The UBS case

Birkenfeld, the Senate and the cross-border business

The investigation that brought down Swiss banking secrecy towards the United States began with an individual. Bradley Birkenfeld, an American citizen who had worked as a private banker in the Geneva office of UBS, approached the American authorities in 2007 with information about the bank’s cross-border business with American clients. His own role in that business led to criminal charges. On 19 June 2008 he pleaded guilty in the United States District Court for the Southern District of Florida to conspiring to defraud the United States. According to the Department of Justice, he had helped an American billionaire real estate developer to conceal some USD 200 million of assets offshore and to evade USD 7.2 million in taxes, using Swiss safe deposit boxes, purchases of valuables abroad and false tax returns. On 21 August 2009 the court sentenced him to forty months’ imprisonment.¹ Three years later the Internal Revenue Service granted him a whistleblower award of USD 104 million, the largest paid under its programme up to that time.² The coincidence of a prison sentence and a reward of that size says much about how the American authorities valued the information he had supplied.

Birkenfeld’s disclosures led investigators to the structure of the UBS business. A private banking unit based in Switzerland served American clients through relationship managers who travelled regularly to the United States, although neither they nor the bank held the American licences required for such activity. Many clients had declined to provide the forms that would have made their accounts reportable to the Internal Revenue Service under the qualified intermediary regime that UBS had accepted in 2001.³ On 1 July 2008 a federal judge in Miami authorised the Internal Revenue Service to serve a so-called John Doe summons on UBS, a procedure used when the identities of suspected tax violators are unknown. The summons sought records identifying American taxpayers who held accounts at UBS in Switzerland and had elected to keep them hidden from the Internal Revenue Service. The Department of Justice noted Birkenfeld’s statement that UBS managed around USD 20 billion in undeclared accounts of American clients.⁴

Two weeks later, on 17 July 2008, the Permanent Subcommittee on Investigations of the United States Senate held a hearing on tax haven banks. Its chairman, Senator Carl Levin, described UBS as having opened some 19,000 accounts for American clients with nearly USD 18 billion in assets, none of which had been reported to the Internal Revenue Service. At the hearing, UBS undertook to close these Swiss accounts unless their holders disclosed them and to stop offering undeclared offshore accounts to American clients.⁵ The same hearing examined the Liechtenstein bank LGT, whose client data had reached the German authorities earlier in the year, a matter discussed in Section VI below. The combination of the two cases showed that the American authorities now treated offshore banking secrecy as an enforcement problem of the first order.

The American investigation soon reached the leadership of UBS. In November 2008, a federal grand jury in Florida indicted Raoul Weil, the head of the bank’s global wealth management business, for conspiracy to defraud the United States.⁶ Weil, who had led the division from 2002 to 2008, remained in Switzerland for years and was arrested only in 2013 while on holiday in Bologna. After a trial in Fort Lauderdale, a jury acquitted him on 3 November 2014 following deliberations of little more than an hour.⁷ His acquittal did not alter the outcome for the bank, which had resolved its own case more than five years earlier.

The deferred prosecution agreement and the FINMA order of 18 February 2009

By the beginning of 2009 UBS faced two crises at once. The losses on American mortgage securities and the rescue package of October 2008 had weakened its capital and liquidity, as the preceding chapter describes. At the same time, the Department of Justice was preparing to indict the bank itself. An indictment would have exposed UBS to the loss of its American licences and to a withdrawal of counterparties, which, in the view of the Swiss authorities, could have destroyed the bank. The United States demanded, as a condition of any settlement, the immediate delivery of the identities of the clients whose accounts were most clearly linked to fraudulent conduct. Swiss law did not allow the bank to comply voluntarily, because Article 47 of the Banking Act and Article 273 of the Swiss Criminal Code on economic espionage prohibited such a disclosure. A request for administrative assistance under the double taxation agreement of 1996 was pending, although its completion would have taken months.

