UBS Secrets
Alessandro Della Bella  /  AP
The U.S. government and Swiss banking giant UBS AG have reached a long-awaited agreement in a case over secret Swiss bank accounts for alleged American tax evaders.
updated 8/12/2009 1:54:33 PM ET 2009-08-12T17:54:33

The Swiss and U.S. governments announced a deal Wednesday to settle American demands for the identities of suspected tax dodgers, despite Switzerland's vaunted bank secrecy. But they kept all details under wraps, including how many of the 52,000 names sought by the IRS from banking giant UBS AG will be revealed.

Depending on the scale of the deal, it could be a new blow to Switzerland's reputation as a safe place to hide assets from the tax man back home.

Switzerland has long been under pressure from European neighbors and the U.S. to open its bank records for foreign tax authorities. The IRS case against UBS has been partly credited with pushing the Swiss government to agree in March to comply with tax investigation rules from the 30-nation Organization for Economic Cooperation and Development. UBS earlier this year named about 300 American clients in a separate case.

William Sharp, a Florida tax lawyer who represents American UBS clients, said he expects the agreement to allow Swiss authorities to interpret bank secrecy laws more broadly and allow a "substantial handover" of names.

"I would guess that the U.S. would not enter into this agreement in the absence of a major fine and penalty without having at least several hundred if not thousands of names turned over," Sharp said.

The IRS in February asked U.S. District Judge Alan S. Gold in Miami to force Zurich-based UBS to turn over names of some 52,000 American clients believed to be hiding nearly $15 billion in assets in secret accounts. UBS and the Swiss government had resisted, arguing that to do so would violate Swiss banking confidentiality laws that date back centuries.

The Swiss and U.S. governments announced in late July they had agreed in principle on major issues but released no details. They had hoped to present a final deal at a hearing Aug. 7, but resolving the differences took longer.

On Wednesday, lawyers for the U.S. and UBS told the judge in a brief conference call they had sealed the deal.

"The parties have initialed agreements. It will take a little time for the agreements to be signed in final form," Justice Department lawyer Stuart Gibson told the judge.

IRS Commissioner Doug Shulman said the deal "protects the United States government's interests." Shulman's two-sentence statement added only that more details will be released when the Swiss government signs the agreement as early as next week.

UBS and the Swiss government also welcomed the news and said no terms would be disclosed until it is signed. Swiss Justice Minister Eveline Widmer-Schlumpf said the agreement "is in the interests of both states."

The Swiss government got involved in the negotiations because the case goes to the heart of the country's legally enshrined banking secrecy.

Swiss banks hold an estimated $2 trillion of foreign money, and financial services add about 12 percent of GDP to the national economy. According to the Boston Consulting Group, those holdings amount to one-fourth of the world's foreign-owned assets.

Raymond Baker, director of Global Financial Integrity, an organization that works to end illegal international money transfers and improve transparency, has been following the case closely. He said the deal may waive bank secrecy for some but not all clients and that it is too soon to guess how many names might be revealed.

"It will be curious to see whether in the UBS settlement there were other negotiations that might have effects on other banks," Baker said, saying it was possible other Swiss banks might be required to disclose more information.

The U.S. and Switzerland in January agreed to increase the amount of tax information they share to help crack down on tax evasion. The details of that agreement, which have also not been revealed, could have an effect on what banks have to disclose.

UBS paid a $780 million penalty earlier this year and turned over names of about 300 American clients in a deferred prosecution agreement with the Justice Department. In that case, UBS admitted helping U.S. citizens evade taxes, which experts say is not a violation of Swiss bank secrecy laws.

So far, three UBS customers whose names were divulged under the prior agreement have pleaded guilty to tax charges in federal court. Hundreds of others holders of secret accounts at UBS and other Swiss banks have voluntarily come forward to the IRS under an amnesty program that requires payment of taxes and penalties but generally does not include the threat of prison.

That amnesty program ends Sept. 23.

News of the agreement has had an immediate effect at tax lawyer Sharp's office: "Our phone has been ringing off the hook since this morning. Clients recognize that voluntary disclosure is the only way to avoid the risk of being turned over," he said.

New York-listed shares in UBS were trading nearly 4 percent higher at $15.25.

Copyright 2009 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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