WASHINGTON — Looking to hide a few million from the tax man? Switzerland might not be your best choice anymore.
The United States and Switzerland detailed an agreement Wednesday for the IRS to receive information on 4,450 accounts in banking giant UBS AG — accounts suspected of holding Americans' undeclared assets.
The agreement breaks through the famed Swiss tradition of banking secrecy and is expected to prod thousands more UBS clients in America to voluntarily disclose their financial details to the Internal Revenue Service, lest they be pursued later.
"This is no mere keyhole into the hidden world of bank secrecy," said IRS Commissioner Doug Shulman. "This agreement represents a major step forward with the IRS' efforts to pierce the veil of bank secrecy and combat offshore tax evasion."
Shulman said the accounts held $18 billion at one time, though many have since been closed.
The Swiss, known worldwide for keeping bank accounts secret, said UBS had no real choice in turning over the names.
Justice Minister Eveline Widmer-Schlumpf said at a news conference in Bern that the deal lifts the threat of criminal prosecution, which would not only have endangered the bank's existence but would also have dealt a severe blow to the Alpine nation's economy.
"There was no alternative to this solution," she said.
The agreement is part of stepped-up efforts by President Barack Obama's administration to go after wealthy tax dodgers hiding assets in offshore accounts, an initiative that promises to yield many more prosecutions, Shulman said.
UBS has an estimated 52,000 accounts held by U.S. customers. The IRS chief said the 4,450 accounts being identified were the ones most suspected of containing undeclared assets. Many of the rest are held by people who have complied with the law and paid their taxes, he said.
Tax experts said the agreement should terrify Americans who had been able to hide assets in offshore accounts for generations with little fear of being caught.
"This is critically important because the Swiss caved," said Tom Cardamone, managing director of Global Financial Integrity, a Washington-based group that advocates tougher policies against international money laundering. "They agreed to give up names, so in that context, this is a real body blow to Swiss banking secrecy."
Earlier this year, as part of a deferred prosecution agreement with the Justice Department, UBS admitted assisting U.S. citizens in evading taxes. UBS agreed to disclose the names of about 250 American clients and pay a $780 million penalty. The IRS subsequently filed its case seeking the names of additional U.S. taxpayers believed to be hiding assets.
The agreement includes several measures favorable to the Swiss — and giving the clients a chance to get right with the IRS.
Instead of releasing the names directly to U.S. authorities, UBS will turn them over to the Swiss Federal Tax Administration. Account holders will then be able to appeal their release to the IRS before Switzerland's Federal Administrative Court.
However, U.S. authorities will be notified of the appeals, giving them access to information about account holders. It is expected to take several months for the first names reach the IRS.
The IRS has long had a policy that certain tax evaders who come forward before they are contacted by the agency usually can avoid jail time as long as they agree to pay back taxes, interest and hefty penalties.
In March, the IRS began a six-month amnesty program that sweetened the offer with reduced penalties for people with undeclared assets. Shulman said the response has been unprecedented, though he declined to say how many people have applied.
Shulman said the Swiss government has assured U.S. authorities that the release of the names conforms with both Swiss banking laws and the tax treaty signed by both countries. Shulman said the IRS reserves the right to resume its legal fight if any of the names are withheld.
Sen. Carl Levin, D-Mich., sounded less impressed than the IRS by the agreement.
"The UBS settlement is at most a modest advance in the effort to end bank secrecy abuses," said Levin, who has investigated tax havens as chairman of the Senate's Permanent Subcommittee on Investigations. "It will take a long time before we know whether this settlement will produce meaningful gains."