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Switzerland: Federal Administrative Court Chastises Financial Markets Authority for Releasing UBS Records to IRS

(Jan. 8, 2010) On January 5, 2010, the Federal Administrative Court issued a judgment in which it held that the Swiss Financial Markets Supervisory Authority (Eidgenössische Finanzmarktaufsicht, FINMA)had acted unlawfully on February 18, 2009, when it ordered UBS AG, a Swiss Bank [UBS], to release its banking records concerning close to 300 U.S. customers to the U.S. Internal Revenue Service (IRS). (Bundesverwaltungsgericht, Decision of January 5, 2010, Docket No.B-1092/2009, reprinted at (last visited January 8, 2010).) Although the decision cannot undo the transfer of records, it is expected to have major political repercussions (Auslieferung der UBS-Kundendaten war illegal [in German], NZZ ONLINE, Jan. 8, 2010, at

FINMA's regulatory order for the release of the banking records was issued in response to a July 16, 2008, request of the IRS for information on tax fraud pursuant to article 26 of the Swiss- U.S. double taxation treaty (Convention for the Avoidance of Double Taxation with Respect to Taxes on Income, with Protocol, U.S – Switzerland, Oct. 2, 1996, TIAS; KAV 4915). The release of some 285 customer records was subsequently stipulated in a deferred prosecution agreement of February 18, 2009, between the United States and UBS (Contemporary Practice of the United States Relating to International Law, 103 AMERICAN JOURNAL OF INTERNATIONAL LAW 325, 338 (2009)), and FINMA thereupon issued its regulatory order for the release of the records by virtue of its regulatory powers to avert insolvency of a financial institution (arts. 25 & 26, Bankengesetz [Banking Act], Nov. 8, 1934, as amended, SYSTEMATISCHE SAMMLUNG DES BUNDESRECHTS 952.0, The Federal Authorities of the Swiss Confederation website, (last visited Jan. 8, 2010)).

The complaint against FINMA's regulatory order was brought on February 20, 2009, by several UBS customers and has since then led to a protracted exchange of motions and interim decisions. In its January 5, 2010, judgment, the Federal Administrative Court held that FINMA had violated the privacy rights of the bank customers that were based on article 47 of the Banking Act as well as constitutional privacy rights (see, for example, art.13, Bundesverfassung [BV, Federal Constitution], Apr. 18, 1999, SYSTEMATISCHE SAMMLUNG DES BUNDESRECHTS 101; in English translation, The Federal Authorities of the Swiss Confederation website, (last visited Jan. 8, 2010) [click on Federal Constitution]).

The Court held that FINMA had exceeded its powers in issuing the order. Sections 25 and 26 of the Banking Act, dealing with the prevention of bankruptcy of a bank, were not applicable, the Court ruled. The only legal basis for such an order, it stated, would have been the enactment of a law (art. 36, BV) or the issuance of a formal decision by the Federal Government to use its emergency powers (arts. 173, 184, & 185, BV). Even though the Federal Cabinet had been consulted on the matter, no formal emergency measures had been issued.

FINMA issued its first comments on the Court decision on January 8, 2010. According to FINMA, the measures contemplated by the U.S. authorities in the case of non-compliance with the disclosure request could have engulfed UBS in serious liquidity problems. FINMA is currently studying the decision before deciding on whether it will lodge an appeal with the Federal Court. (Press Release, FINMA, Comment on the Federal Administrative Court Ruling on the Furnishing of Bank Client Data to the US Authorities (Jan. 8, 2010), available at The complainants, on the other hand, appear to be contemplating civil actions for damages (NZZ ONLINE, supra).