Official: Proposal in Swiss Banking Dispute Doesn't Threaten Secrecy

By David S. Hilzenrath
Washington Post Staff Writer
Monday, August 3, 2009 9:26 PM

The proposed resolution to a U.S. government demand for information about thousands of Americans suspected of using Swiss accounts to evade taxes would leave Swiss bank secrecy intact, a top Swiss official has said.

Over intense opposition from Switzerland, the United States has been seeking the names of thousands of Americans who hold secret accounts at UBS, Switzerland's largest bank. The Justice Department said Friday it had reached "an agreement in principle" to end the dispute, but it has not disclosed the terms of the deal.

In a Swiss newspaper interview, Michael Ambuhl, Switzerland's secretary of state for foreign affairs, said the settlement would not violate Swiss bank secrecy law because the United States has agreed to request information under existing agreements between the two countries.

The United States has "promised . . . to ask for legal assistance again," Ambuhl said in an interview with the NZZ am Sonntag newspaper, which was quoted on the English-language Web site of the Swiss Broadcasting Corp. and confirmed Monday by a spokeswoman for the Swiss embassy in Washington.

It is unclear how such an arrangement would satisfy the U.S. objective.

The Justice Department said earlier this month that any settlement would require UBS to turn over information "on a significant number of individuals." The U.S. government ratcheted up its civil case against UBS early this year after declaring that it had been frustrated in its attempt to obtain names through a longstanding request for legal assistance.

As of January, the Swiss government had decided to provide records for only 12 of 52,000 undeclared accounts, and it would not even divulge those names until the account holders had been given a chance to contest the disclosure, IRS Deputy Commissioner Barry B. Shott said in a February court filing. "In sum, the Swiss Government has not provided any records sought under the Treaty Request, and it is not clear when, if ever, it will," Shott said.

The tax treaty with Switzerland has been a failure, Sen. Carl M. Levin (D-Mich.), chairman of a panel that has investigated UBS, said at a March hearing.

"Too many countries are using our treaties as a shield to deny tax information to us instead of using those treaties as a sword to expose tax cheats as was intended," Levin said at the time. "The result is a cynical charade in which tax havens like Switzerland try to have it both ways, claiming to be a cooperative partner in the international fight against tax abuse while providing a safe haven and promising ironclad secrecy laws for tax evaders."

Justice Department spokesman Charles Miller declined to comment.

At least publicly, the United States and Switzerland have staked out seemingly irreconcilable positions, putting a heavy strain on otherwise friendly relations. In one corner, the United States has been fighting to collect unpaid taxes and make would-be tax dodgers think twice before hiding money overseas. In the other corner, Switzerland has been fighting to maintain the reputation for bank secrecy that is a cornerstone of its financial industry and economy.

In February, a Swiss regulator ordered UBS to turn over between 200 and 300 client names as part of a deal that allowed the bank to avoid criminal indictment in the United States on charges of aiding tax evaders. The regulator said it issued the order because an indictment could have threatened the survival of the bank and the stability of the Swiss financial system.

In approving that limited disclosure, a Swiss court appeared to stretch the legal definition of circumstances in which Switzerland permits the breach of client confidentiality, said William M. Sharp Sr., a Florida-based lawyer whose clients include UBS depositors. Sharp said he has spoken to about a dozen Swiss lawyers who share that view.

It is unclear how Switzerland could meet the U.S. demand for thousands of additional names without appearing to bend its secrecy standard further.

"[W]e believe that UBS has now complied with the summons to the fullest extent possible without subjecting its employees to criminal prosecution in Switzerland," Mark Branson, the chief financial officer of UBS global wealth management, said in March.

Swiss media reports, citing anonymous sources, have said the pending settlement could result in the disclosure of thousands of clients' names to the United States.

"The big mystery is why UBS found only 285 accounts to meet these criteria last year and now people apparently are throwing the number 5,000 around," said Washington-based tax lawyer Scott D. Michel.

Lawyers for the United States and Switzerland are scheduled to update a federal judge on their negotiations Friday.

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