Judge Gives UBS & U.S. Authorities Time to Find Tax Settlement

Posted by: Mark Scott on July 13

In the ongoing game of financial chicken between U.S. authorities and Swiss financial giant UBS, it was a Miami federal judge who blinked first. On July 13, Judge Alan Gold delayed the start of a trial brought against the European bank by U.S. authorities, who want access to records of some 52,000 of UBS’ U.S. clients. The bank says handing over the details would violate Swiss banking law. Both sides have until Aug. 3 to find a settlement.

For now, the postponed trial suits U.S. authorities and UBS. Indeed, both sides on July 12 even called for the suspension “to achieve a settlement” between American and Swiss governments. Central to defusing the stand-off will be how UBS can hand over a selected number of U.S. clients’ details without breaking Swiss law. U.S. prosecutors are using a so-called ‘John Doe’ summons that doesn’t implicate specific individuals to force the bank to grant access to the 52,000 American clients. It’s unlikely UBS would go that far. But if U.S. authorities are willing to narrow their case to smaller, more defined number of possible tax cheats, then UBS would probably play ball.

A precedent already has been set: as part of its settlement surrounding criminal charges for helping U.S. clients hide money from the IRS, UBS earlier this year promised to disclose the identity of some 250 U.S. clients to American authorities. The bank also agreed to pay a $780 million fine. A similar agreement in the most recent civil case would allow both sides to claim victory. Prosecutors could tout their success over U.S. tax dodgers. And UBS could maintain its overall banking secrecy, while doing its part in the rejuvenated crackdown on tax havens.

Of course, the next three weeks may lead to both sides digging in their heels. The growing diplomatic tone to the case also could prolong any settlement as politicians on both sides of the Atlantic weigh in. But for U.S. authorities and UBS, an out-of-court resolution still remains the most likely outcome.