Judge Delays Hearing on Swiss Bank Secrecy
Monday, July 13, 2009; 2:02 PM
A federal judge today agreed to delay a hearing in a U.S. government challenge to Swiss bank secrecy, giving the Justice Department and the Swiss government about three weeks to negotiate a settlement.
The U.S. government had been scheduled to square off today against Switzerland's largest bank over an IRS demand that the bank -- UBS -- turn over information about thousands of Americans suspected of using secret Swiss accounts to evade taxes.
Stepping back from a legal and diplomatic showdown, the U.S. government joined UBS and the Swiss government yesterday in asking a federal court in Miami to postpone the hearing so they can continue settlement talks.
The parties have agreed that any settlement "would necessarily include a provision requiring UBS to provide the Internal Revenue Service information on a significant number of individuals with UBS accounts," the Justice Department said.
UBS earlier this year admitted that it schemed to defraud the U.S. government by helping American clients hide money from the IRS -- for example, by holding their assets in the names of offshore companies. To avoid immediate criminal prosecution, UBS agreed to pay $780 million. In addition, the Swiss turned over information on about 250 account holders.
Since then, in a separate court action, the IRS has been trying force UBS to disclose information about Americans believed to have held 52,000 undeclared accounts, including the identities of the account holders.
The Swiss have resisted the demand as a "fishing expedition" and a violation of Swiss law, and last week the Swiss government said it would block UBS from complying, even if it were ordered to do so by a U.S. court.
The case pits the U.S. government's interest in stopping tax dodgers and collecting needed revenue against Switzerland's tradition of bank secrecy, a cornerstone of the Swiss economy.
A federal judge in Miami, Alan Gold, had given the U.S. government a deadline of noon yesterday to say how far it would ask the court to go to compel UBS to disclose the information. For example, the judge asked whether the government would seek an order freezing UBS assets in the United States or placing the bank's vast U.S. operations in receivership.
In a court filing yesterday, the Justice Department said the question was premature, and it did not respond directly. Instead, it said the U.S. government would seek "appropriate steps," including "monetary sanctions sufficient to bring UBS into compliance."
Swiss officials had argued that the case could damage relations between the two countries. The Swiss government had also been using as a bargaining chip a pending treaty amendment that could grant the U.S. increased access to account information in future cases of alleged tax evasion. Whether the proposed treaty language would be of much practical use to the United States is a subject of debate.
Meanwhile, UBS has been shutting down all Swiss-based accounts of American depositors, in some cases telling them they must travel to Switzerland if they want to collect their money. Those actions have already given clients and potential clients reason to question whether they can count on Swiss banks to discreetly hold their money over the long term.
Swiss officials had been talking openly about ongoing efforts to settle the UBS case. Without denying it outright, the Justice Department had suggested that talk of such efforts was unfounded.
Today, a judge agreed to delay the hearing until Aug. 3, as the parties requested.
In a statement, UBS said the negotiations will involve the two governments.