26 Provisions and contingent liabilities

(XLS:)

in CHF thousands

2012

2011

+/– %

As at 1 January

5'871

1'887

211.1

Provisions applied

–1'142

–1'493

–23.5

Increase in provisions recognised in the income statement

17'717

8'227

115.4

Release of provisions recognised in the income statement

–400

0

 

Liabilities classified as held for sale

0

–2'750

–100.0

As at 31 December

22'046

5'871

275.5

of which provisions for legal and litigation risks

20'546

5'871

250.0

of which provisions for restructuring

1'500

0

 

Total

22'046

5'871

275.5

(XLS:)

in CHF thousands

31.12.2012

31.12.2011

+/– %

Short-term provisions

20'751

2'676

675.4

Long-term provisions

1'295

3'195

–59.5

Total

22'046

5'871

275.5

As per 31 December 2012, the LLB Group was involved in various litigation and proceedings, which could have an impact or be a threat to its financial reporting. These are described in the following, whereby the LLB Group shall endeavour to disclose the claims for damages, the scope of the proceedings and other relevant information in order for the reader to be able to estimate the possible risk for the LLB Group.

On 1 May 2012, the revised law on administrative assistance in tax matters with the USA came into force in Liechtenstein. On the basis of this law, the US authorities submitted an official request for administrative assistance to the Liechtenstein tax authority in mid May 2012. The latter then informed LLB AG and requested it to hand over its US client data. LLB AG delivered the requested data to the Liechtenstein tax authority, which in turn passed on these data to the US authorities. The data of other banks in the LLB Group was not affected by this action. LLB AG is cooperating closely with the authorities and is working with them to achieve an efficient settlement of the matter while complying with the prevailing legal provisions.

At the beginning of 2012, the Liechtenstein Financial Market Authority (FMA) initiated an investigation concerning the US client business of LLB AG. This investigation was completed in mid August 2012. The FMA reached the conclusion that organizational measures in groupwide risk management were necessary. Accordingly, it gave instructions for organizational measures to be implemented with respect to decision-making management. Apart from this, the FMA did not specify any further sanctions or penalties against LLB AG.

The legal risk of a possible payment by LLB AG to the US authorities was analysed in conjunction with external legal specialists and the conclusion was reached that the possibility of an outflow of resources is not unlikely. On the basis of this conclusion, the magnitude of a potential payment to the US authorities was discussed with our external legal experts in the USA. Initial talks held between our lawyers and the US authorities, as well as the fact that within the scope of the previously mentioned administrative assistance procedure US client data had been passed on to the US authorities, forms the basis for estimates in relation to any such potential payment to the US authorities. The management of LLB AG reached the conclusion that a provision is to be activated for a possible outflow of resources in connection with a payment or settlement amount to the US authorities. This overall provision shall also cover a provision for legal costs, which LLB AG will incur for legal advice and support within the scope of this case.

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 also cooperating closely with the US authorities and is working with them to achieve an efficient settlement of the matter while complying with the prevailing legal provisions. A solution to the tax dispute between the USA and the Swiss financial services industry is also being sought by the Swiss authorities in conjunction with the US authorities and the US Internal Revenue Service (IRS).

As of the balance sheet date, it had not been possible to estimate to the same extent as with LLB AG the legal risk of an outflow of resources in connection with the possibility that LLB (Switzerland) Ltd. may not have been able to comply with US law, especially US tax law and securities regulations. This in particular because LLB (Switzerland) Ltd. is one of several banks in Switzerland, which are being investigated by the US authorities, and the investigation had not been completed and was not at an advanced stage by the time of the balance sheet date, no legal proceedings had been initiated up to the balance sheet date, no cooperation in the form of disclosure of client data had taken place, and a solution between the Swiss government and the US authorities was still being sought. Consequently, up to the time of the balance sheet date, it was not possible to reliably assess or estimate the probability and scope of any agreement, as well as any possible resulting financial liabilities or outflow of resources, or impact on the course of business. Accordingly, in cooperation with our lawyers, on the basis of talks with the US authorities and taking into account 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 to be considered as not unlikely that an outflow of resources will occur. Based on the simulated scenarios and a legal analysis, a provision is to be activated 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. This overall provision shall also cover a provision for legal costs, which LLB (Switzerland) Ltd. will incur for legal advice and support within the scope of this case.

As a consequence of its business activity, the subsidiary swisspartners Investment Network AG had or has US clients. On account of its membership of the LLB Group, the management of swisspartners Investments Network AG decided in the 4th quarter 2012 to proactively contact the investigating 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 have already been held between the lawyers and the US authorities. Further discussions are underway and others will be held in the 2013 business year in order to find a speedy and amicable solution. Up to the time of the balance sheet date, however, it was not possible on the basis of the talks held with the US authorities and the legal experts whether an outflow of resources is likely or unlikely. The possibility of an outflow of resources cannot be assessed or quantified to a sufficient extent. On the basis of this situation, management decided not to allocate a provision or a contingent liability for a possible payment to the US authorities.

A provision amounting to CHF 16.2 million has been set aside for the LLB Group for a possible outflow of resources in connection with a payment to the US authorities, as well as for lawyers’ fees which may arise for this case through the provision of legal advice and support.

As of 31 December 2012, the LLB Group had no contingent liabilities.

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