reprinted as fair use
By David Voreacos and Mort Lucoff
The U.S. and Swiss governments agreed with UBS AG to postpone a court hearing in Miami and try to resolve a government lawsuit seeking the identities of 52,000 American account holders suspected of possible tax evasion.
UBS AG, the largest Swiss bank by assets, agreed to reschedule tomorrow’s evidentiary hearing in federal court to discuss a possible settlement of the case, according to a court filing today. The Justice Department sued UBS on Feb. 19, a day after the bank paid $780 million to avoid prosecution for helping wealthy Americans evade taxes.
As part of that deferred-prosecution agreement, UBS also handed over data on more than 250 secret accounts. Switzerland, which supports UBS in the civil litigation, had said the case threatens its sovereignty, and that turning over more names would force the bank to violate Swiss laws protecting bank secrecy.
In a statement today, the Justice Department said any settlement “would necessarily include a provision requiring UBS to provide the Internal Revenue Service information on a significant number of individuals with UBS accounts.”
U.S. District Judge Alan Gold had scheduled a hearing for tomorrow. In a joint filing seeking a stay of the case, UBS and the Justice Department asked Gold to set an evidentiary hearing for Aug. 3 and 4 if they cannot reach a settlement. Gold must still rule on that request.
Ongoing Talks
The postponement request is backed by the Swiss Federal Department of Justice and Federal Department for Foreign Affairs, according to a Swiss statement today. The Swiss declined further comment, citing confidential “ongoing settlement negotiations” between the two governments.
Switzerland had hardened its public posture on the case, saying in a July 7 court hearing it “will use its legal authority to ensure that the bank cannot be pressured to transmit the information illegally, including if necessary by issuing an order taking effective control of the data at UBS.”
On July 8, Gold directed the Justice Department to consult the government’s executive branch, including the State Department, before responding by today to the Swiss threat.
Gold directed the government to say by today “how far it intends to proceed,” including the possibility of seizing UBS assets in the U.S. and imposing a receivership.
‘Cannot Comply’
In a July 9 memo, UBS Chief Executive Officer Oswald Gruebel said: “The core of the dispute turns on a conflict between the Swiss banking confidentiality laws, to which we are bound, and the U.S. objective to collect taxes owed by its citizens. Honoring the IRS summons would require UBS to violate Swiss criminal law, and we simply cannot comply.”
“UBS welcomes the announcement that the U.S. and Swiss governments have agreed to negotiations” to resolve the litigation, UBS said today in a statement.
In a court filing today, the Justice Department said it was “premature” to respond to “the question of whether UBS will be able to comply” with any court order.
“To the best of our knowledge the Swiss government has not yet taken such action, nor has it made clear what it means when it suggests that it will issue an order ‘taking effective control’ of the UBS records,” according to the filing.
“The fact that UBS finds itself in a difficult position is completely the result of its own conduct,” according to the filing. It urged Judge Gold to rule on the merits of the case, not on whether “UBS may or may not comply.”
Tax Havens
As part of its deferred-prosecution agreement, UBS admitted Feb. 18 that from 2000 to 2007 its Swiss private bankers helped Americans evade U.S. taxes through sham offshore companies in tax havens including Panama, Hong Kong and the British Virgin Islands. UBS said it created misleading forms saying those companies, not taxpayers, were the beneficial account owners.
UBS also admitted that its private bankers marketed securities and banking services in the U.S., even though it didn’t have the required license from the U.S. Securities and Exchange Commission. Those bankers, UBS admitted, met with clients in the U.S. and communicated with them regularly as they traded securities in their accounts or transferred assets.
The case is U.S. v. UBS AG, 09-cv-20423, U.S. District Court, Southern District of Florida (Miami).
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