It is premature to fear that Swiss bank secrecy as it has been known for centuries is crumbling, according to a senior US tax lawyer who used to work for the US Internal Revenue Service.

Milan Patel, a partner at international law firm Withers, had this to say in a recent interview with WealthBriefing: “The sky is not falling. This is not the end of Swiss banking as we know it”.

His comments come following a recent remark by US senior Democrat senator Carl Levin, who is pushing legislation through Congress to squeeze tax evasion. Mr Levin recently said that “UBS’s refusal to surrender the names of as many as 52,000 Americans suspected of using Switzerland’s largest bank to avoid taxes shows that a US tax treaty with that country is ineffective”.

To prove that worries for the Swiss banking industry are partly unfounded, Mr Patel cites clause 10 in the Deferred Prosecution Agreement between the US and UBS. The agreement says UBS provided “substantial and important assistance” to the US authorities and recognised UBS had to act within Swiss law and under the control of the Swiss regulator, FINMA.

Is Mr Levin guilty of political grandstanding? “It is good politics to claim that there is a whole lot of money to be claimed in unpaid taxes from the anonymous wealthy in times of economic crisis,” said Mr Patel.

Indeed, the criminal case in which FINMA authorized the disclosure of information on some 250 accounts has been all but closed by the agreement that was reached. However, paragraph 13 of the agreement does link the case to the famous 52,000 accounts on which information has been requested. Mr Patel explains how the system works in the US.

“The IRS is in general deemed correct unless proven wrong. It also has broad summons powers under US law to seek and obtain information that will allow it correctly to assess an individual’s tax liability,” Mr Patel said.

“In this `John Doe’ summons for information on allegedly 52,000 accounts, the IRS is simply trying to do its job to determine if certain US people may have failed to comply with US tax laws. In order for the summons to be effective, the IRS is now asking the US court to enforce the request. If it goes to trial, the court will ultimately have to decide whether Swiss law is a valid defence for not enforcing the summons,” Mr Patel said.

The thirteenth paragraph of the agreement goes out of its way to allow that UBS may claim Swiss law as a reason for not providing the information - although it does not admit that this will work.

If the summons is enforced by the US courts, and if UBS fails to comply with the summons, after all its appellate remedies have been exhausted, the US may “in its sole discretion and after consultation with the IRS and Board of Governors of the Federal Reserve System” deem this behaviour to be a material violation of the terms of the agreement. This is all far from the final blow to Swiss banking that some people are calling.

Would Mr Levin’s proposed legislation damage the US state of Delaware, which is a jurisdiction that fits some definitions of an offshore centre?  “Is this hypocritical? Maybe,” says Mr Patel.

“The US criticises Switzerland for its bank laws but how much money is there in Miami banks that is not declared to the owners’ tax authorities? The tax rules in the US are structured to encourage foreigners to place assets with US banks with no withholding taxes on deposits.”

Mr Patel would be quite happy to see some other countries take the US to task over its own rules.

In the end, what will come of the 52,000 names of UBS clients that the US taxman is requesting?  Mr Patel replies: “If FINMA or the [Swiss] Federal Tribunal allows UBS to divulge the details, I expect that they will do so just to make this go away, but I expect that the summons will not be enforced.”

As Mr Patel admits, he may be wrong on the last point. However, as he says, some of the fears about Swiss bank client confidentiality are unwarranted.