US, Swiss ask for delay in UBS secrecy case

[July 13, 2009]  TOKYO (AP) -- The U.S. and Swiss governments and banking giant UBS AG indicate they were seeking a settlement and asked a federal judge to delay high-stakes hearings on the Internal Revenue Service's effort to identify thousands of suspected American tax evaders.

The one-page motion, filed in Miami on Sunday less than 24 hours before the hearings were to begin Monday, said postponement is needed "to allow the two governments to continue their discussions seeking a resolution of this matter."

Unless a deal is reached beforehand, the filing asks that the hearing be rescheduled for Aug. 3.

U.S. District Judge Alan S. Gold did not immediately rule on the request, but judges routinely allow parties in civil cases extra time to settle out of court.

In a statement, the U.S. Justice Department said any agreement would have to require that UBS provide "information on a significant number of individuals with UBS accounts."

"If an alternative resolution is not reached, the Department of Justice will continue to vigorously pursue enforcement of the summons through the court," the statement said.

The case seeking the identities of some 52,000 wealthy American clients suspected of hiding $15 billion at UBS has already sent shock waves through the international banking system.

Bankers fear a ruling against UBS would disrupt cross-border commerce, force people to withdraw huge sums of money from financial entities with offshore offices and play havoc with international tax treaties. Experts say some other foreign banks are asking American clients to close out accounts for fear they may be targeted next.

"The precedent this case may set is of immediate relevance to all financial institutions with global operations," the Institute of International Bankers and other financial organizations said in a recent court filing.

The UBS case has persuaded hundreds of taxpayers with offshore accounts to come clean with the IRS under a voluntary disclosure program. The program allows most people to pay a fine and back taxes without facing criminal prosecution, said tax attorney Robert McKenzie with the Arnstein & Lehr firm.

"The IRS would like to continue the specter of fear that this UBS case has created," McKenzie said. "This strategy is working. The level of calls I'm receiving is picking up, not going down."

UBS, which previously admitted wrongdoing in a more limited U.S. tax case, is resisting turning over the names that have been protected by centuries-old Swiss bank secrecy laws.

"Honoring the IRS summons would require UBS to violate Swiss criminal law, and we simply cannot comply," said Oswald Gruebel, UBS chief executive officer, in a letter to bank offices worldwide. "This matter should be resolved between governments according to established frameworks."

The Swiss government escalated the dispute last week by threatening to block release of the UBS account names if Gold rules for the IRS.

One of Europe's biggest banks, UBS has about 34,000 permanent and contract employees at 381 locations in the U.S., according to the company.

The IRS in February filed what are called "John Doe summonses" seeking U.S. taxpayer identities from UBS, shortly after the Zurich-based bank reached a deferred prosecution agreement with the Justice Department over its tax evasion practices. UBS agreed then to identify 300 people -- some of whom are now facing criminal charges -- and admitted it wrongly used sham offshore entities, false paperwork and questionable client recruitment.

UBS also paid a $780 million penalty.

"Until its activities were discovered, UBS -- on U.S. soil -- regularly violated U.S. law, and actively helped its customers violate U.S. law," said Justice Department tax attorney Stuart Gibson, the lead U.S. lawyer on the case.

The 300 names were released under an exception to Swiss banking secrecy law when clients deliberately defrauded tax authorities, as opposed to failing to declare all assets.

Abusive tax shelters and hidden offshore accounts cost the U.S. government an estimated $100 billion a year in lost tax revenue, according to Sen. Carl Levin, D-Mich., chairman of the Senate Permanent Subcommittee on Investigations.

The Justice Department has brought several other UBS-related tax cases in South Florida, including a November 2008 indictment charging former bank executive Raoul Weil with conspiring to defraud the government. Weil, who ran UBS cross-border and private banking operations, is a fugitive living in Switzerland, and his lawyer has insisted he is innocent.

In June 2008, former UBS banker Bradley Birkenfeld pleaded guilty to a similar charge -- he helped a California billionaire evade taxes -- and has been cooperating extensively with federal prosecutors and the IRS. He has not yet been sentenced.

[Associated Press; By CURT ANDERSON]

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