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Banking Flap Strains U.S.-Switzerland Relations

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Banking Flap Strains U.S.-Switzerland Relations


Banking Flap Strains U.S.-Switzerland Relations

Banking Flap Strains U.S.-Switzerland Relations

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  • <iframe src="" width="100%" height="290" frameborder="0" scrolling="no" title="NPR embedded audio player">
  • Transcript

Switzerland is famous for its banking laws that protect the identities of depositors. But the U.S. government is now trying to force Swiss banking giant UBS to name more than 50,000 Americans who have stashed money there. The IRS believes many owe billions of dollars in taxes. Guy Raz talks with Wall Street Journal reporter Carrick Mollenkamp.

GUY RAZ, host:

(Soundbite of music)

This is ALL THINGS CONSIDERED from NPR News. I'm Guy Raz.

Later today, we'll announce the winner of our summer writing contest, Three-Minute Fiction.

But first, to a case that challenges Switzerland's legendary banking system, a system that protects the identities of depositors. For the past year, the IRS has tried to force one Swiss bank to hand over the names of its American clients. UBS is said to have at least 50,000 American depositors and the IRS thinks those customers are avoiding paying billions in U.S. taxes.

A lawsuit filed against UBS was supposed to go to trial next week in Miami but at the last minute Secretary of State Hillary Clinton and the Swiss foreign minister, Micheline Calmy-Rey, struck a deal.

Wall Street Journal reporter Carrick Mollenkamp has been covering the story and he joins us from New York.

Welcome to the program.

Mr. CARRICK MOLLENKAMP: Thanks very much.

RAZ: Carrick, before we get to the details of the agreement, remind us briefly of the stakes here. The U.S. government was challenging a Swiss tradition of secret banking that goes back to the Middle Ages.

Mr. MOLLENKAMP: It does. At least to the 1700s and then it became a formal part of Swiss banking law in the 1930s. The fact that the IRS and the Justice Department has gotten this far is one of the more interesting facets of this story.

RAZ: Carrick, why was UBS the main target of the U.S. government's investigation?

Mr. MOLLENKAMP: A think a component of that was the fact that a former UBS banker, Bradley Birkenfeld, began to work with the U.S. authorities, the Senate Investigative Panel, the IRS in 2007 and provided a very lengthy and detailed roadmap for U.S. officials into understanding how UBS worked with U.S. clients. And once they had that roadmap they kind of honed in on UBS.

RAZ: Carrick, explain something here. If the U.S. government won this case against UBS, under our laws, UBS would have to hand over the names of those Americans who have Swiss bank accounts. But then, that would violate Switzerland's law, so what could UBS have done?

Mr. MOLLENKAMP: Well, that's what has made this case so interesting, too, is you have the IRS case and then it developed into a diplomatic test of wills between two sovereign countries. UBS and the Swiss government were adamant that Swiss bank privacy laws prevented UBS from turning over the documents. Judge Alan Gold in Miami, the federal judge there said UBS hand over the names. If UBS lost, it could have been that the Swiss government would have seized the data.

RAZ: So the Swiss government was threatening to basically take the data from UBS so UBS would not be able to hand over those names to the U.S. government.

Mr. MOLLENKAMP: Exactly. That's what they said in a recent court filing.

RAZ: So, I mean, Switzerland's banking laws are so vital to Switzerland's economy that government officials there were prepared to really confront the United States over this. I mean how important are these banking laws to keeping Switzerland's economy where it's at?

Mr. MOLLENKAMP: What's been so vital for Swiss banks is control of offshore accounts. But what's happened is that you see people pulling money out of UBS and...

RAZ: Because they're getting worried.

Mr. MOLLENKAMP: Exactly. And then also, Swiss banks saying we don't want the IRS and Justice Department coming after us, we don't want your money anymore. So you've seen this erosion into kind of Switzerland hold on offshore banking as this has played out over the last year.

RAZ: So what do we know about the agreement that's been struck?

Mr. MOLLENKAMP: We don't know officially much about the settlement. They held a short teleconference yesterday with Judge Gold. And the Justice Department lawyer simply said we have an agreement in principle. What we do think is the potentiality of the settlement is that UBS will end up handing over thousands of names. I don't think it's going to get close to 52,000 accounts. It probably would be more in the range of eight to 10,000.

RAZ: If the US government can collect a substantial amount of these unpaid taxes, this will a good thing for the federal government's coffers.

Mr. MOLLENKAMP: I don't see how if anything but a good thing for the US government. They've already had lots of people there so scared by this that started to come forward and said, well, you know, we don't want to be prosecuted criminally. If we can start, we'll pay the fine and the back taxes. So there's a lot of revenue coming in the door. The only downside was maybe the crack at the diplomatic relation.

RAZ: Is this the beginning of the end for Swiss banking?

Mr. MOLLENKAMP: I think it's definitely a very serious hit to Swiss banking and I'm not sure how it will recover. People have said that UBS, once they get this behind it, at least can start working on finding new clients. But as far as U.S. money flow, I think that's going to stop for a while. I mean, especially when you've got Swiss banks saying, we don't want your business.

RAZ: Carrick Mollenkamp is covering the UBS case for the Wall Street Journal. He spoke with us from New York.

Carrick, thanks so much.

Mr. MOLLENKAMP: Thank you for your time.

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