Tentative Settlement Reached in Swiss Bank Tax Evasion Case

By David S. Hilzenrath
Washington Post Staff Writer
Friday, July 31, 2009; 12:20 PM

The U.S. and Swiss governments have tentatively settled a dispute in which the U.S. government was seeking information about thousands of American depositors suspected of using accounts at Switzerland's largest bank to hide money from the Internal Revenue Service.

The two sides have "reached an agreement in principle on the major issues," Justice Department lawyer Stuart D. Gibson told a federal judge Friday morning in Miami. Other issues remain, Gibson said. Details of the settlement were not disclosed.

The judge agreed to delay until Aug. 10 a trial-like proceeding that was scheduled to begin Monday in the case. Judge Alan S. Gold scheduled a status conference in the case for Aug. 7.

The dispute had mushroomed into a major confrontation between the two countries, pitting U.S. law enforcement and tax collection against the fortunes of the Swiss banking industry.

UBS, Switzerland's largest bank, admitted in February that it schemed to defraud the U.S. government by helping Americans hide money from the Internal Revenue Service in Swiss accounts. Under an agreement that allowed UBS to avoid a potentially crippling indictment on criminal charges, the bank agreed to pay the U.S. government $780 million over a period of years.

Switzerland also turned over the names of between 200 and 300 UBS clients suspected of committing tax fraud.

In the pending civil case, the U.S. government has been asking the federal court in Miami to demand that UBS disclose information about the holders of 52,000 accounts allegedly used to evade U.S. taxes.

The Swiss government had vowed that if the court ordered UBS to turn over the names, it would prevent UBS from complying. UBS protested that it was caught between the U.S. government and the imperatives of Swiss bank secrecy law.

At that point, the case against the Swiss bank became an issue for the two governments to resolve.

The United States is trying to crack down on tax dodgers and plug leaks in the U.S. Treasury.

Switzerland is fighting to uphold its own law and preserve a tradition of bank secrecy that is central to its global banking industry and its economy.

According to court records, including information from a former UBS insider, Swiss bankers allegedly went to great lengths to do business with American clients that would pass under the radar of U.S. authorities, even communicating in code words.

Also Friday, Secretary of State Hillary Rodham Clinton was scheduled to meet with her Swiss counterpart at the State Department, where the dispute was likely to come up.

A large portion of UBS's business is based in the United States, giving the U.S. government enormous potential leverage over the bank. The judge in the pending case noted earlier this month that, in the event he rules against UBS, the U.S. government could seek a court order seizing the bank's U.S. assets or placing the bank's U.S. operations in receivership.

© 2009 The Washington Post Company