Justice probes UBS on taxing matter

BLOOMBERG NEWS

UBS AG, the world’s biggest money manager for the rich, said the U.S. Department of Justice is investigating whether the Swiss bank helped clients evade American taxes.

One senior bank employee was “briefly detained” by U.S. authorities as a “material witness,” the firm said yesterday. The Financial Times reported that the employee was Martin Liechti, the Zurich-based head of UBS’ international wealth management business for the Americas.

A UBS spokeswoman in New York declined to comment on the report.

Clients pulled a net $12.1 billion from UBS’ asset- and wealth-management units in the first quarter, the first withdrawal in almost eight years as the bank’s write-downs swelled to $38 billion. German prosecutors said in March they are weighing a criminal investigation into whether UBS helped clients evade taxes.

“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.”

Damage to its reputation from subprime losses led to an 82 percent drop in net new money inflows to its private bank in the first three months of the year, UBS said.

UBS said Tuesday it plans to cut about 5,500 jobs, including as many as 2,600 at its investment-banking unit. Chief Executive Officer Marcel Rohner told analysts he expects “tough business conditions” to continue.

The Department of Justice is investigating UBS’ conduct in relation to services provided by Swiss advisers to U.S. clients between 2000 and 2007, the bank said. The 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 Swiss bank is also among banks investigated by U.S. state officials into how they marketed auction-rate bonds to investors. Auction-rate failures led to surging costs for some borrowers after dealers stopped bidding for bonds investors didn’t want.

Prosecutors in Germany are considering opening a criminal probe into allegations that UBS offered Germans help in hiding funds from local tax authorities, the Mannheim Prosecutors’ Office said March 31.

UBS is also being investigated by the U.S. Attorney’s Office for the Southern District of New York in connection with tax shelters sold to wealthy individuals from 1996 to 2000.