Clinton and Swiss counterpart to discuss bank secrecy, tax evasion issues

As a federal probe of secret Swiss bank accounts made headlines in the summer of 2008, New York businessman Jeffrey P. Chernick got nervous. A middleman in international toy sales, Chernick had hidden millions of dollars from the Internal Revenue Service at Switzerland’s largest bank, according to a recent court filing.

Concerned that the bank, UBS, would spill his secrets to the U.S. government, Chernick decided to disclose his account to the IRS and pay the unpaid taxes, according to the court document. Then a Swiss lawyer and a Swiss bank executive talked him out of it, according to the document.

They told Chernick that a high-ranking official in the Swiss government could find out which UBS accounts would be turned over to the U.S. government, and the Swiss lawyer later told Chernick that the banker had paid the official $45,000 for word that his account was not among them, according to the court filing. Chernick authorized a withdrawal from his UBS account to cover the payment.

That narrative was contained in a “statement of facts” by Chernick and the Justice Department entered in connection with his guilty plea this week to filing a false tax return.

The plea comes as Secretary of State Hillary Rodham Clinton prepares to take up issues of bank secrecy and tax evasion today with her Swiss counterpart and as a federal court in Florida focuses on a broad government challenge to UBS. The U.S. government has asked the court to demand that UBS identify the holders of 52,000 accounts that Americans are suspected of having used to dodge taxes.

The Swiss government has stated that such a demand would be incompatible with Swiss law, and it has vowed to prevent UBS from complying.

The United States is trying to enforce tax collections; Switzerland is trying to protect the tradition of secrecy that has helped make its banking industry a global powerhouse and an important piece of the Swiss economy.

The two sides are scheduled to brief a federal judge in Miami this morning on the status of negotiations. On Wednesday, they told the judge that they had yet to reach a settlement. Barring a resolution or another postponement, the two sides are due to face off Monday in a hearing that essentially amounts to a trial in the case.

Meanwhile, Clinton is scheduled to meet with Swiss counterpart Micheline Calmy-Rey at the State Department.

The Swiss would like any request for information about the bank accounts to be handled administratively under an existing tax treaty, according to a source informed of the negotiations who spoke on condition of anonymity because of their sensitivity.

The U.S. government has expressed frustration with that process. The United States sought to obtain records through the existing channel in July 2008, and, as of February, it had obtained none, an IRS official said in a court filing. Under a deal that enabled it to avoid criminal prosecution, UBS admitted in February that it engaged in a scheme to defraud the IRS by helping Americans set up accounts in the names of offshore companies.

According to the filing in the Chernick case, UBS bankers went to lengths to help him avoid exposure. They cut his name and account number from account statements so the documents could not be linked to him.

A lawyer for Chernick declined to comment.