14 Provisions and contingent liabilities

(XLS:)

in CHF thousands

30.06.2014

31.12.2013

+/– %

Provisions for legal and litigation risks

31'331

35'329

–11.3

Provisions for restructuring

1'337

2'621

–49.0

Total provisions and contingent liabilities

32'667

37'950

–13.9

The provisions for restructuring relate to the Focus2015 strategy of the LLB Group announced in March 2013. Among other measures, this strategy envisages the closure of business branches in Liechtenstein and Switzerland, as well as the closure of LLB Verwaltung (Switzerland) AG, formerly Liechtensteinische Landesbank (Switzerland) Ltd. As per 30 June 2014, provisions amounting to CHF 1.3 million were allocated for restructuring, covering estimated rebuilding and restoration costs and expenses for social plans for employees. No further significant provisions are to be expected in relation to the Focus2015 strategy or other restructuring measures.

Within the scope of its normal business operations the LLB Group is involved in various legal proceedings. It makes 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 when the amounts can be estimated.

As per 30 June 2014, the LLB Group was involved in various litigation and proceedings, which could have an impact on or be a threat to its financial reporting. The LLB Group shall strive 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.

In 2011, LLB Verwaltung (Switzerland) AG, formerly Liechtensteinische Landesbank (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 Verwaltung (Switzerland) AG, the successor company with registered office in Zurich-Erlenbach is responsible for further procedure. As of now it is subject to supervision by the Swiss Federal Financial Market Authority (FINMA).

LLB Verwaltung (Switzerland) AG is cooperating closely with the US authorities and is working with them to achieve an efficient settlement of the issues while complying with the prevailing legal regulations. On 29 August 2013, Switzerland and the USA signed a joint statement in Washington to resolve the taxation dispute. The solution enables the banks to resolve past issues with a clearly defined framework. The US programme is open to all Swiss banks, excluding those banks which are the target of criminal investigations by US Department of Justice (category 1 banks). The LLB Verwaltung (Switzerland) AG belongs to the category 1 banks. These banks must seek a solution individually 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 Verwaltung (Switzerland) AG may not have complied with US law, especially US tax law, was still not unlikely as per 30 June 2014. Based on the calculation criteria applied in the non-prosecution agreement between LLB AG, Vaduz, and the US authorities, as well as the latest information and payments made by other banks, the provision for LLB Verwaltung (Switzerland) AG was increased per 30 June 2014. Management believes that the provisions set aside as per 30 June 2014 are sufficient. LLB (Switzerland) Ltd. ceased its banking activities at the end of 2013.

The subsidiary company swisspartners Investment Network AG, the US Department of Justice (DOJ) and the District Attorney for the Southern District of New York announced on 9 May 2014 that they had signed a non-prosecution agreement. This agreement ended the investigations of swisspartners Investment Network AG and meant that no further legal action was initiated against swisspartners Investment Network AG. Thanks to the solution achieved, swisspartners Investment Network AG was able to definitely resolve the US taxation dispute. The US authorities investigated whether clients of swisspartners Investment Network AG had violated US tax law and securities regulations, and whether or what form the company had been involved. Within the scope of the agreement reached, swisspartners Investment Network AG undertook to make a payment of USD 4.4 million. Sufficient provisions had been allocated for the payment in 2013. The specific provisions not utilised per 30 June 2014 for a possible payment were written back in favour of the income statement. The provisions were not completely released, an insubstantial amount remains set aside for the payment in connection with the conclusion of the non-prosecution agreement, as well as for legal advice and support which may still be required. Management believes that the provisions set aside as per 30 June 2014 are sufficient.

Switzerland and USA signed a joint statement 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 have decided by the end of December 2013 whether and how they wish to participate in this taxation programme. In accordance with the principle of prudence and in line with the statements made by the FINMA that an institution which decides in favour of category 2 is acting responsibly, the management of Bank Linth 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. Management has no new information available, which would necessitate an adjustment of the provision and it believes that the provisions set aside per 30 June 2014 are sufficient.

Based on the available information, the LLB Group allocated provisions in the past and in the 2014 interim financial reporting for the US taxation issues. The proportion of the provisions, which was set aside for swisspartners Investment Network AG, was released with the payment of USD 4.4 million for the final settlement of the US taxation dispute. A provision amounting to CHF 21.5 million was allocated for the LLB Group per 30 June 2014 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 30 June 2014, the LLB Group had no contingent liabilities.

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