2.50 CASE NO: 09-20423-CIV-Gold / MCALILEY / United States of America Petitioner vs. UBS AG, Respondent / Amicus Brief of Government of Switzerland, 2009 and CASE NO: 09-20423-CIV-Gold / MCALILEY / United States of America Petitioner vs. UBS AG, Respondent / Amicus Government of Switzerland to Petitioner’s, June 3 Submission, full text
The text at hand is an Amicus Brief of the Government of Switzerland to the United States District Court for the Southern District of Florida, Miami Division, in the enforcement proceedings a John Doe Summons action filed earlier by the IRS; the second document is a so-called sur-reply brief.
The causa UBS with which the following three texts in this part of the anthology deal is an important example of the clash of legal cultures, once the United States based upon policy and legal considerations starts to actively and aggressively enforce its laws extraterritorially. Since the four following texts are devoted to the UBS case and since the facts and law involved are complex, the introductions are a close-up descriptions of the mechanics and workings of a conflict of jurisdiction between the United States and Switzerland, this being the most direct and intense impact of US law on Swiss law and legal culture.
The history of the case
In tax law Switzerland only granted legal assistance based upon the respective provisions in a double taxation treaty. Until recently, Switzerland took the position that legal assistance can only be given in cases of tax fraud (Steuerbetrug), but not in cases of tax evasion (Steuerhinterziehung). Therefore, until 2009, in light of the Swiss banking secrecy the Federal Tax Authorities did not give legal assistance even in cases of obvious but not fraudulent cases of tax evasion. The cases are to be seen against the background of a systematic business model of Swiss banks and the Swiss traditional policies of the financial centre, which actively attracted untaxed money with the help of legal provisions protecting the so-called banking secret. This trade and foreign commerce policy perspective together with the banking secrecy was an instrument of protection of financial structures and of the banking industry of the Swiss financial center in international competition for financial services. This business model and traditional policies led to a restrictive practice of legal assistance in the aftermath.
As part of the financial crises of 2008 and in view of a coordination of an internationalization of the issues within the OECD and then the Group of 20 (G20), Switzerland came under pressure to change its policy within the OECD, to renegotiate the double taxation treaties and accept legal assistance for tax evasion as well. The US in turn, based upon serious violations of American law on American territory by asset managers of UBS, started to pursue UBS on criminal legal grounds.
The facts of the case
Based upon the double taxation treaty between Switzerland and the US of the 2nd October 1966, the IRS in 2008 communicated to Switzerland a respective request for legal assistance in approximately 300 cases. The Federal Tax Administration and the Finance Department of Switzerland first did not consider it necessary to deal with the request in a timely and efficient manner nor to use adequate and sophisticated means when it did. As in the past it was hoped to get by with the use of the old dilatory tactic of a wait and see. The IRS consequently started civil action (John Doe Summons) against UBS in a Federal District Court with the potential effect that the bank could be forced to violate article 47 of the Swiss banking law statute and article 271 and 273 of the Swiss criminal code. The enforcement proceeding covering about 50,000 accounts involving all legal cases of tax evasion (Steuerhinterziehung) was entered immediately after the conclusion of a so-called Deferred Prosecution Agreement between the Justice Department of the United States and UBS temporarily halting the criminal investigation. UBS had to pay a heavy fine of 780 million dollars, was forced into strict compliance programs and had to end any business activity in trans-border banking in US shares for American clients. The intensive pursuit of UBS in a criminal proceeding was among others fueled by a serious irritation felt by the IRS and the United States about the dilatory treatment of the first request for legal assistance in 2008.
The perceived threat of UBS was that in case of noncompliance UBS would be indicted and could therefore lose among other things its banking licence in the US. The United States forced Switzerland and the UBS to disclose, as a condition to signing the Deferred Prosecution Agreement, 255 identities of accounts, which the Federal Council did not put into effect based upon emergency law provisions but referred to FINMA, the supervisory authorities on banks, who in turn ordered UBS to disclose those identities to the IRS based upon provisions of the statute governing banks. The IRS then pursued the civil action in John Doe Summons case by entering into the enforcement stage. This in turn led the Swiss Federal Council to qualify the issue as serious potential conflict of jurisdiction between the two countries. The Department of Justice took over the lead from the Department of Finances in handling the issue.
