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Swiss Regulator Urges Banks To Prepare For Impact Of Deal With US - Report

Tom Burroughes, Group Editor , London, 2 December 2013

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The director of the Swiss financial regulatory has said a sweeping agreement between Switzerland and the US will create a legal framework for the Alpine state’s banks to draw a line under a wrangle with the US.

The director of the Swiss financial regulator has said a sweeping agreement between Switzerland and the US will create a legal framework for the Alpine state’s banks to draw a line under a wrangle with the US, the Tribune de Genève newspaper reported.

Patrick Raaflaub, director of the [tag|FINMA|]Federal Financial Supervisory Authority[/tag], urged Swiss banks to adapt to the programme as set out by the US Department of Justice and agreed with the Swiss government in August.

The US-Swiss agreement, originally signed at the end of August, is designed to resolve a clash between the countries that has seen a number of Swiss banks, such as [tag|UBS|]UBS[/tag], subject to heavy penalties and in UBS’s case in 2009, hand over client data to the US in a historic breach of bank secrecy laws in Switzerland. A number of Swiss banks no longer provide offshore bank services to wealthy US clients.

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.

According to the French-language newspaper’s report, the FINMA director said banks are reluctant to register in category 2.

Raaflaub reportedly said that the programme does not solve all the problems with the US authorities. "The solution offered is cumbersome, expensive and does not provide a complete legal certainty in all cases," he said.

“Banks who do not take this opportunity to settle their legal risks should expect a sustainable conflict to increase,” he said.

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