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UBS looks to ethics code to guide bankers’ behaviour

Court ruling against supervisory body opens door to client lawsuits

Zurich, Switzerland (GenevaLunch) – UBS, one of Switzerland’s two large banks, has issued a new code of conduct aimed at its employees and its board of directors, noting that the “Code defines the way UBS does business.” The document is the company’s latest effort to turn itself around after significant outflows of client funds under management, both in Switzerland and abroad, and sluggish share prices for over a year.

UBS operations in the United States were seriously compromised after it admitted to the US Justice Department that it had encouraged some US clients to evade paying taxes. UBS paid a $780 million fine as a result, in an agreement signed in February 2009.

One of its former US wealth division managers, Bradley Birkenfeld, has just begun a 40-month prison sentence in Pennsylvania for the same crime.

Profits likely up, reputation “most valuable asset”

Analysts have been reporting this week that UBS appears to have a profit in the final quarter of 2009, the first in more than a year, but the bank has declined to comment. It will post 2009 results 10 February.

In the new code’s preface, Chairman of the Board Kaspar Villiger and Group CEO Oswald Gruebel say that “in the new UBS we will uncompromisingly treat our reputation as our most valuable asset and we will protect it fiercely.”

The new code is to be included “in training activities at all levels to ensure that it is. . .understood and. . . applied.” The code, published Tuesday 12 January, applies to all of UBS’s 69,000 employees worldwide.

The 11-page document covers themes from ethical behaviour and conflicts of interest to health and safety in the workplace, human rights and the environment. It specifically states: “We do not provide assistance to clients or colleagues in acts aimed at deceiving tax authorities.”

Employees are encouraged to report unethical behaviour. It guarantees “applicable whistleblowing procedures” and warns that “retaliation for reports of misconduct by others that are made in good faith” will not be allowed.

UBS remains at centre of legal battles over account data

The code may provide guidelines for employees in the future, but UBS remains in the crossfire of an increasingly complex legal battle between the US and Switzerland over client bank account information. The code’s publication comes on the heels of a decision Friday 7 January by Switzerland’s administrative high court in Bern over UBS client data given to the US Justice Department. The court ruled that the country’s new bank supervisory body acted illegally when it helped the US Justice Department by telling UBS to give information on 452 clients in February 2009. It said Finma (Financial Market Supervisory Body) had no legal basis, even in an urgent situation, for handing over data protected by Swiss privacy laws.

The administrative tribunal in Bern is part of the Swiss decentralized four-court Supreme Court system.

Finma, the supervisory body, was created from three older insurance and banking supervisory and regulatory bodies. It opened its doors 1 January 2009, just as a US Senate Banking Commission was increasing pressure to force UBS to provide data on accounts of US citizens. Birkenfeld had told the IRS, as a whistleblower, that UBS was illegally helping thousands of clients evade US taxes, but he had failed to mention his own illegal activities initally, thus his relatively harsh prison sentence. Swiss privacy laws make it illegal to share bank data unless there is enough evidence of fraud for requests for judicial assistance. The procedure for this is covered by a detailed Swiss-US bilateral treaty.

The US Justice Department threatened to seize UBS assets in the US within days unless UBS provided the names and other information about clients, which risked putting the bank at odds with Swiss law. The situation came to a head 18 February 2009, at which point Finma told the bank to go ahead and supply information on some accounts. Just days later Swiss courts ruled that UBS should not hand over the data, and that the procedure covered by the treaty should be followed – but it was too late, and the names of nearly 300 account holders had been given to the US Justice Department.

Finma was too hasty in helping US authorities, the high court ruled last week. It sidestepped the procedure outlined by the treaty, and it overstepped the limits of its power. The stinging judiciary rebuke has provoked heated debate this week in Switzerland. Finma, for its part, issued a statement 8 January saying that it “based its decision on Articles 25 and 26 of the Swiss Banking Act, which give it the authority and obligation to impose unspecified preventive measures if it has reasonable grounds to suspect serious liquidity problems.” US legal proceedings against the bank would have threatened its very existence, argues Finma.

Media reaction in Switzerland to the court’s ruling has been mixed, but swissinfo sums up the situation by noting that it opens the door to Finma and Switzerland being sued by the clients whose names were given to the US Justice Department, but meanwhile, investors are unhappy with Swiss banks’ tarnished reputations.