Swiss may allow UBS to turn over more names to IRS

Switzerland may be ready to find middle ground on the issue of turning over names of UBS (UBS) banking clients to the IRS. Its seven-member cabinet plans to convene a meeting today to discuss UBS's settlement talks with the IRS, which analysts think means Switzerland is close to agreeing to U.S. demands to hand over data, even though it may bend (if not break) Swiss secrecy laws.

Negotiations heated up when U.S. Secretary of State Hillary Clinton met with Swiss foreign minister Micheline Calmy-Rey on July 31 and an August 3 court hearing was delayed. The Swiss have threatened to seize the bank records of UBS if a U.S. court orders the names of banking clients to be released. The IRS wants the names of 52,000 U.S. citizens or companies that bank with UBS. U.S. tax officials believe that UBS is hiding $20 billion of U.S. taxpayers' money in secret Swiss accounts.

Another hearing was scheduled for Wednesday, August 12, but on Friday both sides asked for a further delay, which indicates they are probably close to a deal. Some speculate that the deal will include the agreement to turn over the names of up to 10,000 UBS clients.

If the Swiss do agree to turn over more names, clients will have the right under Swiss secrecy laws to challenge the transfer of their records. This involves a time-consuming administrative process, which the IRS wants speeded up. Some speculate that the meeting today includes discussions about agreeing to a swifter administrative process.

Swiss secrecy laws do not protect depositors from fraud, so if the U.S. can prove any of UBS's clients are avoiding taxes, those accounts would not be protected by Swiss laws. However, the Swiss think that the IRS's request for information on 52,000 U.S. account holders is too broad as it has no proof that all 52,000 have evaded taxes. The U.S. Justice Department has been working with some former bankers to build its case against UBS and its wealth management practice.

UBS began shutting down its money-management business for wealthy American investors at its private bank in Switzerland. U.S. wealth-management accounts were switched to its U.S. wealth-management unit, formerly Paine Webber. If U.S. residents didn't like that option, they could switch to an SEC-regulated unit based in Switzerland called Swiss Financial Advisors. U.S. residents who declined both options were asked to leave the bank.

Lita Epstein has written more than 25 books including Reading Financial Reports for Dummies.

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