Judge grants delay in UBS tax case

— -- A federal judge in Miami agreed Monday to postpone an internationally watched trial in order to give the Justice Department and Swiss banking giant UBS time to seek a settlement of Washington's demands for the identities of 52,000 wealthy U.S. clients suspected of tax evasion.

U.S. District Judge Alan Gold granted the delay until Aug. 3 that both sides in the case requested Sunday, on the eve of a key evidentiary hearing that had been scheduled for Monday. The request marked the first time the parties had publicly acknowledged settlement talks in a case that has strained U.S.-Swiss relations, cracked Switzerland's reputation for banking secrecy and shaken the private banking industry.

Gold also scheduled a status conference via telephone for July 29.

UBS UBS called the court-approved delay "a positive development that the governments will now engage in intensive discussions over the next two weeks and attempt to negotiate a resolution."

The civil lawsuit hinges on the Internal Revenue Service pursuit of the identities of 52,000 wealthy Americans the tax agency believes are dodging taxes through secret UBS accounts. The accounts in question are believed to be part of what a Senate subcommittee last year estimated was $100 billion in annual tax evasion by Americans using offshore accounts.

UBS says it can't supply the client data because such a handover would violate Swiss banking secrecy laws. The Swiss government last week echoed that view, and said it would stop any release of the information — by seizing it, if necessary.

The Justice Department said Sunday any agreement that emerges from the settlement talks would have to include "information on a significant number of individuals with UBS accounts."

Federal prosecutors simultaneously increased pressure on UBS with a court filing that raised the prospect of stiff financial penalties or other action if the bank continues to fight a summons seeking the client data.

"If the court orders compliance with the summons, and if UBS defies that order, it is the intention of the United States to ask the court to take appropriate steps to enforce its order and vindicate its authority. This would include asking the court to hold UBS in contempt and to impose monetary sanctions sufficient to bring UBS into compliance," said a legal memo filed by federal prosecutors.

The memo warned that non-compliance could violate the $780 million February settlement in which the Justice Department deferred prosecution of UBS for the bank's admission it secretly helped U.S. clients set up offshore accounts that weren't disclosed to the IRS.

A violation could prompt prosecutors to seek a criminal indictment of UBS, hampering the operations of Switzerland's largest bank.

However, the terms of the deferred prosecution agreement restrict Justice Department action unless the bank fails "to comply with an enforcement order after all its appellate remedies have been fully and finally exhausted," which could take years.

"It looks like the Swiss government and UBS blinked," said Robert McKenzie, a Chicago tax lawyer with clients who held secret UBS accounts. "Now the question is will UBS agree to release all of the names or just some of the names" of the account holders, as well as "the identities of the account beneficiaries."