U.S. Justice Department may settle UBS tax evasion case

The Justice Department may drop its dispute with UBS (UBS) some time before the next court hearing on July 13, according to a report in The New York Times today. The suit involved the release of 52,000 names of wealthy Americans suspected of holding offshore accounts for the purpose of tax evasion.

If the U.S. drops the case it would halt its efforts to force Switzerland to lift its veil of banking secrecy. Both the Swiss government and UBS have mounted a fierce lobbying campaign to persuade the U.S. to drop the case. UBS argues that it would be forced to violate Swiss financial secrecy laws and open its executives and bankers to prosecution in Switzerland.
The case started in February, 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 using secret offshore bank accounts. The case is due to be heard in U.S. District Court in Miami on July 13 by Judge Alan S. Gold.

The rumors about the case being dropped came after Switzerland agreed to a new double taxation treaty with the United States last week, which is aimed at fighting tax evasion. "[I]t now seems as if a compromise could also be found for this case. This would be highly positive news for UBS," Kepler Capital Markets analyst Dirk Becker told Reuters.

The new tax treaty between the U.S. and Switzerland comes just before a summit in Berlin today where ministers are expected to renew pressure on nations like Switzerland to weaken bank secrecy and increase tax cooperation. Reuters also reports that Matt Spick, a Deutsche Bank analyst wrote in a client note on Monday that "This means that a settlement is likely to take place close to the July 13 court hearing date. Furthermore, an unfavorable ruling is still possible, which presents a key risk to the UBS franchise and share price."

The U.S. doesn't even need to win the case to have met many of the goals it sought in filing the case. Many wealthy clients worried about being prosecuted declared their accounts in recent months. Prosecutors want to focus on several thousand ultrawealthy Americans with offshore accounts containing tens to hundreds of millions of dollars. About 30,000 of the 52,000 UBS clients in the U.S. are smaller, cash-only accounts and many of these smaller account holders have already repatriated the money into U.S. banks.

Prosecutors may learn the identity of some of the largest account holders because as part of the new tax treaty signed Friday to fight tax evasion Switzerland agreed to enhanced information sharing. Federal prosecutors will also learn the identities of UBS clients who filed legal papers in Swiss courts contesting the U.S. Justice Department's names summons.

Lita Epstein has written more than 25 books including Reading Financial Reports for Dummies.

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