBS, which reported a 4th Quarter net loss of SFr6 billion ($5.2 billion) – its worst ever result – and a full-year loss of SFr8.2 billion ($7.09 billion).

The results are far worse than the 3.72-billion-franc loss analysts had excepted. Analysts had been forecasting a full-year net loss of around SFr6 billion and a loss of SFr4 billion for the fourth quarter. A year earlier Credit Suisse (nyse: CS – news – people ) had reported a full-year net profit of 7.8 billion francs.

Chief executive Brady W. Dougan blamed the result on a poor trading performance and restructuring charges and said in a statement today that the results were disappointing but noted that the Zurich-based bank had had a profitable start to 2009.

“While our full-year results are clearly disappointing, we entered 2009 with a very strong capital position, a robust business model, a clear strategy and well-positioned businesses,” commented CEO Brady Dougan.

Unlike its rival UBS, Credit Suisse hasn’t accepted any aid from the Swiss government, and CEO Brady Dougan told analysts Wednesday that it has remained a net provider of liquidity to the market throughout the credit crisis.

Credit Suisse shares dropped 6.3% in early Swiss trading. Most other European banking stocks also declined after Wall Street reacted negatively on Tuesday to the U.S. bank bailout plan.

UBS’s loss for 2008 came in at 19.7 billion Swiss francs, above analysts’ predictions of 18.7 billion francs.

UBS Makes Record Loss – The quarterly loss came on the back of a hefty 8.8 billion Swiss franc trading loss, as well as charges it made after selling billions in toxic assets to the Swiss National Bank when it was rescued by the State in October. The annual loss was attributed to negative revenues in the fixed income, currencies and commodities area of the Investment Bank.

UBS also announced structural changes to re-focus the bank on its core Swiss businesses, its global wealth management operation and on the growth potential of its onshore business. It is creating two new business divisions: Wealth Management & Swiss Bank alongside the move to cut its staff number to 15,000. The bank had already announced 9,000 job cuts before today.

Chief Executive Officer Marcel Rohner told journalists that the world’s biggest wealth manager was not paying a 2008 dividend but still aims to return to profit in 2009 after seeing some positive signs at the start of the year.

“While we leave a bad year behind us… we can nevertheless report substantial progress,” Rohner said. “Our businesses are well positioned for a challenging future. We had an encouraging start into the new year but the environment will remain difficult and volatile as the real economy has not seen (the) worst yet.”

UBS stock swung sharply in early trade, rising as much as 7 percent before dipping 2 percent to trade at 12.64 Swiss francs by 0910 GMT, broadly in line with a 2.3 percent weaker DJ Stoxx European banking index.

Swiss Banking and Switzerland are well known internationally for its Swiss Bank Secrecy. What is probably not as well known is the fact that, historically, Swiss banks have been among the strongest, if not the strongest banks in the world, in terms of tier 1 capital and reserves.

At a point in time in the recent past, both individually and collectively, they had massive secret or hidden reserves which were not fairly obvious from a review of the respective bank’s annual report. And they were justly criticised for this lack of transparency and apparent non-compliance with generally accepted standards of disclosure. This problem was eventually dealt with in a proper manner.

Swiss banks had, and Switzerland itself has, a reputation for conservative, prudent financial management and Swiss banks have long ago earned a reputation around the world for providing sophisticated and discreet banking services. They were amongst the most profitable, if not the most profitable banks in the world.

Because of the importance of the banking industry to the overall Swiss economy, any sort of financial crisis in the banking sector would receive the full attention of both the entire Swiss banking industry and of the Swiss government. But there is no government insurance of bank deposits. Recently, like so many other renowned international financial institutions, the major swiss banks have fallen on hard times as a result of the global sub-prime mortgage loan losses and have required financial support from the government.

There are more than 400 banks in Switzerland, ranging from the “Two Big Banks”, i.e. Credit Suisse and UBS, down to small banks serving the needs of a single small community or a few special clients. The Two Big Banks have extensive branch networks both throughout Switzerland and in many international financial centers. A number also have offices or other representation in foreign countries. Among the licensed Swiss banks are the Swiss branches of banks which have their headquarters elsewhere.

Banks are licensed by the Swiss Federal Government through its Banking Commission, and may operate throughout the country. The Swiss banking industry and financial markets are well controlled and monitored by the Swiss National Bank and other Swiss authorities, making Switzerland one of the safest countries in the world to conduct banking activities and do business.

Some banks specialize in only a few banking services, whereas others provide a wide range of services. As in most of continental Europe, individuals usually buy and sell stocks and bonds through their banks. The Swiss banks have a long reputation for managing investment portfolios for their clients, and providing other services such as estate planning, wealth management, trust companies, etc., for individual customers.