Swiss Bank to open secret files.(TAX EVASION)

UBS, Switzerland's largest bank, agreed to a U.S. demand to divulge the names of wealthy Americans whom U.S. authorities suspect of opening accounts at the bank to evade taxes. Threatened with criminal charges, the bank admitted to defrauding the Internal Revenue Service (IRS) and agreed to pay $780 million as part of a settlement with the U.S. government.

UBS said it would turn over only 250 client names to U.S. investigators, but a recent Senate investigation revealed that the bank held 46,000 secret accounts for American clients. U.S. prosecutors have subpoenaed all of those records, Newsweek reported. Under the terms of a so-called deferred prosecution agreement, the New York Times reported, the bank and its executives could be indicted if UBS doesn't identify the customers.

UBS told U.S. authorities that it will close the offshore accounts of American account holders. However, according to its agreement with U.S. prosecutors, the bank must provide written evidence that it has done so. The Times said UBS earned $200 million annually from its offshore account business.

During 2002 to 2007, prosecutors said UBS illegally hid $20 billion for its U.S. clients, allowing them to evade $300 million in taxes each year. During those same years, UBS also said some of its private bankers and managers had "participated in a scheme to defraud the United States" and the IRS by helping U.S. clients set up and hide offshore accounts. According to the Times, the "help" provided included falsifying or not properly filing certain tax forms. In Switzerland, unlike in the United States, tax evasion is not a criminal offense.

Prosecutors also found that UBS advised U.S. clients to destroy records and to tuck away treasures such as watches, jewelry, and artwork they had bought with money hidden offshore in safe deposit boxes in Switzerland, the Times said. The bank also urged them to use Swiss credit cards to prevent the IRS from tracking their purchases.

Raoul Weil, a senior UBS executive and Swiss citizen, oversaw the cross-border private banking operations from 2002 to 2007, the Times said. In January, he was declared a fugitive, just two months after a U.S. judge indicted him in connection with the UBS investigation.

Marcel Rohner, group chief executive of UBS, said in a statement, "It is apparent that as an organization we made mistakes and that our control systems were inadequate."

UBS' decision to settle the case may have been influenced by the threat of indictment for not cooperating with U.S. prosecutors. Of the $780 million the corporation will pay, $380 million represents disgorgement of profits from its cross-border business, the Times reported. The rest comprises U.S. taxes that UBS failed to withhold on the accounts, including interest, penalties, and restitution for unpaid taxes.

Prosecutors did not force the bank to pay additional fines and penalties, which could have brought the deal to more than $1 billion. The Times reported that the banking crisis and the recession weighed in this decision by prosecutors. UBS has lost $50 billion in the collapse of the U.S. mortgage market and received a $60 billion bailout from the Swiss government in October 2008.

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