Switzerland has vowed to prevent UBS from handing over client information to US authorities, in an attempt to defend bank secrecy, saying a tax case targeting its main bank is souring diplomatic ties.

The Swiss Justice Ministry said Wednesday that Swiss law prevents UBS from handing over client information and the government would seize UBS client data, if necessary, to stop that happening.

The case, which comes amid a global fight against tax cheats supported by the US administration, has damaged the UBS brand and could result in an expensive settlement for the bank at a time when the bank needs to focus on restructuring.

“Switzerland will use its legal authority to ensure that the bank cannot be pressured to transmit the information illegally, including if necessary by issuing an order taking effective control of the data at UBS,” the Swiss government said in a response to US authorities filed in Miami on Tuesday.

The tax litigation is also crucial for the future of the multibillion dollar wealth management industry and is pushing several offshore banks to force clients to come clean.

A court hearing that will lead to a ruling on the UBS data issue is due to start on July 13. Washington has accused UBS of hiding nearly US$15 billion in assets in secret accounts.

The Swiss statement came in response to a filing by the US Justice Department last week asking the Miami court to enforce tax compliance with the full weight of US law.

Although Swiss criminal law prohibits banks passing on client information to foreign authorities, UBS and Switzerland have already made concessions on their treasured bank secrecy.

UBS agreed to pay in February $780 million, admitted wrongdoing and disclosed about 250 client names to avert tax fraud criminal charges the Swiss government said threatened the bank’s survival.

And faced with the threat of possible sanctions from the G20, Switzerland – along with other tax havens – vowed in March to redraft its tax treaties with the US and other countries and cooperate more on tax evasion.

“International conflict”

Switzerland said in its latest court filing it hoped it would not have to take the “extraordinary action” of issuing an order to seize the UBS client data.

“The IRS (Internal Revenue Service) now inappropriately seeks to provoke international conflict through this civil proceeding,” the statement read.

In its brief last week, the Justice Department said that UBS had already acknowledged that its bankers committed “very serious crimes on US soil” and had therefore subjected the bank to the full jurisdiction of US law. “Swiss banking secrecy is not an impenetrable wall,” it said.

But Berne said the fact that UBS had released some names in settling the criminal case and admitted wrongdoing did not undermine the legitimacy of Swiss banking secrecy as a whole.

Although the court hearing is due next week, the Swiss government has not ruled out the possibility of UBS and Washington agreeing another outof-court settlement.

Swiss Finance Minister Hans-Rudolf Merz has repeatedly said there is still room for a deal and Swiss Economy Minister Doris Leuthard told Reuters in an interview on Tuesday that it expected UBS to pay a price as the bank had made mistakes.

Swiss media have said UBS may have to pay 3-5 billion Swiss francs ($2.76-4.6 billion). The bank raised 3.8 billion francs of capital late in June and will report earnings on August 4.

“As the whole story is about money and as UBS has already admitted its fault, there can be only one solution: the Swiss bank will have to pay a fine or a compensation of an amount corresponding to taxes that are still due to the US government,” said Nicolas Michellod, senior analyst at Celent.

UBS shares fell 1.7 percent at 12.8 francs at 08:49 GMT against a 1.2 percent drop in the European banking index.

Source: Reuters