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UBS tax evasion deal bogged down in details

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Swiss and United States negotiators have again failed to break the deadlock in a dispute over UBS bank and a demand for the confidential details of 52,000 clients.

This content was published on August 7, 2009 - 20:12

Lawyers asked a Miami judge to postpone the threatened trial for yet another week as attempts to find an out-of-court settlement foundered on details of a broad agreement between the two countries.

The US tax authorities had demanded details of thousands of UBS clients in February after the bank admitted that some of its employees had helped US citizens evade taxes.

UBS has already paid a $780 million (SFr845 million) fine and given information on a few hundred clients, but this was not enough for the US.

The Swiss government has said it would block the mass handover of confidential client data as it contravenes Switzerland's banking secrecy laws. The deadlock has resulted in high-level talks to seek a resolution.

Miami district judge Alan Gold agreed on Friday to delay the court case for a third time, to August 17, after lawyers told him during a status review that they were still hammering out the fine details of an agreement found last month.

"There are still some issues that remain to be resolved. The parties are working through these issues and plan to continue talking," US Department of Justice lawyer Stuart Gibson told the judge.

The "issues" at stake have not been made public but could revolve around the exact number of UBS clients to be handed over to the US tax authorities and the way such information could be revealed without contravening Swiss law.

The Swiss press last weekend speculated that 5,000-10,000 UBS customers may have their identities and account details revealed.

On Friday Swiss Justice Minister Eveline Widmer-Schlumpf said in a statement that negotiators "will continue to work intensively to clarify the details of the settlement. We will continue to strive for a solution that takes into account the interests of both states".

Huge pressure

The cat-and-mouse game between Switzerland and the US has been dragging on since July 13 when the trial of UBS was postponed for the first time.

The bank faces huge financial and reputational damage if the dispute goes to a court case that would not take Swiss banking secrecy rules into account.

The Swiss government has been facing huge pressure at home to show a strong hand with the US and not cave into demands that would weaken national sovereignty.

On the other side, the US is determined to crack down on tax evaders who deny the country income during the bleak economic period.

Observers believe neither side would want UBS to substantially weaken or collapse in the US – as evidenced by their willingness to continue the behind-the-scenes dialogue.

Breathing space?

But Judge Gold warned that the week-by-week stalling would soon have to end, as he would be unavailable to hold the trial between August 27 and September 15.

In effect, if the two sides are still thrashing out a deal in a week's time, the threat of a trial would be postponed for over a month.

This would appear to serve Switzerland's interests better as it would give them more breathing space to iron out the issues without losing too much face while limiting the damage to its banking sector.

The next status review has been scheduled for Wednesday, August 12.

Matthew Allen, swissinfo.ch

UBS and the US

On May 14, 2008, former UBS employee Bradley Birkenfeld and a Liechtenstein businessman were charged by the US authorities with helping an American billionaire avoid paying taxes on $200 million of assets deposited in Swiss and Liechtenstein bank accounts.

Birkenfeld turned whistleblower, giving details of UBS private banking practices to US prosecutors.

In July, a Miami court authorised the Internal Revenue Service to issue a summons on UBS demanding the release of confidential information on clients the agency suspected of tax evasion.

In the same month, UBS told a congressional hearing that it would stop offshore banking activities for US clients.

UBS agreed in February to pay $780 million and name some United States clients to resolve criminal fraud charges against it. However, this did not affect a separate demand from the IRS for the details of 52,000 UBS clients, in direct contravention of Swiss banking secrecy laws.

A court case in Miami has been rescheduled three times as diplomats attempt to broker a deal behind the scenes.

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