UBS New York headquarters

Update 3  New York, USA (NYT) – According to the New York Times, Switzerland’s largest bank UBS, under pressure from the US tax authorities, has begun to close “hidden offshore accounts of its well-heeled American clients, potentially allowing their secrets to spill into the open.” Reuters, with a more complete report, has had the information confirmed by UBS, which notes that this is a process that started in November 2007 and which was publicized some months ago.

In July 2008 the IRS (Internal Revenue Service) demands for access to several thousand UBS and other banks’ clients’ accounts led to Mark Branson, the chief financial officer for the bank’s wealth management unit, addressing a US Senate subcommittee. He announced that UBS would be “exiting completely” the offshore banking business for US residents through its own branches: “UBS will no longer provide offshore banking or securities services to US residents through our bank branches. Such services will only be provided to residents of this country through companies licensed in the United States.” Offshore banking is a $7.3 trillion industry, also known as cross-border banking: the assets are managed in a country in which the owners of the assets are not resident.

In 2007, offshore accounts were 6.6% of global private wealth estimated at $109.5 trillion, according to figures published this week by the Swiss Bankers Association. Switzerland is the world leader in offshore banking, with 27% of the market. North America remains the world’s largest high wealth management market, with 3.3 million (high networth individuals) HNWIs, with Europe having 3.1 million and Asai-Pacific 2.8m. UK and Channel Islands banks have 24% of the world market. US banks in Florida and New York account for 7% of the market.

The current UBS account closings are the result of the bank’s decision seven months ago and are part of a larger reorganization of the bank’s business. Branson in his statement to the Senate subcommittee pointed out that offshore banking is legal and that it was complying with IRS investigations. He said UBS accepted that internal controls had been inadequate.

The Economist, writing in its 30 December 2008 issue, notes that UBS has in the past year become a more tightly focused bank with wealth management as its core business and that it may well be better positioned than many banks to come out of the global banking crisis looking healthy.

UBS has been accused by some IRS authorities and members of Congress of helping wealthy Americans hide cash in some 19,000 offshore bank accounts. According to the NY Times, owners of these accounts must now decide how to handle their closing, whether to transfer the monies into other accounts and declare them to the IRS or to keep closing-out checks from UBS indefinitely in order to avoid detection.

UBS has not commented on the NY Times article but a spokeswoman in Zurich, quoted by the newspaper, said that the closings were progressing in an orderly way.

• UBS press release, July 2008, on the accounts’ closings
• Financial Times article, July 2008, (free online registration needed) on offshore banking, onshore banking and where Swiss banks are headed
• OECD definition, offshore banking
• wikipedia definition, tax haven

- with reporting by Ellen Wallace and Laila Rodriguez; Ellen Wallace edited this report

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