The U.S. Department of Justice has lifted the veil of banking secrecy from the face of Switzerland, forcing the country's largest bank to hand over the names behind 4,450 accounts as part of a historic lawsuit settlement.
UBS AG, the Zurich-based financial giant, has agreed to start supplying the names and details of 500 accounts of suspected tax cheats within 90 days.
The final deadline for the rest of the clients - who are believed to have secreted about $18-billion (U.S.) across the Atlantic Ocean through shell companies, sham trusts and other means - is 270 days after the United States officially requests details of the accounts.
The agreement concludes a landmark lawsuit launched by the U.S. government in February that asked a Florida judge to enforce what's known as a "John Doe" summons, a demand for information where the authorities suspect wrongdoing by multiple individuals whose identities are unknown.
The summons butted up against a tradition of strict banking secrecy in Switzerland, where it's a criminal offence for bankers to reveal any information about clients and their accounts. With the country's Bank Act punctured yesterday, legal experts say it's a matter of time before other Swiss banks such as Credit Suisse Group and Julius Baer Group are required to provide details on their own delinquent clientele.
"It's just like pulling on a string. Once the U.S. government starts pulling on the string, it's all going to come loose," said Jonathan Garbutt, a Toronto tax lawyer. "The U.S. is not going to pull any punches: They need the money, they need the good PR, so this administration is going to go after them.
"That huge groaning sound you hear from Europe is the sound of Swiss banks rolling over on their U.S. clients."
The UBS settlement terms forbid either side from discussing their negotiations, so it's still unclear exactly how they agreed on the number of accounts. The bank had originally said as part of sworn testimony before a U.S. Senate subcommittee that it had as many as 52,000 "undeclared" accounts holding as much as $20-billion.
But Internal Revenue Service commissioner Doug Shulman said yesterday that the bulk of that fortune was held in 4,450 accounts, and that the other account holders appear to be tax-compliant.
It's also unclear where the Canada Revenue Agency stands on UBS. The agency, as well as Revenue Minister Jean-Pierre Blackburn, have only said that they are aware of the proceedings in the United States and have not commented further.
A recent U.S. court filing, however, offers a hint of what may be coming in Canada.
Bradley Birkenfeld, the former UBS employee who detailed for U.S. investigators how the bank dispatched a team of bankers to North America to woo the well-heeled, is scheduled to be sentenced tomorrow in a Fort Lauderdale, Fla., courtroom.
Prosecutors have requested leniency for Mr. Birkenfeld - who has pleaded guilty to helping a billionaire California real estate developer evade millions of dollars in taxes - explaining that the former banker was integral to their investigation and that he has handed over similar information to "foreign countries who are investigating, among other things, UBS's conduct in those countries." Canada is not specifically identified in the court filing.
In the months leading up to yesterday's announcement, U.S. authorities urged UBS clients to come forward and file a voluntary disclosure, the program that offers clemency to tax evaders who turn themselves in before the IRS knocks on their door.
As an incentive to come forward, authorities have strategically announced new prosecutions of UBS clients every few months, with the most recent guilty plea, by a Malibu, Calif., man released last week.
(The IRS already obtained about 250 names when UBS entered into a deferred prosecution agreement in February. The agreement allowed the bank to skirt criminal charges, but forced it to acknowledge that it engaged in a scheme to defraud the U.S. Treasury.) The Swiss government said yesterday that UBS's handover of confidential client data falls within Swiss banking secrecy law.
"With this agreement, we have managed to avoid a conflict between the sovereignty of two states," Swiss Justice Minister Eveline Widmer-Schlumpf told a media briefing.
She said the agreement will fully comply with Swiss law and not violate banking secrecy, which she emphasized is not meant to protect criminal behaviour.