On 18 February 2009 UBS entered into a deferred prosecution agreement with the Department of Justice in the United States District Court for the Southern District of Florida. The bank was charged with conspiracy to defraud the United States by impeding the Internal Revenue Service. It admitted that, from 2000 onwards, it had helped American taxpayers to hide accounts, including through nominee accounts and sham entities, and agreed to pay USD 780 million in fines, penalties, interest and restitution. UBS undertook to provide the identities and account information of certain American clients at once and to cease its cross-border banking services for American clients with undeclared accounts. The Department of Justice recorded that UBS bankers had made some 3,800 trips to the United States in 2004 alone to market Swiss secrecy.⁸

The client data could reach Washington on the same day only because the Swiss Financial Market Supervisory Authority (FINMA) ordered their delivery. FINMA based its order on Articles 25 and 26 of the Banking Act, the provisions on protective measures in the event of a threat of insolvency, and stated that it acted to protect the interests of creditors and investors and to preserve the stability of the Swiss financial system. It argued that criminal charges in the United States could have had drastic consequences for the liquidity of UBS and ultimately endangered its existence. FINMA published at the same time the results of the investigation that its predecessor, the Federal Banking Commission, had conducted from May to December 2008. The investigation found that individual UBS employees had accepted client statements which they knew or should have known did not reflect the clients’ American tax status, and that the bank had disregarded American licensing requirements. FINMA found serious breaches of the requirement of proper business conduct, although it found no evidence that senior management had known of the fraudulent conduct. It prohibited UBS from conducting cross-border business with private clients resident in the United States in future.⁹

The FINMA press release referred only to “a limited quantity of client data”. Press reports put the number of clients whose data were handed over in February 2009 at a few hundred, and swissinfo later gave a figure of 285.¹⁰ The number was small in relation to the tens of thousands of accounts under investigation. Its symbolic importance was nevertheless considerable, because for the first time a Swiss authority had ordered the delivery of client data to a foreign state outside the procedures of administrative and mutual legal assistance. Within Switzerland, the order was widely perceived as an act of necessity forced upon the country by a foreign power.

The legality of the order was tested in the courts. On 5 January 2010 the Federal Administrative Court held that FINMA had acted unlawfully. According to the court, the Banking Act provided no basis for the transfer, and FINMA could not rely on the emergency powers that the Federal Constitution confers on the Federal Council. If emergency law was to be invoked, the decision had belonged to the government.¹¹ FINMA appealed. On 15 July 2011 the Federal Supreme Court reversed the judgment and held that the order had been lawful. It accepted that FINMA had acted as a measure of last resort under the general police clause, to avert an immediate danger to creditors and to the functioning of the Swiss financial system at a time when no orderly resolution of UBS was feasible.¹² The Supreme Court’s ruling closed the legal question. The political debate about the relationship between emergency powers, supervisory authority and democratic control continued and fed into the later discussion of the rescue of Credit Suisse in 2023.

The John Doe summons and the agreement of August 2009

The deferred prosecution agreement did not end the conflict. On 19 February 2009, one day after the settlement, the United States filed a civil action in Miami to enforce the John Doe summons, which covered some 52,000 accounts. UBS and the Swiss government argued that compliance would compel the bank to commit crimes under Swiss law and would violate Swiss sovereignty. The Swiss government announced that it would, if necessary, prevent the delivery of the data by an order to UBS. The confrontation threatened to force the bank into a position in which it would breach either an American court order or Swiss criminal law.¹³

The dispute was settled by an agreement between the two governments. The agreement of 19 August 2009 entered into force on its signature. The United States undertook to withdraw the John Doe summons, which had sought the identity of some 52,000 UBS account holders, in exchange for Switzerland processing a new request for administrative assistance under the double taxation agreement. The Internal Revenue Service filed that request on 31 August 2009. It covered approximately 4,450 accounts, selected by criteria defined in an annex to the agreement, which were designed to capture the cases of the most serious conduct.¹⁴ The Department of Justice explained that the criteria covered bank accounts, securities custody accounts and accounts held through offshore companies, and that they were aimed at the most egregious cases.¹⁵

The agreement was a remarkable instrument. It allowed a request for assistance without naming the account holders, identifying them instead through patterns of behaviour, which was not permissible under the double taxation agreement as the Swiss authorities had previously applied it. The Federal Council later described it as a special case that permitted requests for information on about 4,450 accounts without the names of the holders.¹⁶ It also had an immediate effect in the United States. By November 2009, more than 14,700 American taxpayers had come forward under the voluntary disclosure programme of the Internal Revenue Service, almost double the number reported in October. The Deputy Attorney General, David W. Ogden, declared that “the era of bank secrecy and hidden assets is over”.¹⁷

