More bad news for beleaguered Swiss bank UBS as the firm reveals that it is the subject of a Department of Justice tax evasion probe. Only hours after reporting disastrous Q1 writedowns and losses, UBS says it has been charged with helping US clients avoid taxes after withdrawing assets from the firm’s private bank and wealth management unit under the auspices of “tax minimization.” At least one UBS executive, international wealth management head Martin Liechti, has been detained as a material witness according to the FT. Bloomberg:
The U.S. Department of Justice is investigating UBS’s conduct in relation to services provided by Swiss-based client advisers to U.S. clients between 2000 and 2007, the bank said. The U.S. Securities and Exchange Commission is also investigating whether UBS employees in Switzerland who advised U.S. clients failed to register with the agency as required.
The bigger concern is whether the investigation will prompt even more UBS clients to withdraw funds. The probe will be damaging to the bank’s reputation, and, for clients seeking that famous Swiss commitment to privacy, the tax probe will be the last straw. Bloomberg:
“UBS has been hit by a perfect storm,” said Edwin Merner, who oversees $2 billion at Atlantis Investment Research Corp. in Tokyo. “Clients may run away if they think they’ll leak information to tax authorities in Germany and the U.S.”