For more than a year, the Internal Revenue Service, the feared tax-collecting agency of the US government, has been revving the engines and aiming a bulldozer at Switzerland's historic banking secrecy laws.
Its demand that UBS, the Swiss banking giant, hand over the names of 52,000 Americans with offshore accounts has sent the Swiss establishment into paroxysms and threatened a diplomatic incident.
With tensions rising dangerously, the bulldozer was put into reverse gear yesterday, allowing time for settlement talks. But that does not mean that America's tax dodgers and offshore fraudsters can breathe easy. The IRS may have parked its bulldozer, but there are plenty of other people chipping away at the edifice of Swiss banking secrecy.
The IRS had asked a Florida court to enforce a summons that it served on UBS back in February, a day after the bank admitted that it had systematically aided US citizens to hide their investments from the taxman.
The affair has been a huge and expensive embarrassment for UBS. The conduct it confessed to included setting up shell companies and nominee accounts in Switzerland on behalf of US citizens. Swiss bankers flew to the US to advise clients on the best way to hide their assets from the authorities, and even gave tips such as stashing art and jewellery in Swiss safety deposit boxes.
The IRS estimates that many thousands of clients hid $US20bn offshore, evading $300m in taxes a year. UBS, meanwhile, made $200m a year in profits from the business. The former head of the division, Raoul Weil, is a fugitive from US justice, holed up in Switzerland, away from the criminal charges laid personally against him.
As well as having to shut the business down, UBS agreed to pay a $780m fine to avoid criminal charges that could have been cataclysmic for a bank with major investment banking and wealth management operations in the US.
Furious Swiss regulators said in February that UBS could hand over the names of 285 clients suspected of tax fraud n an agreement that the US Department of Justice hailed at the time as an "unprecedented" chink in Swiss secrecy laws. The Swiss took a pragmatic view; UBS was already being propped up by the country's government after sub-prime mortgage losses, and its indictment could have been a disaster for the Swiss economy.
But UBS said it would resist the IRS demand for thousands more names at all costs, saying that executives would face prosecution in Switzerland if they did so. Swiss law criminalises handing over clients' financial information in most circumstances.
Enter the grown-ups. Fighting the Swiss bank's corner, the government of Switzerland, which said it would simply not allow UBS to comply with the summons, no matter what a Florida judge might decide. There was talk last week of Swiss regulators storming in to seize and secret away client files. The US Treasury, meanwhile, began to take a keener look at the case, and talks began between the two governments.
The Swiss government also petitioned the Florida court in a legal effort that was joined by the Institute of International Bankers and a host of other international lobby groups. They warned of dire consequences if UBS lost the case. The IRS was on a "fishing trip" when existing tax treaties between Switzerland and the US already allow for the exchange of information in cases where fraud is suspected.
Banks "rely on a stable framework of international law, including that based on treaties and comity, to conduct business in multiple jurisdictions," the institute argued. "Enforcing the summons in derogation of the information exchange provisions in a major tax treaty threatens that legal framework.
It also runs the risk that other jurisdictions will follow suit, to the detriment of cross-border commerce."
It was progress in the talks between the US Treasury and the Swiss government, more than anything else, that led to the hopes of a settlement.
The outlines of a deal are still far from clear, but sources say it is possible the IRS will get information of a substantial number of clients where fraud is a possibility, while the Swiss can claim the secrecy laws are intact.
Last month, the two nations drew up a revised tax treaty between them that allows for greater information sharing.
The US government claimed that the treaty was a breakthrough in the fight against tax evasion; the Swiss said it would help the country get off a "grey list", drawn up by the Organisation for Economic Co-operation and Development, of nations which ought to relax their banking secrecy laws to prevent money laundering, tax evasion and other fraud.
Both sides unofficially linked the implementation of that treaty to a resolution of the nastiness over UBS.
Meanwhile, the Swiss are seeking bilateral agreements with other major nations, in their quest to get off the grey list by the end of the year, each one lifting the veil of secrecy higher.
And in the US, thousands of citizens who use Swiss bank accounts are calling their accountants and coming clean to the tax authorities. The IRS has parked its bulldozer. Just the sound of the revving engines was enough.
- THE INDEPENDENT