Swiss banks Vontobel and Valiant have become among the first firms to state their position on the recent US-Switzerland tax agreement signed a few months ago.

(This article originally appeared on 10 December and has been repeated for technical reasons.)

Vontobel, the Swiss private bank, announced today it has
declared itself a “category 3” financial institution that has not violated US
tax laws and will be exempt from penalties, becoming one of the first banks to decide how to sign up to the US-Swiss
tax treaty negotiated between the countries earlier this year. Valiant Bank, another Swiss firm, declared its stance yesterday.

Swiss banks are deciding how they will sign up to the pact,
designed to resolve a long-running dispute about tax evasion between Switzerland and the US. There are a number of different
categories that banks can state they fall into, depending on whether they think
they have violated laws about helping US tax evaders, or not. (For more on this
issue, click here.)

“The Swiss wealth manager Vontobel will participate as a
Category 3 institution in the US Program, which was negotiated between Switzerland and the United States of America with the
aim of resolving the tax dispute for the entire financial sector. Category 3
financial institutions have by definition not committed any US tax-related
offences and are exempt from having to pay penalties,” Vontobel
said in a statement issued today.

“Vontobel future-proofed its business model for US private
clients at an early stage, and proactively implemented appropriate measures to
establish a viable business model. For example, sustainable measures were put
in place from as far back as 2008 onwards,” it said.

“In particular, all US private clients served by Vontobel
were as a result transferred to ‘Vontobel Swiss Wealth Advisors’, a dedicated
subsidiary set up for this purpose and registered with the SEC. Vontobel has
already been operating its asset management and brokerage business with US
clients via SEC-registered business units since the early 1980s,” it said.

As of 30 June this year, Vontobel had around SFr160 billion ($179.8 billion)
and employs around 1,400 staff worldwide.

Valiant Bank

Yesterday, Valiant Bank, another
Swiss bank, announced it has “opted for category 2 participation in the US tax program”,
stating that this move will not threaten the firm’s financial stability.

Valiant also has a number of US clients, but fewer than 0.1
per cent of its entire base of 400,000 clients, most of whom, it said, have a
“strong connection to Switzerland”.

“The examination of client files for US persons found that
Valiant has never actively solicited US persons or visited clients in the USA.
Nevertheless, the possibility that individual clients have not declared their assets in compliance
with tax law cannot be ruled out. For reasons of legal certainty and to ensure
a fast and sustainable settlement, particularly in light of the fact that a
single case of undeclared assets effectively makes classification in category 3
and 4 of the US
programme impossible, the Valiant Board of Directors has opted for category 2
participation,” it said in a statement.

“The costs of the US program will not jeopardize the
financial stability of Valiant in any way. This decision does not endanger the
distribution of an unchanged dividend,” it said.

According to Reuters
yesterday, Valiant is the first Swiss bank to say it would work with US under
the programme.

A number of banks are this week expected to tell FINMA, the
Swiss financial watchdog, that they will state whether, or not, they have
potentially broken US
tax law.

The US-Swiss agreement is seen as a further breach of Switzerland’s
bank secrecy laws, which in their modern form date to 1934. Ever since UBS
settled criminal and legal charges of aiding US tax evaders in 2009, and
hundreds of client account details were passed to US authorities, there has
been speculation that bank secrecy is eroding.

Depending on banks’ behaviour and co-operation, fines that
banks pay can be as high as 50 per cent of assets managed on behalf of US
clients.

Reuters said that other banks under the investigatory
microscope include EFG International, St Galler Kantonalbank, Linth Bank and
Banque Cantonale Vaudoise.

Categories

At the core of the agreement is the potentially tricky issue
of different categories for Swiss banks for the purpose of establishing if they
face potential fines, or not.

The US-Swiss programme is open to all Swiss banks, excluding
those banks which are the target of criminal investigations by the Department
of Justice (also known as category 1). Banks in category 2 - which have good reasons
to believe that they have violated US tax law - may request a non-prosecution
agreement from the US authorities up to 31 December, 2013 at the latest.

They
must then supply the US
authorities with information on their cross-border relations, particularly
leaver lists, but not the names of clients. Institutions in category 2 must
also pay a fine, the amount of which will be in relation to the volume of
untaxed US
assets they hold and the date on which the accounts were opened.

The fines
amount to 20 per cent for accounts which existed on August 1 2008, and 30 per
cent for accounts opened between 1 August, 2008 and 28 February, 2009. If a
bank opened an account with untaxed US assets after 28 February, 2009,
the fine will be 50 per cent.

Banks which believe that they have not violated US tax law
(category 3) and those whose business is local in nature (category 4) can
report to the US
authorities between 1 July, 2014 and 31 October, 2014 at the latest to request
a non-target letter.