28 Provisions and contingent liabilities

in CHF thousands

2013

2012

+/– %

As at 1 January

22'046

5'871

275.5

Reclassification of non-current assets held for sale

3'000

0

 

Provisions applied

–12'789

–1'142

 

Increase in provisions recognised in the income statement

25'693

17'717

45.0

Release of provisions recognised in the income statement

0

–400

–100.0

As at 31 December

37'950

22'046

72.1

of which provisions for legal and litigation risks

35'329

20'546

72.0

of which provisions for restructuring

2'621

1'500

74.7

Total

37'950

22'046

72.1

in CHF thousands

31.12.2013

31.12.2012

+/– %

Short-term provisions

16'750

20'751

–19.3

Long-term provisions

21'200

1'295

 

Total

37'950

22'046

72.1

The provisions for restructuring relate to the Focus2015 strategy announced by the LLB Group in March 2013. This includes, among other measures, the closure of bank branches in Liechtenstein and Switzerland, as well as the closure of LLB (Switzerland) Ltd. As per 31 December 2013, provisions amounting to CHF 2.6 million for restructuring, covering estimated rebuilding and restoration costs, and expenses for social plans, were allocated. In the 2014 business year, no further significant provisions or restructuring costs are to be expected in connection with the Focus2015 strategy.

Within the scope of its normal business operations, the LLB Group is involved in various legal proceedings. It sets aside provisions for ongoing and threatened proceedings when, in the opinion of the competent specialists, payments or losses on the part of Group companies are likely, and the amounts can be estimated.

As per 31 December 2013, the LLB Group was involved in various litigation and proceedings, which could have an impact on its financial reporting. The LLB Group endeavours to disclose the claims for damages, the scope of legal proceedings and other relevant information in order for the reader to be able to estimate the possible risk for the LLB Group.

LLB AG, Vaduz, the US Department of Justice and the District Attorney for the Southern District of New York announced on 30 July 2013 that they had signed a “Non-Prosecution Agreement”.

This agreement ended the investigations of LLB AG, Vaduz, and meant that no further legal action was initiated against LLB AG. Thanks to the solution achieved, LLB AG, Vaduz, was able to definitely resolve the US taxation dispute. The US authorities investigated whether clients of LLB AG, Vaduz, had violated US tax law and securities regulations, and whether or in what form the bank had been involved. Within the scope of the agreement reached, LLB AG, Vaduz, undertook to make a payment of the gross profit of USD 16.3 million earned from transactions between 2001 to 2012 with the undeclared assets held by US clients. Of this amount, USD 15.9 million was paid to the US authorities and USD 0.4 million went to the Liechtenstein tax authorities for their costs in connection with the US request for administrative assistance. In addition, LLB AG, Vaduz, compensated the US with a payment of USD 7.5 million for lost tax revenue during the same period. Above and beyond the payment for the gross earnings attained and the lost tax revenue, in the non-prosecution agreement the US authorities explicitly waived the imposition of a fine or penalty against LLB AG, Vaduz. In doing so, they explicitly acknowledged the cooperation provided by the bank and that the bank had taken measures to terminate certain US relationships even before the investigations began. For example, since the end of 2008, LLB AG, Vaduz, has only accepted those US persons as clients who have disclosed their assets to the US tax authorities using Form W-9. Business relationships with persons who did not fulfil these criteria were gradually brought to an end.

