Tax evasion

According to the newspaper NZZ am Sonntag, the Zurich-based bank said it would only reveal the names of and account information of clients accused of tax evasion by the US Internal Revenue Service (IRS). A spokeswoman for UBS declined to comment.

The development caps a legal struggle played out over several months between the US and Switzerland over how much information Swiss banks should disclose about clients accused of dodging taxes.

The IRS initially sued UBS for the names of 52,000 Americans believed to be hiding nearly $15 billion in assets in Swiss accounts. Reuters reported that US officials relented on that initial demand because of the potentially traumatic effect it could have on fragile markets. UBS has already agreed to pay the US $780 million in fines.

Unknown threshold

The investigation will now focus mainly on US clients whose secret accounts hold a particularly large amount of money. But neither Swiss officials nor their American counterparts would comment on what that threshold was because they don’t want any tax evaders to feel safe, Reuters reported.

By opening the accounts to US agents, UBS, the world’s second largest bank, is not violating Swiss law: a 1996 US-Swiss taxation agreement obliges Switzerland to help the US in criminal investigations.

However, those people whose accounts will be peered into may have a chance to have their grievances against UBS heard in a Swiss court. While some observers see the deal as a blow to Switzerland's tradition of banking secrecy, others think that the controversy won’t be too detrimental to the sector.

"There’s a chance that in the short term this development may tarnish UBS’ reputation, but if it complies with the IRS and becomes more transparent, who knows, maybe UBS will emerge as a stronger institution," Frank T. Piller, a professor of economics at the North-Rhine Westphalia Technical University, told Deutsche Welle.

Author: Chad Smith
Editor: Sam Edmonds