MIAMI: Swiss bank UBS AG and the U.S. government have agreed to settle a long-running dispute over the disclosure of names of wealthy American clients suspected of tax evasion.
The parties have initialed agreements that will "take a little time to be signed in final form," Department of Justice tax lawyer Stuart Gibson told U.S. District Court Judge Alan Gold during a brief conference call on Wednesday.
The U.S. government will drop its case against UBS once a final settlement is in place, Gibson said. UBS and the government had reached a settlement in principle on July 31.
A settlement is expected to involve the disclosure to U.S. authorities of thousands of names of wealthy American clients suspected of using offshore accounts to conceal assets and evade taxes. Authorities had sought the names of 52,000 people, but it is unclear how many names might be revealed.
Washington's case against UBS, the world's second-largest wealth manager, had strained relations between the United States and Switzerland because it challenged the latter's jealously guarded bank secrecy laws.
"This is definitely good news for UBS," said Milan Patel, a tax lawyer at Withers LLP in Geneva.
"However, this may mean that UBS could face a new legal battle in Switzerland if the account holders claim UBS violated Swiss bank secrecy laws by disclosing their names," Patel said.
"Thus, UBS may have ended the U.S. legal battle only to start the Swiss legal battle."
UBS was not immediately available for comment.
Doug Shulman, commissioner of the Internal Revenue Service, the U.S. tax collection agency, said "we are pleased to have initialed an agreement with the Swiss government which protects the United States government's interests."
Both governments must now sign off on the settlement, the Swiss Justice Ministry said.
In February, UBS agreed to pay $780 million to settle criminal charges that it had faced in a similar tax dispute with the U.S. government.
It agreed to hand over data related to about 250 U.S. clients who held secret accounts, and promised to close its offshore business to U.S. clients.
OVERHANG LIFTED
A settlement would eliminate one overhang for UBS, whose losses on toxic debt led to a 6 billion Swiss franc ($6.5 billion) injection from the Swiss government last year.
The Swiss government has said it would like to sell its 9 percent stake in the bank soon.
U.S. authorities had sought the names of UBS clients they believed had either inherited substantial wealth and have European roots, are frequent business travelers who receive offshore compensation via Swiss accounts, or intended their accounts from the start as a means to avoid U.S. taxes.
But UBS, backed by the Swiss government, held onto the names, calling the U.S. demand a fishing expedition that would breach bilateral tax agreements and Swiss bank secrecy laws, which have been eroding in recent years.
"It is not possible to say just how well the Swiss did in resisting full compliance," said Robert Katzberg, a New York white-collar criminal lawyer who represents some U.S. taxpayers in the UBS matter.
He said he expected the United States to "receive much of what it has been seeking."
Alfred Mettler, a finance professor at Georgia State University and member of a Swiss task force on bank secrecy, said it would likely take months to implement a settlement, and that it may foreshadow an IRS push to ferret out suspected tax cheats.
"The IRS will certainly increase its efforts to go after non-taxed money wherever it is," he said. "But you need some evidence, and my guess is other banks, not only Swiss banks, must have taken steps to be proactive."
UBS shares were up 3.5 percent at 16.40 Swiss francs in afternoon trading in Switzerland. In the United States, they were up 3.6 percent at $15.24 in morning trading.
Traders said any gains might be capped by expectations that the Swiss government might soon sell its UBS stake.