The Federal Administrative Court and Parliament

Within Switzerland, the implementation of the agreement ran into a legal obstacle. On 21 January 2010 the Federal Administrative Court decided a test case brought by an account holder whose data were to be transferred. The court held that consultation agreements between the contracting states could interpret a double taxation agreement but could not supplement or amend it. The 1996 agreement with the United States permitted assistance only in cases of “tax fraud and the like”. According to the court, that concept required special machinations, tricks or an edifice of lies, and the mere failure to file a form, such as the American W-9 form, did not suffice. Since the agreement of August 2009 had been concluded as an administrative arrangement without parliamentary approval, it could not extend assistance to continued and serious tax evasion.¹⁸ The judgment called into question the transfer of the great majority of the 4,450 dossiers, most of which concerned cases of the kind that Swiss law classed as evasion.

The Federal Council responded by raising the agreement to the level of a treaty. On 31 March 2010 it approved a protocol amending the agreement, which was signed in Washington on the same day, and submitted the revised agreement to Parliament.¹⁹ The parliamentary debate that followed became a trial of strength over the relationship between the state and the big banks. The Social Democrats sought to link approval to a tax on bankers’ bonuses. The Swiss People’s Party first rejected the agreement as illegal and demanded a referendum. On 17 June 2010, after weeks of manoeuvring, Parliament approved the agreement and rejected a proposal to submit it to an optional referendum. In the National Council the result was 81 votes to 63 with 47 abstentions. The Swiss People’s Party had abandoned its referendum demand once the bonus tax was dropped. The justice minister, Eveline Widmer-Schlumpf, described the outcome as a victory for the moderate political forces and warned that rejection would have invited fiscal and administrative retaliation by the United States.²⁰ The Federal Council confirmed that nothing now prevented the disclosure of the client data.²¹

A further judgment of the Federal Administrative Court of 15 July 2010 upheld the approved agreement against a challenge by another UBS client. The Federal Tax Administration completed its examination of all 4,450 dossiers within the deadline set by the agreement. On 15 November 2010 the Internal Revenue Service withdrew the John Doe summons fully and definitively.²² By then, the practical significance of the case extended far beyond its immediate object. The UBS affair had demonstrated that the United States could reach Swiss accounts through the domestic exposure of Swiss banks, that Swiss courts would examine the resulting measures closely, and that Parliament would in the end approve even a retroactive extension of assistance where the alternative was a direct confrontation with Washington.

