More On Legal & Compliancefrom The Advisor's Professional Library
- Trading Practices and Errors When SEC-registered investment advisors conduct annual audits of firm policies and procedures, they should pay close attention to trading practices. Though usually not required to, state-registered advisors should look at their trading practices and revise policies that do not fully protect clients.
- Client Communication and Miscommunication RIA policies and procedures must specify what type of communications should be retained. The safest course of action is for RIAs to retain all communicationsto clients, from clients, and about client accounts. To comply with fiduciary obligations, communications must be thorough and not mislead.
Thousands of employees of Swiss banks are finding that their employers are hanging them out to dry in exchange for hoped-for leniency in connection with American accounts involved in a tax evasion investigation.
Bloomberg reported Thursday that several Swiss banks so far have turned over data that included telephone records and e-mails for employees who were within Swiss law but in violation of U.S. law in setting up accounts for U.S. citizens who were then able to evade taxes.
As previously reported by AdvisorOne, Swiss bank Wegelin & Co. was indicted by the U.S. Department of Justice on Feb. 2 on charges that it helped its U.S. clients keep money from the IRS. Funds were seized from UBS, its correspondent bank in the U.S., on charges that Wegelin took over U.S. clients from UBS and continued to assist them in hiding money from the IRS. In 2009, UBS reached a deferred prosecution agreement with the DOJ and paid $780 million on charges of fraud and conspiracy in connection with the tax evasion scheme.
Other Swiss banks have seen their country’s tradition of secrecy worn down as the DOJ continued to pursue its investigation. Swiss companies are forbidden to turn over evidence in foreign legal proceedings; however, the Federal Council made an exception in April after the Swiss government was petitioned by numerous banks in the matter.
As a result, the council gave its consent to allow banks to surrender the names of staff members, a move that Alec Reymond, a former president of the Geneva Bar Association, called illegal in the report. Reymond is representing two members of Credit Suisse’s staff.
Douglas Hornung, a Geneva-based lawyer who represents 40 current and former employees of HSBC Holdings' Swiss unit, Credit Suisse Group and Julius Baer Group, was quoted saying, “The banks are burning their own people to try and cut deals with the DOJ. This violation of personal privacy is unprecedented in the Swiss banking industry.”
According to Hornung’s estimates, at least five banks have given up the data on up to 10,000 employees to pacify U.S. authorities. He also said banks have turned over not just correspondence, but also copies of their employees’ passports.
Credit Suisse said that it had been authorized to surrender staff names by the Swiss government. Marc Dosch, a bank spokesman, said in the report, “Credit Suisse provided the U.S. authorities with internal business documents that show how it ran its U.S. cross-border business. The large majority of Credit Suisse employees complied with the applicable laws and regulations and have nothing to fear.”
Julius Baer and Zuercher Kantonalbank also said they were authorized to take the action. HSBC said it is cooperating with U.S. authorities and has also turned over documents. Credit Suisse, HSBC and Julius Baer have all said they expect to resolve the issue by paying fines.
Eveline Widmer-Schlumpf, the Swiss President and Federal Council head, said in a July 31 letter that Swiss banks, not the government, must be responsible for delivering any data on their U.S. businesses. She also said that despite the authorization by the Swiss government to allow banks to defend their interests, it had not specifically designated which types of information could be provided to authorities in the U.S. Therefore, employees can pursue actions against the banks if they believe that their information was illegally provided.
The argument over disclosure of employee data appears to be escalating, particularly after an Aug. 6 report in Tribune de Geneve concerning the case of two teenagers who were detained at an airport and questioned by U.S. authorities about their father’s wealth management business.
“I don’t think anybody understood back in 2006 when they were going after UBS the full extent to which the DOJ and IRS would pursue this,” said Jeffrey Morse in the report. Morse, a Geneva-based lawyer at Withers LLP, added, “We now live in a world where banks are willing to break local laws if they deem it helpful in defending against the IRS.”
Eric Delissy, who headed the legal department at HSBC’s Swiss unit from 1998 to 2003, said in the report, “We didn’t even have any U.S. clients back then. I feel betrayed.” Delissy said that because his name was among those sent to the U.S., he now expects to be arrested if he travels outside Switzerland.
Niggli said that it would be possible for the Swiss government to partially block any prosecution by the country’s attorney general of the banks for surrendering the names of their employees to the U.S.
In the report, he was quoted saying, “The respect for the rule of law has declined in a way I simply thought unimaginable a few years ago. The government treats these business interests of the banks as if they were the business interests of Switzerland because the U.S. market is so enormously important.”