Clock ticks down on UBS tax case in U.S. court

By Tom Brown

MIAMI (Reuters) - The tax-evasion case first gained notoriety in June last year, when it was revealed that a former UBS AG banker once smuggled a client's diamonds into the United States in a toothpaste tube to avoid detection by U.S. authorities.

Now everyone seems to be getting squeezed as the clock ticks down to a trial, set for 9 a.m. Monday in sultry Miami, in which U.S. authorities hope to pry the lid off Switzerland's much-vaunted tradition of bank secrecy.

That's when U.S. District Court Judge Alan Gold will begin hearing evidence in a civil lawsuit against UBS and arguments about why he should force Switzerland's best-known bank to disclose information on up to 52,000 wealthy clients suspected of using it to dodge U.S. taxes.

There has been much speculation about possible moves to settle the case before Monday's battle between UBS and the U.S. Justice Department gets under way.

Lawyers for both sides did not return phone calls seeking comment on Friday. Many were apparently in Miami already, preparing their briefs for a case that could set legal precedent or hammer out details of a last-minute agreement.

Pressure from the UBS case is being felt far and wide, however. It comes against the backdrop of a global fight against tax cheats supported by the U.S. administration.

UBS, long known as a zealous guardian of its customers' privacy and money, is feeling the biggest squeeze.

It became the target of a sweeping U.S. criminal probe in 2007, when its diamond-smuggling former executive Bradley Birkenfeld alleged that the bank had been telling its U.S. clients since 2002 that it was not required to disclose their identities to U.S. authorities.

The tax case has long since damaged UBS' brand and an expensive settlement now could come at a time when analysts say UBS needs to focus on restructuring.

The Justice Department and officials in Washington are in a tough spot too, though. On Wednesday, Judge Gold gave them until noon (1600 GMT) on Sunday to say whether they are prepared to seize UBS assets in a bid to force it to disclose its client data.

The unusual order was prompted by a warning issued hours earlier by the Swiss government, when it vowed to seize UBS data to stop the bank from handing it over to U.S. authorities.

Swiss criminal law prohibits banks passing on client information to foreign authorities.

READY TO RUMBLE?

Gold's move was widely seen as an encouragement to settle the case, since analysts say they do not expect Washington to take the radical step of closing down UBS in the United States, risking potentially damaging consequences for the global financial system.

But others say Gold was simply putting the U.S. government on notice it should be ready to push to the limit -- regardless of any foreign policy or financial ramifications -- if it is serious about enforcing its summons for UBS client data and tearing down Swiss bank secrecy.