At long, long last, some relief for UBS. The embattled Swiss bank will no longer be facing a lawsuit demanding that it hand over the details of 52,000 U.S. citizens suspected of tax evasion. Stuart Gibson, a tax attorney for the U.S. Department of Justice, said during a conference call on Wednesday that the case would be dropped after a final deal is formally signed, but that the parties have "initialed agreements." He added that it would "take a little time" for the formal signing.
This means the deal is effectively done, says Ken Rubinstein, senior partner at law firm Rubinstein & Rubinstein in New York. "Signing is just a technicality; they are doing the final read-through just to be sure."
Neither side has yet revealed the details of their agreement, though it is likely to include a lot of those names being handed over. Rubinstein believes that U.S. authorities would not be satisfied if a majority of the 52,000 weren't included in the deal.
An agreement can't come soon enough for UBS, which reported a second quarterly loss of 1.3 billion Swiss francs ($1.2 billion) last week with a steady outflow of client money adding to the burden of $2.2 billion in write-downs. The agreement will provide relief for Switzerland's entire banking sector, which had been closing watching the dispute: financial advisors based in Switzerland said that several banks had begun shying away from U.S. clients for fear that a fate similar to UBS' could befall them.
UBS has already handed over the details of some clients in February, following settlement of a separate case, as part of which it had to also make a payment of $780 million. U.S. authorities have pounced on the information swiftly: Three U.S. citizens have already pled guilty to tax evasion.
All along, UBS has maintained that it has been caught in the middle of a dispute between governments, which should therefore be resolved at that level. Switzerland recently took over the lead role in the negotiations and, earlier this week, the Swiss cabinet held a special session to discuss the UBS case. The bank management was "grateful that the two governments reached this agreement to resolve this issue," Kaspar Villiger, the chairman of UBS, said Wednesday.
While public opinion and procedure will make altering the country's secrecy laws nigh on impossible, the most likely move to accommodate the U.S. demands is a tweak to the interpretation of those laws, says Ken Rubinstein, senior partner at Rubinstein & Rubinstein is that Switzerland. This could involve altering the Swiss definition of tax fraud to be closer to the U.S. definition, which would allow them to meet the request.