Exclusive: U.S., Swiss at impasse on tax dodge accord: sources

Reuters News
Posted: Jun 28, 2011 4:14 PM
Exclusive: U.S., Swiss at impasse on tax dodge accord: sources

By Lynnley Browning and Martin De Sa'Pinto

NEW YORK/GENEVA (Reuters) - Advanced talks have bogged down on a multibillion-dollar deal between Switzerland and the United States over Swiss banks helping Americans to shield their money from the U.S. taxman, two sources briefed on the matter said Tuesday.

The sticking point centers on a renewed Swiss insistence that any deal leave Swiss bankers and executives employed by the banks and other financial institutions free from prosecution in the United States, the sources said.

A spokesman for the State Secretariat for International Financial Matters in Switzerland said the talks were "still ongoing" but declined to give further details.

Under the civil agreement being negotiated, known as a global resolution, the United States would require the banks to pay a fine, exit their undeclared offshore banking businesses for Americans, and turn over client names to the Internal Revenue Service (IRS) and the Justice Department, according to the sources.

In exchange, the agencies would drop their widening criminal investigation into the banks, which include HSBC, Credit Suisse, Julius Baer and Basler Kantonalbank.

But U.S. federal prosecutors still want the right to prosecute Swiss bankers and executives down the road if their scrutiny yields new information, these sources said.

That is in part because the proposed global resolution will not cover banks against which the Justice Department has strong evidence of criminal fraud in helping U.S. clients evade taxes, according to a senior U.S. government official.

"If we have a criminal case, do you really think we're going to drop it?" said this official, who spoke on condition of anonymity because of the ongoing investigation.

The issue of immunity is irritating the Swiss, whose tradition of bank secrecy is under attack by the United States and various European countries.

The Justice Department "seems to be reserving its right to undertake prosecutions even once an agreement has been made," said a senior official at a Swiss private bank who declined to be named but has been briefed on the settlement talks. "But for Switzerland one of the cornerstones of any agreement is that there is no further risk to employees of any banks of prosecution."

U.S. government and private-sector sources had said in early June that a settlement could be reached by July 1, but that date now appears to be pushed back indefinitely.

In 2009, UBS AG averted indictment over its undeclared offshore private banking services by agreeing to pay $780 million, admitting to criminal wrongdoing and turning over about 255 client names, later agreed by the two sides at an additional 4,450.

Since then, the Justice Department has been conducting a broad criminal investigation of a number of Swiss banks, bankers, and third-party intermediaries suspected of helping scores of wealthy American clients evade taxes.

Manal Corwin, the U.S. Treasury Department's deputy assistant secretary for international tax affairs, told the Senate Foreign Relations Committee on June 7 that the United States was not considering mirroring separate deals that Switzerland is negotiating with Germany and Britain over offshore clients of Swiss banks.

Those deals involve Switzerland offering to impose a withholding tax on the accounts while effectively preserving the tradition of bank secrecy via not disclosing account holders or details to German and British tax authorities.

"We don't think that the United States should consider such agreements," Corman told the committee, adding that the United States wanted to be able to receive data on suspected tax evaders.

Separately, a key cooperating witness in the investigation was unexpectedly allowed on Monday to travel back to Switzerland from Miami, where he had been detained since December on charges of conspiracy and fraud.

The witness, Renzo Gadola, is a former UBS private banker who left the bank to form RG Investment Partners, an investment advisory firm in Zurich, and who worked closely with a former top UBS banker, Martin Lack, according to two people briefed on the matter.

Judge James Lawrence King of U.S. District Court in Miami signed the order for his release on Friday, saying that he was not ready to detain Gadola further at this point. Gadola's arraignment on the charges has been postponed indefinitely.

The Justice Department filed papers on Monday requesting that his passport and credit cards be returned to him. Gadola, reached by phone in Zurich, declined to comment.

Gadola has provided information to prosecutors about his work with Basler Kantonalbank, a regional bank that handled offshore undeclared accounts for American clients, according to court papers. Gadola's cooperation cast light for the first time on the role of Swiss cantonal banks in working with major Swiss banks to help clients evade taxes.

While Gadola has promised to come back to the United States when required for further proceedings in his case, his release is a surprising turn. Switzerland does not generally extradite Swiss nationals if they refuse to return to the United States for legal proceedings.

A private-sector person briefed on the Gadola matter said that the Justice Department "is using him to get to other players that will widen the scope of their inquiry."

The source added that Gadola's role "might change the negotiations between the Swiss and the U.S." but declined to provide details.

(Additional reporting by Catherine Bosley in Zurich; Editing by Gary Hill)