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Updated 12:05  Zurich, Switzerland and Washington, DC, USA (GenevaLunch) – UBS, Switzerland’s largest bank, the US Justice Department and the Securities and Exchange Commission Wednesday 18 February signed an agreement designed to end a dispute over the bank’s offshore business with US clients. The agreement is provoking mixed reactions, with the Wall Street Journal saying that the “settlement puts the Swiss bank on the road to closing an embarrassing period,” while there is concern in Switzerland that the speed with which the bank and national banking authority have moved, under pressure from the US, have resulted in Swiss law not being respected. American citizens in Switzerland are also voicing concerns about a likely negative impact of the agreement in the long run on their ability to manage their finances,

According to the bank’s statement on the agreement, it will pay CHF780 million to close the affair: a combination of back taxes (withholding tax) and “disgorgement” of profits from cross-border business. The costs will be included in the bank’s 2008 results, the audited version of which will be announced 9 March.

The bank says that “pursuant to an order issued by Finma,” the Swiss banking supervisory authority, It will deliver the names of a group of clients identified as likely having committed tax fraud. There is no specific mention of 250 names, a number provided frequently based on a provisional minimum number given by the bank in 2008. UBS does say that, in exchange, the Department of Justice “will refrain from pursuing charges against UBS relating to the investigation of its US cross-border business” if the bank fulfills a series of obligations that are part of the agreement, including UBS exiting from its US cross-border business.

Finma for its part welcomes the settlement, which it says avoids “the looming threat of formal criminal charges being filed against the bank in the USA. In order to avert the drastic consequences such charges would have for UBS and the stability of the Swiss financial system, Finma has ordered that a limited quantity of client data be handed over to the US authorities immediately.” Finma also makes it clear that it backs the “SFBC ruling [that] reprimands UBS for a severe breach of certain provisions of the Swiss Banking Act by individual staff members and serious shortcomings in dealing with the legal risks associated with its business with US clients.” The result of that ruling is that UBS is now forbidden by the supervisory authority to  “engag[e] in the cross-border business with private clients resident in the USA in the future.” It notes that UBS is moving out of the business of its own accord, but the decision underpins this with a legal sanction.

Andy Sundberg, a long term US resident overseas and founder and director of several overseas American organizations, says “Given the ambiguity of this commitment and the growing wave of account closures taking place now for overseas Americans by both US and foreign banks, it looks like another grim forecast of what lies ahead for all of us. It is entirely possible that in the future US citizens living outside the United States may be required to live entirely in a world of cash.”

In Swiss media, Le Temps reacted by pointing to concerns that Swiss law may be one victim of the agreement. TSR and RSR, Swiss public television and radio in French, also note that people are angry and upset at the legal shortcut taken to save UBS’s American banking license, because of pressure from the US. 20 Minutes initially stuck to the ats wire service report, but also noting that UBS shares went up sharply in trading Thursday morning. It later added that the country’s political parties are angry over the bank giving in to US pressure. The Tribune de Geneve and its sister Lausanne daily 24 Heures note offer the reminder that the legal issue of whether the clients under question committed fraud or tax avoidance is not yet resolved, and the distinction is a critical one under Swiss law and for the mutual tax agreement between the two countries. Swissinfo and World Radio Switzerland, the English language arms of public broadcast group SSR to which TSR and RSR belong, take a more measured tone, with WRS referring to “a blow to Switzerland’s cherished banking secrecy” while swissinfo maintained a fairly neutral tone, reporting details of the agreement.

The Swiss Federal Council has not issued an official statement on the agreement but noted informally Wednesday evening that it had taken note of it.

Related:

Finma’s 17-page summary report from the Swiss Banking Commission on UBS’s cross-border banking business

Story as reported by the Financial Times, Wall Street Journal (subscription).

In France, Le Monde doesn’t carry a story about it.