UBS AG overhauled its offshore private banking business for US residents on Thursday in the face of accusations by congressional investigators that the Swiss bank helped clients dodge taxes.
In a dramatic hearing on Capitol Hill before a Senate subcommittee, a senior UBS executive apologised and announced the bank would cease offering cross-border private banking through its unregulated units to US-domiciled customers.
Mark Branson, chief financial officer for UBS Global Wealth Management and Business Banking, said the bank's 80,000 employees were alarmed by reports of misconduct.
"They want to know that such misconduct does not belong in UBS and that the firm's ethics match their own," Mr Branson said.
"I am here today to tell you and to tell them that no, that kind of misconduct does not belong in UBS."
Mr Branson said UBS was working with the US government to identify US clients who may have engaged in tax fraud.
The hearing before the Senate Permanent Subcommittee on Investigations marked the US Congress' latest exploration of international tax havens, which lawmakers said annually deprive the US government of $100 billion in revenues.
Thousands of wealthy Americans avoid taxes by hiding assets in Switzerland and the tiny European principality of Liechtenstein, the subcommittee said, in a report on UBS and LGT Bank, which is controlled by Liechtenstein's royal family.
At LGT, the report said, "secrecy was a deeply embedded way of life". It said LGT used code names for clients, told its bankers to use pay phones to call clients, and "created elaborate, deceptive offshore structures."
LGT spokesman Michael Robinson said in a statement that the bank "strongly rejects any allegations of conducting, or assisting in, illegal activities."
Democratic presidential contender Sen. Barack Obama praised the subcommittee's work. "Ordinary Americans pick up the slack for tax cheats who hide assets in offshore tax havens, often with the help of foreign banks like UBS and LGT," he said.
The Illinois Democrat called for passage of legislation to improve the ability of federal authorities to investigate and prosecute financial wrongdoing in offshore tax havens.
Obama introduced the legislation last year, along with Senate subcommittee chairman Carl Levin, a Michigan Democrat, and the panel's top Republican, Norm Coleman of Minnesota.
In related news, the Senate Finance Committee on Thursday announced that on July 24 it will release a report from congressional investigators on Cayman Islands tax evasion.
Led by hedge funds, law firms and accounting firms, a thriving global business in tax avoidance has grown up in recent years in New York, London and other financial capitals.
At the Senate subcommittee hearing, four Americans accused by the panel of hiding assets were asked to testify. Only William Wu of New York and Shannon Marsh of Florida appeared. Both refused to answer questions, citing their constitutional right to not have to give self-incriminating testimony.
Martin Liechti, the head of UBS Wealth Management Americas, also invoked his Fifth Amendment rights. Peter Lowy, group managing director of Australia-based Westfield Group, a major shopping mall group, did not appear. His lawyer has said he will voluntarily appear before the panel on Friday.
The subcommittee said UBS had an estimated 19,000 "undeclared accounts" for US citizens hiding $18 billion in assets from the Internal Revenue Service.
On its change in business practices, UBS said it would ask affected US-domiciled clients to transfer their banking relationship to one of its three US-regulated units.
"UBS Wealth Management Americas continues to operate as it always has and is not affected by today's announcement, except that some clients who used to have their accounts in Switzerland may transfer their accounts into that business," the bank said in a statement distributed after the hearing.
In May, two former UBS bankers, Bradley Birkenfeld and Mario Staggl, were indicted and accused of helping a US real-estate developer hide $200 million in assets from tax authorities.
On June 19, Mr Birkenfeld pleaded guilty in federal court in Florida to conspiring to defraud the IRS.