As I expected in June, settlement talks between the U.S. government and UBS have gotten serious now that the hearing, which could result in a court order demanding the release of 52,000 account-holder names, is near. On Sunday the U.S. and UBS (UBS) jointly asked the judge to postpone a hearing today in Miami to give the U.S. and Swiss governments more time to find a resolution that will satisfy the strict banking secrecy laws of the Swiss, while at the same time exposing tax evaders.
Swiss laws do protect the secrecy of account holders provided fraud is not involved. The Justice Department wants access to accounts of all 52,000 U.S. citizens who bank with UBS in Switzerland. Swiss officials last week said they would seize UBS data to protect Swiss privacy laws.
But these secrecy laws don't protect people who use them to commit fraudulent acts, including tax evasion. Estimates are that 7,000 of these accounts will draw the greatest scrutiny. Those 7,000 accounts are tied to offshore companies and trusts, which are more susceptible to fraud.
UBS is caught in between the battle of the two governments. It will break Switzerland's bank secrecy laws if it turns over the names. But the bank could face contempt and sanctions from U.S. courts if it doesn't turn over the names, if ordered to do so by a judge.
So far the bank has had to pay $780 million to the U.S. government after a February 2009 settlement related to tax evasion. Several people have pleaded guilty, including Bradley Birkenfeld, a former private banker who helped the U.S. government make its case against billionaire tax dodgers. As part of the February settlement, UBS turned over 250 names of suspected tax evaders.
U.S. citizens are being given the chance to come clean on their own. Many have taken advantage of the limited amnesty now in effect through September to report and pay past due taxes so they can avoid criminal charges.
The UBS case is just a test case that if won will open the doors to the secrets of other Swiss banks and banks in other countries with secrecy mandates. "The Obama administration is leading the [Group of 20 industrial and developing nations'] publicly announced mandate to eradicate tax-haven abuse once and for all and thus to compel taxpayer compliance in all offshore holdings," international tax lawyer William Sharp told the Wall Street Journal.
With every country facing reduced tax collections due to the worldwide recession, it should be no surprise that countries will try to find every penny of taxes they can. Why should the billionaires have special ways to hide their money and avoid taxes?
Lita Epstein has written more than 25 books including Reading Financial Reports for Dummies.