Swiss, U.S. May Have Deal On Banks

The U.S. and Swiss governments have tentatively settled a legal dispute in which the U.S. government was demanding the names of thousands of Americans suspected of using Swiss bank accounts to hide money from the Internal Revenue Service.

The two sides have "reached an agreement in principle on the major issues" and expect to resolve remaining points over the next week, Justice Department lawyer Stuart D. Gibson told a federal judge Friday.

Terms were not disclosed.

The dispute had escalated into a serious confrontation between the two countries, pitting U.S. law enforcement and tax collection efforts against Swiss economic interests.

If Switzerland agrees to disclose names and account details, the settlement will be a major blow to its reputation for bank secrecy, which has helped make it a banking powerhouse. Switzerland had denounced the U.S. demand as a fishing expedition incompatible with Swiss law.

If the United States settles for less than full disclosure, it will send a message that President Obama's tough talk about cracking down on tax dodgers and overseas financial havens was merely "empty words," said Monique Perry Danziger, spokeswoman for the advocacy group Global Financial Integrity.

The Justice Department said earlier this month that any settlement would require UBS, Switzerland's largest bank, to turn over information "on a significant number of individuals with UBS accounts."

UBS admitted in February that it schemed to defraud the U.S. government by helping Americans evade taxes. According to court records, including information from a former UBS insider, Swiss bankers allegedly went to great lengths to recruit and cater to American clients below the radar of U.S. authorities, even communicating in code words.

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. The Swiss also turned over the names of 200 to 300 UBS clients suspected of committing tax fraud.

In the pending civil case, the U.S. government was asking a federal court in Miami to order UBS to disclose information about the holders of 52,000 additional accounts.

The Swiss government had vowed that if the court ordered UBS to turn over the names, it would prevent UBS from complying. At that point, the case against the Swiss bank became an issue for the two governments to resolve.

The White House has described its campaign to stop tax evasion as an issue of fairness for honest taxpayers and a way of recouping needed federal revenue.

For Switzerland, the stakes are also high. The banking industry accounts for 10 percent of Switzerland's gross domestic product, largely because it leads the world in attracting deposits from abroad, according to the Swiss Bankers Association.

Swiss banking has long been a focus of international criticism, including allegations that it helped Nazis hide looted assets during World War II and then made it difficult for Holocaust survivors and heirs of victims to recover deposits.

At the State Department Friday, Secretary of State Hillary Rodham Clinton met with her Swiss counterpart and expressed gratitude for Swiss help in international affairs, illustrating why the United States might want to defuse the confrontation over UBS. "We're very grateful to the Swiss Government for the role that they play representing us in countries like Iran," Clinton said.

About a third of UBS's assets are based in the United States, giving the U.S. government enormous leverage over the bank. The judge in the pending case noted earlier that, if he ruled 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. A trial-like proceeding, which was scheduled to begin Monday, has been postponed.

"The litigation put extreme pressure on UBS, and so they're clearly going to be disclosing names," said tax lawyer Edward M. Robbins Jr. "The only question is what's the formula for determining who they are going to disclose."