In 2011, LLB (Switzerland) Ltd. was informed by the Swiss authorities that an investigation was being conducted against it by the US authorities in connection with cross-border private banking services for US clients. LLB (Switzerland) Ltd. is cooperating closely with the US authorities and is working with them to achieve an efficient settlement of the issue while complying with the prevailing legal provisions. Switzerland and the USA signed a «joint declaration» in Washington on 29 August 2013 to resolve the taxation dispute. The solution permits the banks to rectify past transgressions within a clearly defined framework. The American programme is open to all Swiss banks. An exception to this ruling applies to those banks, against which the US Department of Justice has already commenced investigations (so-called category 1 banks). LLB (Switzerland) Ltd. belongs to the category 1 banks. These banks must reach an individual solution with the US authorities. As per 31 December 2012, in cooperation with our lawyers, on the basis of talks with the US authorities, and taking into consideration differing probabilities, various scenarios were discussed in relation to a possible outflow of resources. On the basis of these discussions, management reached the conclusion that it is not unlikely that an outflow of resources will occur. Therefore based on the simulated scenarios and a legal analysis as per 31 December 2012, a provision was allocated for a possible outflow of resources in connection with the investigation being carried out by the US authorities and the resulting possible payment or settlement to the latter. In the opinion of management the legal risk of an outflow of resources in connection with the possibility that LLB (Switzerland) Ltd. may not have complied with US law, especially US tax law and securities regulations, was still not unlikely as per 31 December 2013. Based on the calculation criteria applied in the non-prosecution agreement between LLB AG, Vaduz, and the US authorities, the provision for LLB (Switzerland) Ltd. was increased per 30 June 2013. As per 31 December 2013, no new information, or information qualifiable in sufficient scope, was available to justify an adjustment of the provision. Management believes that the provisions set aside as per 31 December 2013 are sufficient. LLB (Switzerland) Ltd. ceased its banking activities at the end of 2013. LLB Verwaltung (Switzerland) AG, the successor company with registered office in Zurich-Erlenbach, is now responsible for the further procedure. This company is subject to the supervision of the Swiss Financial Market Authority (FINMA).

As a consequence of its business activity, the subsidiary swisspartners Investment Network AG had or still has US clients. On account of its membership of the LLB Group, the management of swisspartners Investments Network AG decided in autumn 2012 to proactively contact the US authorities in order to ascertain any possible violations of US law, especially US tax law and securities regulations. The US authorities welcomed the proactive stance of swisspartners Investment Network AG. Several discussions were held between the lawyers and the US authorities in order to find an amicable solution. In the opinion of management the legal risk of a possible payment being made by swisspartners Investment Network AG to the US authorities is not unlikely. Accordingly, management decided as per 30 June 2013 to set aside a provision including an amount to cover lawyers’ fees, which swisspartners Investment Network AG may incur for this case through the provision of legal advice and support. Up to 31 December 2013, the US authorities had not given swisspartners Investment Network AG any concrete indicators about the further course or completion of the case. On the basis of the information available, the existing provision is still regarded as being adequate.

Switzerland and the USA signed a «joint declaration» in Washington on 29 August 2013 to resolve the taxation dispute. With the launch of their DOJ Programme 2013, the US authorities have enabled the banks to participate in the programme and to regulate possible violations of US tax law directly with the US authorities. The US tax programme is an expression of the determination of the Swiss and US authorities to achieve a binding resolution of the taxation dispute. The programme contains criteria and conditions to enable the banks to regulate their status directly with the US authorities. The programme envisages that banks in Switzerland must decide by the end of December 2013 whether and how they wish to participate in this taxation programme. On the basis of the principle of prudence, and in accordance with statements made by FINMA that an institution which decides in favour of category 2 is acting responsibly, the management of Bank Linth has decided to participate in the programme in category 2, and expects from this step a rapid and final settlement of the issue. On the basis of the mathematical calculation specified by the DOJ, the management had made an estimate of the possible payment and allocated an appropriate provision.

Based on the available information, the LLB Group set aside provisions for the US taxation issue in the 2012 financial statement and in the interim financial reporting 2013. The proportion of the provisions, which was allocated for LLB AG, Vaduz, was released with the payment of CHF 22.1 million for the final settlement of the US taxation dispute. A provision amounting to CHF 26.6 million was set aside for the LLB Group as per 31 December 2013 for a possible outflow of resources in connection with a payment to the US authorities, as well as for lawyers’ fees, which may be incurred in this case for the provision of legal advice and support.

As per 31 December 2013, the LLB Group had no contingent liabilities.

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