The amicus curiae brief and the surbrief
The documents at hand together with a Swiss diplomatic note were entered into files of the civil law proceedings in the Federal District Court in Florida as Amicus Curiae Brief on behalf of the Swiss Government. As the text shows, Switzerland argued against the enforcement of the John Doe Summons by arguing that it violates the Swiss American Double Taxation Treaty of 1996, which requires the party to the treaty to obtain evidence abroad by using the legal assistance route. The Brief moreover argues that it is a violation of international public law to force somebody in national courts to violate the laws of the other country.
Based upon international comity and under the threat of the Federal Council preparing a blocking order prohibiting UBS to hand over the data requested, the judge granted a temporary stay of the proceedings in order to give Switzerland and the United States a chance to solve their issues consensually. On that basis,
The so-called UBS-agreement on legal assistance was negotiated and concluded on the 19th August 2009. The agreement came about based on the initiative of Switzerland. It provided for formal legal assistance proceedings in 4,550 requests in one year based upon criteria set forward in the annex to the treaty.
After having been formally accepted by the judge, the Amicus Curiae Brief and the sur-reply brief were put on the website of the court, by means of which the judge organized and commanded the proceedings in a structured manner.
The opinion of professors Thomas Cottier and René Matteotti (text 2.51), who dealt with the UBS-agreement and the article of Thomas Cottier (text 2.53), is a retrospective analysis of the role of the general and constitutional principle of law of legality to conduct and put into effect such a foreign policy based agreement by and within Switzerland.
The Amicus Curiae Briefs are public documents. In this specific case the document has been worded by the lead lawyer of the Washington law firm advising the Swiss Embassy in Washington D.C.. On the Swiss side, the Swiss Embassy in Washington was assisted by the Directorate of International Public Law in the Department of Foreign Policy and the Federal Office of Justice of Switzerland, who was to deal with the issue on behalf of the Swiss government. Parallel to these diplomatic and legal steps a blocking order was prepared by the Federal Office of Justice. This was a complex exercise since the data to be covered by the blocking order against UBS AG was “located” on a great number of servers in and outside of Switzerland. Threats to issue and issuing of a blocking order have a tradition in Switzerland; one may recall the Marc Rich case. The tradition to present its position on matters of international law touching upon Swiss sovereignty in a Amicus Curiae Brief in American civil proceedings is common practice. The Amicus Curiae Brief is an instrument of procedural law provided for in the applicable Rules of Civil Procedure of the United States in civil cases. Switzerland is not a party to the case; therefore, it acted as Amicus Curiae.
The Amicus Curiae Brief has to be written observing a prescribed budget of pages and following a generally standardized format. The Amicus Curiae Brief lists a table of legal authorities such as US cases, US legislative and administrative materials, treaties and conventions, Swiss legislative and administrative materials, international cases and miscellaneous documents.
In the Amicus Curiae Brief Switzerland argues in the UBS case the interest of the Amicus Curiae. It makes a statement of the relevant facts provided by Swiss domestic law, Swiss cooperation in international law enforcement, the double taxation treaty, negotiations to amend the treaty and international information exchanges regarding the UBS matter.
At the core the Amicus Curiae Brief contains the legal arguments. In the specific case the US Government attempts to obtain information through the summons being inconsistent with the tax treaty, (1), compliance with a summons would directly violate Swiss law (2), and the IRS has no reasonable expectation of receiving information in response to a “fishing expedition”, (3) and the imposition of an order to compel enforcement of the summons would be inconsistent with international comity. Attached to the amicus curiae briefs are a Diplomatic Note from the embassy of Switzerland to US Department of State of the 29th April 2009 and affidavits of officials of the Federal Justice and the Tax Authorities of the Swiss Government.
The attached sur-reply brief is a response of Amicus Curiae of the government of Switzerland to a 30th June submission of the IRS, which is a reply to the Swiss Amicus Curiae Brief. The major headings are that Swiss law prohibits compliance with the summons and comity entails respect among nations, not between the IRS and a foreign company.