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Repeat - Banks Begin To Declare Stance On Swiss-US Tax Agreement

Tom Burroughes

19 December 2013

(This article originally appeared on 10 December and has been repeated for technical reasons.)

Vontobel, the Swiss private bank, announced today it has declared itself a “category 3” financial institution that has not violated US tax laws and will be exempt from penalties, becoming one of the first banks to decide how to sign up to the US-Swiss tax treaty negotiated between the countries earlier this year. Valiant Bank, another Swiss firm, declared its stance yesterday.

Swiss banks are deciding how they will sign up to the pact, designed to resolve a long-running dispute about tax evasion between Switzerland and the US. There are a number of different categories that banks can state they fall into, depending on whether they think they have violated laws about helping US tax evaders, or not. (For more on this issue, click here.)

“The Swiss wealth manager Vontobel will participate as a Category 3 institution in the US Program, which was negotiated between Switzerland and the United States of America with the aim of resolving the tax dispute for the entire financial sector. Category 3 financial institutions have by definition not committed any US tax-related offences and are exempt from having to pay penalties,” said in a statement issued today.

“Vontobel future-proofed its business model for US private clients at an early stage, and proactively implemented appropriate measures to establish a viable business model. For example, sustainable measures were put in place from as far back as 2008 onwards,” it said.

“In particular, all US private clients served by Vontobel were as a result transferred to ‘Vontobel Swiss Wealth Advisors’, a dedicated subsidiary set up for this purpose and registered with the SEC. Vontobel has already been operating its asset management and brokerage business with US clients via SEC-registered business units since the early 1980s,” it said.

As of 30 June this year, Vontobel had around SFr160 billion ($179.8 billion) and employs around 1,400 staff worldwide.

Valiant Bank

Yesterday, , another Swiss bank, announced it has “opted for category 2 participation in the US tax program”, stating that this move will not threaten the firm’s financial stability.

Valiant also has a number of US clients, but fewer than 0.1 per cent of its entire base of 400,000 clients, most of whom, it said, have a “strong connection to Switzerland”.

“The examination of client files for US persons found that Valiant has never actively solicited US persons or visited clients in the USA. Nevertheless, the possibility that individual clients have not declared their assets in compliance with tax law cannot be ruled out. For reasons of legal certainty and to ensure a fast and sustainable settlement, particularly in light of the fact that a single case of undeclared assets effectively makes classification in category 3 and 4 of the US programme impossible, the Valiant Board of Directors has opted for category 2 participation,” it said in a statement.

“The costs of the US program will not jeopardize the financial stability of Valiant in any way. This decision does not endanger the distribution of an unchanged dividend,” it said.

According to Reuters yesterday, Valiant is the first Swiss bank to say it would work with US under the programme.

A number of banks are this week expected to tell FINMA, the Swiss financial watchdog, that they will state whether, or not, they have potentially broken US tax law.

The US-Swiss agreement is seen as a further breach of Switzerland’s bank secrecy laws, which in their modern form date to 1934. Ever since UBS settled criminal and legal charges of aiding US tax evaders in 2009, and hundreds of client account details were passed to US authorities, there has been speculation that bank secrecy is eroding.

Depending on banks’ behaviour and co-operation, fines that banks pay can be as high as 50 per cent of assets managed on behalf of US clients.

Reuters said that other banks under the investigatory microscope include EFG International, St Galler Kantonalbank, Linth Bank and Banque Cantonale Vaudoise.


At the core of the agreement is the potentially tricky issue of different categories for Swiss banks for the purpose of establishing if they face potential fines, or not.

The US-Swiss programme is open to all Swiss banks, excluding those banks which are the target of criminal investigations by the Department of Justice (also known as category 1). Banks in category 2 - which have good reasons to believe that they have violated US tax law - may request a non-prosecution agreement from the US authorities up to 31 December, 2013 at the latest.

They must then supply the US authorities with information on their cross-border relations, particularly leaver lists, but not the names of clients. Institutions in category 2 must also pay a fine, the amount of which will be in relation to the volume of untaxed US assets they hold and the date on which the accounts were opened.

The fines amount to 20 per cent for accounts which existed on August 1 2008, and 30 per cent for accounts opened between 1 August, 2008 and 28 February, 2009. If a bank opened an account with untaxed US assets after 28 February, 2009, the fine will be 50 per cent.

Banks which believe that they have not violated US tax law (category 3) and those whose business is local in nature (category 4) can report to the US authorities between 1 July, 2014 and 31 October, 2014 at the latest to request a non-target letter.