* Swiss banks prepare to say whether they will participate
* Banks risk fines and handing over client info if they do
* Banks who do not settle risk future U.S. prosecutions
By Katharina Bart, Oliver Hirt and Patrick Temple-West
ZURICH/WASHINGTON, Dec 5 Switzerland's private
banks have until Monday to decide whether to bow to U.S.
pressure and ditch the centuries-old culture of secrecy that has
made the Alpine state a global vault for the world's rich.
Many are leaving it to the last minute to tell the Swiss
financial regulator whether they will participate in a U.S.
programme to settle tax evasion suspicions that could trigger
large fines and force them to identify U.S. customers suspected
of using their Swiss accounts to dodge taxes.
Listed banks which participate in the programme could start
telling investors from next week whether or not they have to
take provisions against possible fines.
If they do not settle, individual banks and their senior
staff risk criminal prosecution and, if a large number refuse to
cooperate, it could hold up a future settlement for around a
dozen of Switzerland's largest banks, including Credit Suisse
, Julius Baer, Pictet, and local
government-backed Zuercher Kantonalbank (ZKB).
Most of the 300 or so smaller banks are expected to
participate but they are anxious to find out what others are
doing and wrestling with the risk of giving up client
confidentiality, which could put off customers.
"Probably a few dozen will risk being pursued by the U.S.
later and stay out of the current programme altogether," said a
lawyer involved in bank talks.
Despite knowing the terms of the August deal for months,
many banks are going down to the wire with their decision,
according to several sources involved in the talks.
U.S. tax lawyers worked the Thanksgiving holiday for their
Swiss bank clients and flew into the country this week as
hundreds of boards gather to make their call.
"It's really an elaborate game theory going on right now,"
said one U.S. lawyer working for Swiss banks.
"It's a herd mentality."
The U.S. Department of Justice and Switzerland's financial
regulator FINMA declined to comment on how many banks had so far
agreed to settle.
FEAR OF REPRISALS
Tax dodgers have been under huge pressure from governments
since the financial crisis blew a hole in public purses and
banks in Switzerland, the world's biggest offshore financial
centre, are also under investigation in Germany and France.
The United States has so far prosecuted more than 70
taxpayers, at least two Swiss banks and more than 30 bankers,
lawyers and advisors worldwide. Its hard line has prompted
taxpayers to volunteer $5.5 billion in owed taxes.
In 2009 UBS, Switzerland's largest bank, was fined $780
million and agreed to hand over the names of U.S. clients with
secret Swiss bank accounts to avoid facing criminal charges.
The cost of settling, and the potential hit to earnings,
weighs heavy on Switzerland's bankers. They could face penalties
of up to 50 percent of the value of the assets they managed on
behalf of Americans.
If a bank feels it has had relatively little to do with
undeclared U.S. accounts, it might decide not to participate in
the U.S. programme.
But the fear of reprisals if the U.S. takes a different view
Two Swiss private banks, Frey & Co and Wegelin, folded after
U.S. authorities targeted them over client tax evasion.
The arrest of Swiss banker Raoul Weil, a former UBS
executive, while holidaying in Italy in October sent shockwaves
through Switzerland's financial community. Weil, arrested on
five-year-old U.S. charges which allege he helped rich Americans
evade tax, has said he has committed no wrongdoing.
There is also the added pressure of obstructing progress for
the larger banks, which want to seal their own deals with the
United States and end uncertainty over the tax issue, which has
been dragging on for years.
"The Americans have said very clearly that they want to see
how successful the current program is and how many Swiss banks
register with them," ZKB Chief Executive Martin Scholl said in a
radio interview last month.
Nine banks contacted by Reuters declined to comment on
potential fines and most said they were still evaluating whether
to agree to settle.
"Participating in the programme is absolutely an issue for
us," said Alex Josty, spokesman for Berner Kantonalbank. Its
board meets on Thursday to take a final decision for the bank,
which is listed but majority local government-owned.
Corner Bank, a small lender in Switzerland's
Italian-speaking southern region, is considering signing up to
the U.S. programme, a spokeswoman confirmed.
The bank's CEO Paolo Cornaro complained in an interview
published in Swiss newspaper Handelszeitung on Thursday that the
U.S. programme did not distinguish between banks that actively
sought undeclared U.S. money and those which had opened accounts
for a few Swiss clients who possibly also had U.S. passports.
Vontobel, EFG International and Banque
Cantonale Vaudoise declined to comment.
Others such as St. Galler Kantonalbank, which owns
private bank Hyposwiss, and Linth Bank, said they had
not decided on a plan of action yet.
With so many banks procrastinating, the Swiss financial
regulator waded into the controversy last week, urging them to
settle and warning that further U.S. sanctions "must be feared".
The comments from FINMA rankled some bankers and triggered
an outcry in the local media, which accused it of siding with
the United States and failing to stand up to what many in the
industry see as heavy-handed U.S. methods.
Despite the bluster, most banks are expected to yield.
"The U.S. programme is at the limit of the bearable for the
banks, but it is the only remaining solution," said Sindy
Schmiegel, a spokeswoman for the Swiss banking lobby.