August 10, 2009 / 8:06 AM / 11 years ago

Swiss cabinet meets on UBS as U.S. tax talks drag

BERNE (Reuters) - The Swiss cabinet held a special meeting on Monday to discuss a snag in talks to settle the U.S. tax evasion case hanging over bank UBS, the sternest ever challenge to Swiss bank secrecy rules.

The logo for Swiss bank UBS is seen on an office building in New York August 4, 2009. REUTERS/Brendan McDermid

The Swiss government, currently in recess, held an extraordinary meeting, an official said, but declined to give any detail until a final deal is done.

Switzerland and the United States failed on Friday to agree on a settlement that would spare UBS a tax trial, and talks will continue until Wednesday, when a new status conference with U.S. Judge Alan Gold is scheduled.

U.S. lawyers familiar with the case said they expected Wednesday’s conference call might still yield news of a settlement, although details could be kept secret.

“In my mind, there’s no question that this case is going to be settled, there is really no other viable alternative,” said attorney William Sharp, who represents U.S. clients of UBS.

“In order to preserve the integrity and effectiveness of the settlement closing, the details are likely to be kept under seal,” he told Reuters.

The case has big implications not just for Switzerland, whose private banks manage around $2 trillion of foreign wealth, but for the entire offshore banking industry.

“My suspicion is that it is not good news. I’m sure there will be a resolution, but whether it will be as beneficial for UBS as the market was hoping is not looking likely,” said Helvea bank analyst Peter Thorne.

Berne and Washington have said they have reached agreement on the main issues, and a settlement is expected to involve the disclosure of some names of the 52,000 U.S. clients holding secret Swiss accounts the U.S. authorities are seeking.

UBS shares have rallied in recent weeks on hopes of a deal.

U.S. shares of UBS were down 1.46 pct at $14.89 in afternoon trading on Monday.

“The settlement talks are now extending into a fifth week, underscoring its difficulties of designing a pact that could further erode Swiss banking-client secrecy,” said Sarasin analyst Rainer Skierka. He said Sarasin would keep its “neutral” rating on the stock in the meantime.

“THREADING THE NEEDLE”

U.S. authorities would want to make clear in any settlement that they scored an advance against tax evasion and fraud, said Peter Hardy, a former federal prosecutor and specialist in white collar crimes at law firm Post & Schell in Philadelphia.

“I would not be surprised if somebody from the (U.S.) government made known at least some general information because they’re going to want the public and the media to know that they were successful to X degree,” he told Reuters.

Swiss media have said U.S.-Swiss talks stalled on legal details on how to allow the transfer of some client data to Washington while respecting Swiss bank secrecy laws.

“It is not a problem that has to do with UBS, but rather with the legal procedure,” Finance Minister Hans-Rudolf Merz told Swiss television on Sunday, without going into details.

The “devil was in the details” of reaching a settlement that could be acceptable to both sides, Sharp said. “We’re seeing the parties threading the needle to try to satisfy the competing interests of two legal systems.”

According to Swiss newspaper NZZ am Sonntag, the United States wants guarantees that the so-called administrative assistance process, the legal framework under which bank client details can be transferred to the United States, will deliver the data, and that it would do so quickly.

But Merz said on Sunday Switzerland was not prepared to introduce emergency measures to force the pace of the process.

VOLUNTARY DISCLOSURE

Under the current system, bank clients have 30 days to appeal to the Swiss administrative court against a transfer of their data to a foreign authority, a court spokeswoman said.

A decision on whether or not data can be transferred can take at least three months, Christoph Bandli, who heads the Swiss administrative court, told a Swiss newspaper on Sunday.

Whether or not a settlement is announced on Wednesday, it would be surprising if one were not achieved “in the near future,” said lawyer Robert Katzberg of Kaplan & Katzberg, who represents numerous U.S. taxpayers with UBS accounts.

“Two things will be of particular interest. First, to what extent will the details be made public, as opposed to filing the agreement with the Court under seal? Second, how will implementation of the agreement on the U.S. side be coordinated, if at all, with the existing voluntary disclosure program due to expire in September?” he said.

Under a voluntary tax disclosure program due to last until September 23, Americans with undisclosed Swiss bank accounts are being given an opportunity to come forward in exchange for lower penalties.

Originally scheduled for July 13, the U.S. case against UBS is now set for court on August 17, but if the parties choose to delay further, the next available date would be September 21.

Berne already stretched its legal system in February when it forced UBS to quickly hand over 250 client names, bypassing the clients’ appeals, in order to settle criminal charges that threatened the bank’s survival.

UBS’s clients are believed to include many Americans with European roots who inherited wealth hidden in Switzerland; well traveled business people who have received offshore compensation via Swiss accounts; and people whose main objective in opening such accounts was to avoid taxes.

Additional reporting by Tom Brown and Pascal Fletcher in Miami, Writing by Emma Thomasson and Lisa Jucca. Editing by Robert MacMillan

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