U.S. officials are trying to break down the wall of secrecy that has long surrounded the Swiss banking industry. On Thursday, the Justice Department filed suit in an effort to force the Swiss giant UBS to turn over the names of Americans who are using the bank to evade taxes.
The bank agreed Wednesday to reveal a small number of its U.S. clients, but federal officials want it to go a lot further.
U.S. officials estimate that tens of thousands of Americans put their money in overseas tax shelters, costing the Treasury about $100 billion every year. Wednesday's agreement between UBS and the Justice Department is being hailed as a breakthrough in the effort to catch tax cheats.
"If I were an American who was looking for a way to avoid doing what all the other Americans do, which is pay their fair share, I would be mighty worried, because this is a wall that is beginning to crumble," says Democratic Sen. Carl Levin of Michigan.
UBS has already acknowledged that some of its bankers actively solicited wealthy Americans as clients by promising to help them evade taxes. The bank agreed Wednesday to pay a $780 million fine. It also agreed to turn over the names of some U.S. clients who committed fraud.
John Christensen of Tax Justice Network International says that represents a significant concession by the bank: "In the case of UBS, they were involved with setting up these very elaborate structures on behalf of their clients, and the IRS has forced them to disclose information about their clients."
But it's not clear how much of a precedent the settlement really is. In the suit filed Thursday, U.S. officials said they were seeking the names of more than 52,000 Americans who sued the bank to hide assets. But Swiss officials said that the agreement announced Wednesday covers just 250 to 300 of the bank's U.S. clients.
Moreover, James Nason, a spokesman for the Swiss Bankers Association, says the fact that UBS is releasing that many names isn't unusual. He says Swiss banks have in the past turned over clients' names when they've committed fraud.
"There's a lot of misunderstandings and legends about this fabled Swiss banking secrecy," says Nason. "It has never been 100 percent absolute. It's no obstacle whatsoever to a criminal investigation and is regularly lifted in investigations into criminal cases, and that includes cases of tax fraud."
But Nason also complained that the U.S. government put pressure on UBS to surrender the names.
"There are established procedures to get this sort of information in cases of tax fraud and the like, and we're very disappointed that this process was just bulldozed into the earth," he says.
Nason says Switzerland has an administrative process set up through which countries like the U.S. can pursue tax cheats. But Levin says the process is designed to frustrate law enforcement officials from other countries. He says Swiss officials will only turn over information about clients if there is proof they've done something wrong. But it's hard to find that proof if banks are allowed to keep their records secret.
"American citizens are supposed to be supplying information to the IRS on their tax returns and to put a requirement on there that the IRS will not get information unless it can prove fraud is close to useless," Levin says.
But U.S. officials are hoping that Wednesday's agreement represents the beginning of a change in Swiss policy and that banks like UBS are beginning to reassess their long history of protecting their clients' names.