Treaty Conveys Little Power to Break Swiss Bank Secrecy

A new treaty touted as helping U.S. law enforcement crack Swiss bank secrecy may do little to help authorities achieve a prime objective: exposing tax evaders.

The U.S. government has been fighting a legal battle to obtain the names of thousands of Americans thought to have used accounts at Switzerland's largest bank to hide money from the Internal Revenue Service, and Switzerland has been trying to defuse the U.S. effort.

In an interview this week, a top Swiss official cited the recently negotiated treaty amendment as evidence that Switzerland is moving toward greater openness. Doris Leuthard, Switzerland's vice president and economic minister, emphasized that in the future the treaty amendment now awaiting ratification would give the United States access to information in cases of tax evasion, which are not covered by an existing treaty between the two countries.

But Leuthard also said that under the treaty amendment, the United States would have to know the names of suspected tax evaders to obtain information about their Swiss accounts.

"This is basic, basic information they will need to give us," Leuthard said.

Jack Blum, a lawyer who specializes in international tax and money-laundering matters, said the treaty amendment boils down to this: "If you have the information, we'll give it to you."

The main value of the agreement is that "it gives everybody the ability to say we signed an agreement," Blum said, but "I don't think that qualifies as solving the problem."

The problem for U.S. authorities is that they don't necessarily have the names. Based on allegations by former bank insiders and other evidence that Swiss banking giant UBS systematically helped Americans dodge taxes, the U.S. government has asked a federal court to order UBS to turn over the names of Americans who maintained an estimated 52,000 accounts.

The case threatens a pillar of the Swiss economy: the reputation for bank secrecy that has helped make Switzerland a leading destination for global deposits.

Although UBS reached a partial settlement with the government this year, admitting that it engaged in a scheme to defraud the U.S. Treasury, Swiss bankers and government officials have pressed the U.S. government to abandon its pursuit of individual names, even suggesting the case could jeopardize ratification of the treaty amendment.

Neither country has released the text of the agreement. The Treasury Department said it would allow the exchange of information "to the full extent permitted by Article 26" of a model treaty drafted by the Organization for Economic Co-operation and Development (OECD). Article 26 includes assurances that countries would not be obligated to take actions at variance with their laws or to supply information that is not obtainable under their laws.

In the UBS case, Switzerland has invoked a similar argument: that its laws prohibit disclosure of information sought by the United States.

Jeffrey Owens, an OECD tax official, said the model language would provide an effective exchange of information, partly because Switzerland promised as much when it publicly embraced the OECD standard.

In a statement last month, Treasury Secretary Timothy F. Geithner said the accord "will help bring an end to an era of offshore accounts and investments being used for tax evasion."

Leuthard said Switzerland wants a settlement to the UBS case and considers the U.S. demand unacceptable. "And so far we can't accept that one country is asking, 'Oh, please give us the names and the bank account[s] of 50,000 people,' '' she said, adding the U.S. demand "is more like a fishing expedition."

Leuthard, who is set to become Switzerland's president next year, said both sides have been talking, and "the goal is I think from both sides that it can be settled."

A spokeswoman for the Swiss embassy in Washington, Emilija Georgieva, went beyond those comments yesterday, saying, "We still hope and are assured that there will be a solution."

But Justice Department spokesman Charles Miller stood by an earlier statement: "While the department is always willing to consider settlement in any case, the suggestion that the department is planning to drop this suit is simply untrue."