Attorneys for Swiss banking giant UBS and the U.S. Justice Department differed Wednesday on how close they are to settling a dispute over an Internal Revenue Service demand for 52,000 names of American account holders who may have skimped on their taxes.
Bank attorney Eugene Stearns, a name partner with the Miami firm Stearns Weaver Miller Weissler Alhadeff & Sitterson, urged U.S. District Judge Alan S. Gold to set another status conference this week, saying he felt the Swiss and U.S. governments were close to a settlement, which could be "minutes away."
"It is in no one's interest not to resolve this issue," he said. "The issues here, as we see them, don't appear to be the kind that should bring a stalemate."
Gold already has delayed an evidentiary hearing on the issue of producing names until Monday. The IRS wants to determine the extent of tax losses from assets hidden in UBS accounts. Three account holders have been prosecuted already after the bank produced a small batch of names.
Switzerland's foreign minister is to discuss the case later this week with Secretary of State Hillary Clinton.
The Swiss newspaper Sonntags-Zeitung reported Sunday that a possible compromise could involve releasing about 10,000 names of account holders who received visits from UBS bankers.
Stuart Gibson, an Assistant U.S. Attorney representing the IRS, told Gold he wasn't optimistic that a settlement could be reached. Gold offered to postpone Monday's hearing for a week, but Gibson discouraged another postponement.
"We don't believe delay serves anyone's interest," he said.
In an order issued after Wednesday's hearing, Gold said he would not consider postponing Monday's hearing unless there is a signed settlement in time for the next hearing set Friday.
Zurich-based UBS in February reached a deferred prosecution agreement with the Justice Department over its practices, agreeing to pay a $780 million penalty and turn over the names of about 300 account holders who may have committed tax fraud as opposed to failing to declare all assets.
The next day, the IRS filed a summons to force the release of the remaining American UBS customers. Since then the government of Switzerland, where banking secrecy is sacrosanct, has told the U.S. that it would not allow one of its premier banks to break Swiss domestic law.
"UBS has been a passenger in these negotiations," Stearns told Gold on Wednesday.
Federal prosecutors have charged three millionaires so far. Toy wholesaler Jeffrey P. Chernick of Stanfordville, N.Y., was the latest to plead guilty to tax evasion on Tuesday when he admitted hiding $8 million in UBS accounts.
Chernick opened an offshore account in 1981 in the name of a Hong Kong corporation to conceal commissions he collected from toy manufacturers for sales in the United States, prosecutors charged without disclosing the bank name. He started banking with UBS in 1998 at the latest.
Chernick is cooperating with U.S. authorities investigating Swiss banking practices. He told authorities that when the UBS scandal broke last year, he told his Zurich attorney that he was ready to turn himself in, according to court documents.
After the IRS tightened Swiss bank disclosure requirements, Chernick opened another account through a former UBS manager at a different, undisclosed Zurich-based bank that "was not subject to United States scrutiny and therefore could not be pressured by the United States government to disclose his identity and account information," court papers said.
Chernick said he approved a $45,000 payoff to an undisclosed Swiss government official through his Zurich attorney to find out if his name had been turned over to the IRS. The ex-UBS banker told Chernick that his name was not on the list of 300.
Miami tax attorney Robert Panoff, a solo practitioner, said the case shows U.S. authorities are going after more than just UBS, apparently targeting another bank's official as well as the Swiss attorney. "My guess is they are going to roll up as much of the abusive components of the offshore infrastructure as they can," he said.
The UBS case broke when one of its former bankers, Bradley Birkenfeld, was arrested for helping a real estate mogul hide assets. Birkenfeld laid out a UBS scheme for marketing tax shelters to wealthy Americans. Top UBS executive Rauol Weil has been indicted and is considered a fugitive by the Justice Department.
Fort Lauderdale, Fla., tax attorney Martin Press, a Gunster shareholder, said the Birkenfeld arrest and the Weil indictment have made Swiss bankers nervous about international travel.
"Swiss bankers are concerned about coming to the U.S. even on vacation," he said. "Swiss bankers have contacted me to inquire whether it was safe to come to the U.S."
Time is running out for other UBS customers to seek amnesty by Sept. 23. Hundreds of clients of UBS and other offshore banks have voluntarily come forward under an IRS program that requires payment of back taxes and penalties but generally does not mean prison time.
UBS has 381 offices and 34,000 employees and contractors in the United States.
What's at stake?
• Centuries-old Swiss banking secrecy
• The power of the Internal Revenue Service to enforce agreements with foreign banks
• Diplomatic relations between the United States and Switzerland