US and Swiss bank UBS ask judge to delay secrecy case

THE US Department of Justice and UBS have jointly asked a federal judge to delay a hearing, scheduled for today, on whether the US can force the Swiss bank to hand over the identities of 52,000 offshore clients.

They want to postpone a court hearing until August 3rd to provide the two sides with “additional time” to discuss a possible “alternative” solution to the matter, they said in a joint statement yesterday. The move comes after months of a increasingly fraught diplomatic and legal battle between the US and Switzerland over the fate of thousands of offshore accounts held with Switzerland.

The US Internal Revenue Service (IRS) filed a civil lawsuit in February demanding client names, but UBS and Switzerland have said that turning over such information would violate Swiss secrecy laws.

The parties said yesterday that any alternative resolution would necessarily require UBS to provide the IRS with information on a “significant number” of individuals with UBS accounts.

The department of justice will fight the matter in courts if a resolution is not reached, it said. The case will have immense consequences for the bank and Swiss private banking. The hearings will be followed closely by bankers and lawyers concerned with extra-territoriality.

There was no immediate response from US district court judge Alan Gold, who is presiding over a civil lawsuit against UBS and was to have begun hearing arguments about why he should force Switzerland’s best-known bank to disclose information on 52,000 wealthy US clients suspected of using it to evade US taxes.

The postponement request is backed by the Swiss federal department of justice and federal department for foreign affairs. The Swiss declined further comment, citing confidential “ongoing settlement negotiations” between the two governments.

Switzerland had hardened its public posture on the case, saying in a July 7th court hearing it “will use its legal authority to ensure that the bank cannot be pressured to transmit the information illegally, including if necessary by issuing an order taking effective control of the data at UBS”.

On July 8th, the judge directed the justice department to consult the government’s executive branch, including the state department, before responding by yesterday to the Swiss threat.

The judge directed the government to say by yesterday “how far it intends to proceed,” including the possibility of seizing UBS assets in the US and imposing a receivership. In a July 9th memo, UBS chief Oswald Gruebel said: “Honouring the IRS summons would require UBS to violate Swiss criminal law, and we simply cannot comply.” – Copyright The Financial Times Limited 2009/Bloomberg