US and UBS request court delay - Prospects improve for settlement

US and UBS request court delay - Prospects improve for settlement
ByJoanna Chung in New York and Haig Simonian in Zurich
Copyright The Financial Times Limited 2009
Published: July 12 2009 16:58 | Last updated: July 12 2009 16:58
http://www.ft.com/cms/s/0/e3d8b684-6ef5-11de-9109-00144feabdc0.html


The US government and UBS on Sunday stepped back from the brink of a damaging court battle – scheduled to start on Monday – over the Swiss bank’s refusal to reveal the names of thousands of its offshore customers to the US Internal Revenue Service.

Prospects for a settlement between the sides improved after the US Department of Justice, UBS and the Swiss government asked for a three-week delay to the hearing to allow time for an “alternative” resolution to US demands for the names of 52,000 US taxpayers holding offshore accounts.

However, the DoJ said any settlement “would necessarily’’ include requiring UBS to provide information on a “significant number” of individuals.

The request came as the DoJ sought to put further pressure on UBS by saying in a separate court filing that it would consider imposing monetary sanctions on the bank if the court ordered UBS to turn over names under an IRS summons and it failed to do so.

“If the court does enter an order enforcing the summons – as we believe it should – then UBS will have to decide whether or not to comply with the order. UBS, like any other litigant, would refuse to comply at its peril,” it wrote.

The Swiss government waded into the legal dispute last week by saying it would issue a “blocking” order if the US court ruled against UBS, and would prevent any transfer of confidential client information.

On Sunday, the DoJ said such a blocking order could “impact” February’s deferred prosecution agreement with UBS, under which the bank agreed to pay $780m (£481m) to settle a separate but linked criminal action by the US authorities.

The civil case demanding the bank reveal the clients’ identities, which was launched by the US shortly after, will have immense consequences for the bank and Swiss private banking and has been closely followed by bankers and lawyers concerned with extra-territoriality, as well as foreigners with offshore accounts in Switzerland.

An IRS victory would breach Switzerland’s hallowed bank secrecy and other tax authorities would seek to emulate that. A ruling in favour of the “John Doe” summons, seeking client names without specific evidence of wrongdoing, would also put UBS under intense, possibly unsustainable, pressure.