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U.S. and Swiss settle UBS tax-evasion case

The Swiss banking giant UBS AG, which has offices in New York, has been under scrutiny.
The Swiss banking giant UBS AG, which has offices in New York, has been under scrutiny.
Mark Lennihan, Associated Press

MIAMI — Days before a high-stakes trial with implications for bankers worldwide, the U.S. and Swiss governments said Friday they reached a hard-fought settlement in the U.S. effort to get names of thousands of wealthy Americans suspected of evading taxes by hiding billions of dollars with Swiss banking giant UBS AG.

Both governments and UBS said details would remain confidential until a written settlement was finalized, likely within the next week. A trial scheduled to begin Monday was canceled by U.S. District Judge Alan S. Gold, who set an Aug. 7 conference call to go over a proposed final agreement.

"The parties have reached an agreement in principle on the major issues," U.S. Justice Department tax attorney Stuart Gibson told Gold in a telephone conference Friday. "There are some other issues that need to be resolved."

Shares of UBS AG rose 95 cents, or 6.9 percent, to close at $14.74 Friday.

The breakthrough came minutes before U.S. Secretary of State Hillary Clinton and Switzerland's foreign minister, Micheline Calmy-Rey, met in Washington to discuss the UBS case and related issues. Announcement of a deal was somewhat surprising, given that Gibson told Gold on Wednesday the two sides were far apart.

In brief remarks to reporters at the State Department, Clinton and Calmy-Rey expressed pleasure at the agreement.

"There's been an agreement in principle," Clinton said. "Our governments have worked very hard on this to reach this point."

Calmy-Rey said she was "very satisfied" with the agreement but did not elaborate. But Swiss Foreign Ministry spokesman Lars Knuchel said the settlement bodes well for U.S.-Swiss relations, which have been strained by the tax case.

"I think it is in the interests of both countries to find a solution, to find a settlement and the simple fact that the two delegations and both governments have now in principal reached an agreement is a good example for the overall good relationship that these two countries share," Knuchel said.

Originally the trial was to begin July 13, but Gold agreed to give all sides time to reach a settlement first.

The case, in which the U.S. Internal Revenue Service is taking on centuries of Swiss banking secrecy tradition, involves some 52,000 U.S. taxpayers believed to be hiding about $15 billion in assets in UBS accounts. The IRS wants Gold to order the Zurich-based bank to turn over those names so it can collect taxes — and so the Justice Department can prosecute them for tax evasion.

UBS and the Swiss government, however, insist they cannot reveal the names without committing crimes in Switzerland. The Swiss have threatened to block disclosure even if Gold were to order the identities released to U.S. authorities.

"If all 52,000 names are turned over, it might end Switzerland as we know it as an international banking center," said Martin Press, a tax attorney with the Gunster law firm. "So this is very important to the Swiss."

The Justice Department indicated that any deal would have to include disclosure of some taxpayer names and would likely include a large penalty against UBS, which has some 34,000 employees and contract workers in the U.S.

Raymond Baker, director of the Global Financial Integrity, an organization that works to end illegal international money transfers, said it's critical that U.S. officials push for greater information sharing so tax evasion and other financial crimes can be investigated.

"What happens with the UBS case will be noted around the world, but what will set a true precedent for tax havens around the world is what we do next," Baker said.

Earlier this year, UBS admitted assisting U.S. citizens in evading taxes as part of a deferred prosecution agreement with the Justice Department. UBS agreed to disclose the names of about 300 American clients and pay a $780 million penalty. The IRS subsequently filed its case seeking the 52,000 additional names.

So far, three UBS customers whose names were given to U.S. authorities under the prior agreement have pleaded guilty to tax charges in federal court. Hundreds of others with 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.