Keeping the US Out of UBS

Mild-mannered Republican senator Olympia Snowe threw down the gauntlet to the Swiss government today, warning that if it doesn't cooperate on bank secrecy, American taxpayer dollars should not be allowed to flow to the country's largest banking establishment, UBS.

Snowe, speaking at an emotional Senate Finance Committee hearing, urged the Treasury Department to track its cash flow to make sure that money AIG is paying to clients is not going to "banks that promote tax evasion."

She said that AIG had paid $800 million to UBS, one of the financial institutions with which it had a trading relationship in credit default swaps. The insurance giant also paid $1.7 billion - in taxpayer dollars, of course - to UBS as part of its securities lending program.

UBS paid $782 million in taxes and penalties to settle federal government charges that it helped U.S. tax dodgers hide vast sums in its secret bank accounts. Snowe said that the Treasury lost $220 million in taxes because of UBS's actions, which involved as many as 52,000 undeclared accounts with about $14.8 billion in assets.

Senators - including Snowe - want to force financial institutions receiving federal bailout money to repay bonuses over $100,000 or face a 35 percent excise tax on what is not immediately repaid to federal coffers. Federal lawmakers were in a lather because AIG, which has taken $173 billion in taxpayer money, disclosed over the weekend that $165 million in bonuses were to be paid this month.

There has been a huge wave of popular outrage over the revelation about the bonuses, which include some $470 million for employees of the financial products division that sold the credit default swaps. Such swaps pulled AIG into a massive downward spiral as clients began demanding that the insurance giant make good on contracts that it had never expected to fulfill.

Snowe also tapped into public fury that AIG has shored up foreign financial institutions, particularly when those such as UBS may have acted illegally.

"In order to restore consumer confidence in the global economy," she said. "we must demand total disclosure by foreign financial institutions holding America's money."

by Elizabeth Olson