Settlement Anticipated in UBS Secrecy Case
The Justice Department may drop a closely watched legal case aimed at forcing the Swiss bank UBS to divulge the names of 52,000 wealthy American clients suspected of offshore tax evasion, a United States official briefed on the matter said Monday.
The move, which would halt an unusually aggressive effort to force Switzerland to lift its veil of banking secrecy, could happen by mid-July.
The reversal comes as UBS and senior Swiss government officials have mounted a fierce lobbying campaign to persuade Washington to drop the case. UBS argues that disclosing client names would cause it to violate Swiss financial secrecy laws and open its executives and bankers to prosecution in Switzerland.
In February, the Justice Department sued UBS in a federal court in Miami to compel the bank to turn over the names, just a day after UBS agreed to pay $780 million to settle accusations that it had defrauded the Internal Revenue Service by allowing wealthy Americans to hide billions of dollars in taxes in secret offshore bank accounts.
Since the settlement, UBS and the Swiss government have pressed their case with Washington, citing rising tensions in the diplomatic relations between the two nations.
“To have a complete meltdown in Swiss-U.S. relations and go to the mat with Switzerland three years from now when money is getting back into the system doesn’t make sense,” said an American official who was not authorized to speak publicly about the matter.
While the bank has legal avenues to challenge the lawsuit, it risks possible indictment if it exhausted those options without turning over the names.
The complaint could be dropped before July 13, when a federal judge, Alan S. Gold of the United States District Court in Miami, is expected to hold a short trial on the issue, although a deal could still collapse.
“The Swiss do not want this to be litigated, and it is possible it will settle before then,” said the official.
Washington and Switzerland signed a new tax treaty Friday that would fight tax evasion by enhancing information sharing. But prosecutors are more likely to learn the identities of UBS clients after some filed legal papers in Swiss courts contesting the Justice Department’s names summons.
Swiss government officials are considering conveying these Swiss-based filings to the Justice Department as part of a deal in which the United States agency would drop the entire case, something that would allow Switzerland to say that it has not breached its own secrecy laws.
The Justice Department is already thinking of dropping the case because scores of wealthy clients, worried about being prosecuted, have come forward in recent months to declare their accounts. In addition, the agency would face a lengthy appeals process of up to three years if UBS appealed any adverse rulings by Judge Gold.
Of the 52,000 clients on the agency’s original list, prosecutors are focused on several thousand ultrawealthy Americans with offshore accounts containing from tens to hundreds of millions of dollars. Some 30,000 of the accounts are smaller, cash-only accounts, and many of those have been repatriated to American-based banks in recent months, the official said.
Adding to the pressure on UBS is a June 30 I.R.S. deadline requiring offshore banking clients to file certain disclosures, known as F-bars.
“If you look at the repatriations and F-bar filings and voluntary disclosures, and if these are big numbers, then it would make sense to settle this case,” said the official.
Karina Byrne, a UBS spokeswoman, and a Justice Department spokeswoman, Beverly Lumpkin, both declined to comment.