Ubs ethical issues

UBS: A Pattern of Ethics Scandals ©SEBASTIAN DERUNGS/AFP/Getty Images UBS WAS FORMED in 1997 when Swiss Bank Corp. merged with Union Bank of Switzerland. After acquiring Paine Webber, a 120-year-old U.S. wealth management firm, in 2000, and aggressively hiring for its investment banking business, UBS soon became one of the top financial services companies in the world and the biggest bank in Switzerland. Between 2008 and 2015, however, its reputation was severely tarnished by a series of ethics scandals. These scandals cost the bank billions of dollars in fines and lost profits, not to mention a severely diminished reputation. Even more important, they seem not to be isolated instances, but rather to suggest a troubling pattern. Ethics Scandal No. 1: U.S. Tax Evasion Swiss banks have long enjoyed a competitive advantage conferred by Swiss banking privacy laws that make it a criminal offense to share clients’ information with any third parties. The exceptions are cases of criminal acts such as accounts being linked to terrorists or tax fraud. Merely not declaring assets to tax authorities (tax evasion), however, is not considered tax fraud. After the acquisition of Paine Webber, UBS entered into a qualified intermediary (QI) agreement with the Internal Revenue Service (IRS), the federal tax agency of the U.S. government. Like other foreign financial institutions under a QI agreement, UBS agreed to report and withhold taxes on accounts receiving U.S.-sourced income. This reporting is done on an aggregate basis to protect the identity of the non-U.S. account holders. In mid-2008, it came to light that since 2000, UBS had actively participated in helping its U.S. clients evade taxes. To avoid QI reporting requirements, UBS’ Switzerland-based bankers had assisted the U.S. clients to structure their accounts by divesting U.S. securities and setting up sham entities offshore to acquire non-U.S. account holder status. Aided by Swiss bank privacy laws, UBS successfully helped its U.S. clients conceal billions of dollars from the IRS. In addition, UBS aggressively marketed its “tax-saving” schemes by sending its Swiss bankers to the United States to develop clientele, even though those bankers never acquired proper licenses from the U.S. Securities and Exchange Commission (SEC) to do so. The U.S. prosecutors pressed charges on UBS for conspiring to defraud the United States by impeding the IRS. In a separate suit, the U.S. government requested that UBS to reveal the names of 52,000 U.S. clients who were believed to be tax evaders.