- The Washington Times - Friday, February 20, 2009

The U.S. government’s quest for tax evaders is on a collision course with Switzerland’s centuries-old tradition of banking secrecy with the Justice Department on Thursday asking a judge to order Switzerland’s largest bank to release the names of tens of thousands of American customers, a move that would violate Swiss law.

The filing in a federal court in Miami stems from Wednesday’s $780 million settlement between the U.S. and UBS AG. As part of the settlement, which settled accusations that UBS helped Americans hide money from the IRS, the bank agreed to provide the names of its American customers.

And that’s where the trouble began. Swiss law prohibits releasing such information without proof that a customer committed tax fraud. Swiss authorities have already turned over the names of as many as 300 UBS customers in this probe.

The U.S. government believes there are others. It wants account information for an estimated 52,000 Americans who failed to pay income taxes on secret accounts that held about $14.8 billion. According to prosecutors, UBS bankers marketed their services to wealthy Americans as a way for them to evade taxes.

“At a time when millions of Americans are losing their jobs, their homes and their health care, it is appalling that more than 50,000 of the wealthiest among us have actively sought to evade their civic and legal duty to pay taxes,” said John A. DiCicco, acting assistant attorney general for the Justice Department’s Tax Division. “It is time for those who are trying to hide from the IRS to rethink their actions.”

But with little specific information about those Americans, the Justice Department requested account information through broad John Doe summonses, which do not meet Swiss legal standards.

“UBS believes it has substantial defenses to the enforcement of the John Doe summons and intends to vigorously contest the enforcement of the summons in the civil proceeding,” the bank said in a statement.

The Justice Department anticipated such a challenge, which is allowed under the terms of its agreement with UBS.

“UBS is going to put them to their proof,” said Evan Stewart, a New York attorney who specializes in securities regulations. “I would view this trial process as a very healthy thing.”

Tax attorney George Clarke added: “The question is whether a U.S. judge will compel a foreign bank to violate a foreign law.”

Switzerland’s president, Hans-Rudolf Merz, said Thursday that the only names turned over were of Americans linked to tax fraud and that such a move doesn’t compromise the country’s history of discretion.

“Banking secrecy, ladies and gentlemen, remains intact,” Mr. Merz said, according to the Associated Press.

Wednesday’s court filing is the latest in a series of legal entanglements for UBS that also includes one of its bankers pleading guilty to criminal charges and a high-ranking executive going on the run.

Last June, UBS private banker Bradley Birkenfeld pleaded guilty to helping a client hide $200 million in assets from U.S. authorities.

Five months later, Raoul Weil, a UBS executive was indicted on charges that he helped American clients hide $20 billion in assets from U.S. tax authorities. Mr. Weil, who was the head of the bank’s largest unit, wealth management, was declared a fugitive last month after avoiding capture.

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