IRS-UBS Deal Will Reveal Thousands of U.S. Account Holders

Swiss banking giant UBS is prepared to release the identities of some 4,450 American account holders suspected of tax evasion as a result of a deal reached between the U.S. and Switzerland, finalized today. The agreement, the details of which were released just this morning, marks the official end of a months long legal brawl between U.S. tax authorities and the secretive Swiss bank, pitting a reinvigorated interest in offshore tax havens against the centuries-old Swiss tradition of financial anonymity.

The deal represents a partial victory for the U.S., which had initially sought the identities of some 52,000 American account holders. According to the terms of the deal, the Swiss government will establish a special task force to review and release the identities of the 4,450 account holders to the U.S. government no later than 360 days after its formation, the first 500 of which to be disclosed within three months. In exchange, the U.S. will drop the lawsuit it had launched against UBS earlier this year, thus abandoning efforts (for now) to retrieve the identities of the other 47,550 Americans suspected of using Swiss bank accounts to hide taxable assets. According to the IRS, the accounts released as part of this deal hold about $14 billion between them all.

The terms of the agreement will be overseen by the Swiss Federal Tax Administration, the Swiss Federal Office of Justice and the IRS, with representatives from the three groups meeting together with UBS on a quarterly basis to assess the deal’s progress.

The deal’s conclusion brings the total number of UBS clients released to the IRS to 4,700 – the Swiss bank had previously released about 250 names to the U.S. government as part of a criminal settlement this past February. In addition, the IRS has had an amnesty program running since the beginning of its inquiry that allows tax evaders to come clean and avoid criminal prosecution; some 5,000 people are expected to eventually take advantage of the initiative, according to the IRS. For those who don’t? Well, federal authorities have already launched investigations into 150 UBS clients suspected of tax evasion.

While UBS is giving up but a fraction of the accounts that the IRS had initially sought (only about 8.55 percent, to be specific), Swiss policy watchers are already worrying about whether the agreement sets a dire precedent for the nation’s financial privacy laws, despite assurances from their government otherwise. Such assertions, however, may become increasingly more difficult to believe in the coming months, as the IRS, buoyed by what it calls a “huge victory,” plans to intensify its campaign against the use of off-shore tax havens. The IRS’s struggle with UBS and the Swiss government has armed federal authorities with even more information on banks that might be helping Americans evade taxes and the IRS plans to go pursue them with gusto. Already, the U.S. is eyeing Hong Kong as a potential probe target.

Though the Swiss government may not be worried about what precedent this deal will set, that hasn’t stopped Swiss bankers from stepping up their lobbying efforts in D.C. – the Swiss Banking Association has hired former president George W. Bush’s legislative affairs director Candida P. Wolff to represent its interests in the capitol.

Market reaction to all this news has been mixed, though as of 2:33 p.m. today, UBS stock has dipped 3.14 percent.