Notes

1. United States Department of Justice, Office of Public Affairs, “Former UBS Banker Sentenced to 40 Months for Aiding Billionaire American to Evade Taxes”, 21 August 2009, https://www.justice.gov/archives/opa/pr/former-ubs-banker-sentenced-40-months-aiding-billionaire-american-evade-taxes. The developer was identified in court documents as Igor Olenicoff. ↩
2. Robert W. Wood, “UBS’ Bradley Birkenfeld Gets $104 Million, Blows Doors Off IRS Whistleblower Program”, Forbes, 11 September 2012, https://www.forbes.com/sites/robertwood/2012/09/11/ubs-bradley-birkenfeld-gets-104-million-blows-doors-off-irs-whistleblower-program/. ↩
3. Securities and Exchange Commission v. UBS AG, complaint of 18 February 2009, US District Court for the District of Columbia, Civil Action No. 1:09-cv-00316, https://www.sec.gov/files/litigation/complaints/2009/comp20905.pdf: “Effective January 1, 2001, UBS entered into what was known as a Qualified Intermediary Agreement (“QI Agreement”) with the Internal Revenue Service”, under which UBS had to ensure that its US cross-border clients holding US securities either disclosed their accounts to the IRS or disposed of their US securities. The qualified intermediary regime allowed foreign banks to assume withholding and reporting obligations for American securities held by their clients. ↩
4. United States Department of Justice, “Federal Judge Approves IRS Summons for UBS Swiss Bank Account Records”, press release 08-584, 1 July 2008, https://www.justice.gov/archive/opa/pr/2008/July/08-tax-584.html. The press release also refers to the obligation of American taxpayers to report foreign accounts exceeding USD 10,000 and to civil penalties of up to 50 per cent of the balance for wilful non-compliance. ↩
5. United States Senate, Permanent Subcommittee on Investigations, statement of Senator Carl Levin, 25 July 2008, https://www.hsgac.senate.gov/wp-content/uploads/imo/media/doc/OPENINGLEVINCarlJuly2508.pdf. The statement also records that LGT Bank of Liechtenstein declined to appear at the hearing. ↩
6. United States Department of Justice, Office of Public Affairs, “UBS Enters into Deferred Prosecution Agreement”, 18 February 2009, https://www.justice.gov/archives/opa/pr/ubs-enters-deferred-prosecution-agreement. ↩
7. “Ex-UBS executive Weil acquitted in tax probe”, swissinfo.ch, 3 November 2014, https://www.swissinfo.ch/eng/business/ex-ubs-executive-weil-acquitted-in-tax-probe/41096024. ↩
8. United States Department of Justice, “UBS Enters into Deferred Prosecution Agreement”, 18 February 2009 (n. above). The Acting Assistant Attorney General of the Tax Division, John A. DiCicco, was quoted as saying that “the veil of secrecy has been pulled aside”. ↩
9. FINMA, “FINMA ermöglicht den Vergleich zwischen UBS und US-Behörden und gibt das Ergebnis der eigenen Untersuchung bekannt”, press release, 18 February 2009, https://www.finma.ch/en/news/2009/02/mm-ubs-xborder-20090218/. ↩
10. “Court rules UBS data transfer to US illegal”, swissinfo.ch, 8 January 2010, https://www.swissinfo.ch/eng/business/court-rules-ubs-data-transfer-to-us-illegal/8038384. Other accounts refer to about 255 clients; the exact figure has not been published by FINMA. ↩
11. FINMA, “Comment on the Federal Administrative Court ruling on the furnishing of bank client data to the US authorities”, press release, 8 January 2010, https://www.finma.ch/en/news/2010/01/mm-entscheid-bvger-20100108. FINMA stressed that the court had neither examined nor disputed its assessment of the threat to UBS and to financial stability. ↩
12. FINMA, “UBS-Kundendaten: Bundesgericht bestätigt Entscheid der FINMA”, press release, 15 July 2011, https://www.finma.ch/en/news/2011/07/mm-bg-urteil-20110715/. ↩
13. The civil enforcement action was filed in the United States District Court for the Southern District of Florida, Miami Division (United States v. UBS AG, Case No. 09-20423-CIV-Gold). The Swiss government filed an amicus brief opposing enforcement, submitted with a diplomatic note of 29 April 2009: legalanthology.ch, “U.S.A. Petitioner vs. UBS AG – Amicus brief of Government of Switzerland”, https://www.legalanthology.ch/usa-petitioner-vs-ubs_2009/. ↩
14. Federal Office of Justice, “UBS case”, https://www.bj.admin.ch/bj/en/home/wirtschaft/fallubs.html. ↩
15. United States Department of Justice, “Justice Department & IRS Announce Results of UBS Settlement & Unprecedented Response in Voluntary Tax Disclosure Program”, 17 November 2009, https://justice.gov/opa/pr/justice-department-irs-announce-results-ubs-settlement-unprecedented-response-voluntary-tax. ↩
16. Federal Council, Amts- und Rechtshilfe in Steuersachen – Gleichbehandlung, report of 18 December 2013, https://www.efd.admin.ch/dam/de/sd-web/DbySDzvMz1UW/amts-_und_rechtshilfeinsteuersachengleichbehandlung-de.pdf. ↩
17. United States Department of Justice, “Justice Department & IRS Announce Results of UBS Settlement” (n. above). ↩
18. Federal Administrative Court, judgment A-7789/2009 of 21 January 2010, published as BVGE 2010/7, https://entscheide.weblaw.ch/cache.php?link=bvge-2010-7&sel_lang=de. ↩
19. Federal Office of Justice, “UBS case” (n. above). ↩
20. “UBS deal sealed by parliament”, swissinfo.ch, 17 June 2010, https://www.swissinfo.ch/eng/swiss-politics/ubs-deal-sealed-by-parliament/9112878. ↩
21. Federal Council, “Parliament approves UBS Agreement”, press release, 17 June 2010, https://www.admin.ch/gov/en/start/documentation/media-releases.msg-id-33742.html. ↩
22. Federal Office of Justice, “UBS case” (n. above). ↩

For general information only. This article does not constitute legal or tax advice, does not replace advice on an individual case and creates no lawyer-client relationship. It reflects the legal position as of September 2025.