It’s like this: So far, the only clients exposed were suspected of tax fraud, which involves lying to the government and is illegal in both countries. Mere tax evasion, where you just don’t get around to reporting your assets or income, isn’t a crime in Switzerland. And under a bilateral agreement, only conduct that is criminal in both countries can prompt Swiss banks to turn over information on their customers.

Prying Information

Now the U.S. is trying to pry open the crack to look for evaders. In federal court in Miami, the IRS demands that the bank name the American holders of more than 52,000 secret accounts.

Neither side can afford to lose the fight.

If UBS complies, Switzerland can prosecute the bankers for violating Swiss law and lift UBS’s banking license.

That isn’t all. The release of thousands of names would crumble public confidence in legendary Swiss bank secrecy, shrinking Switzerland’s international banking business, a linchpin in the economy.

Swiss authorities can’t let that happen, any more than U.S. authorities can walk away from the fight.

Had the U.S. done that or had the DoJ indicted UBS, it would have put the bank out of business in America with a loss of thousands of UBS U.S. jobs. It would also have caused a probable collapse of the bank itself, with major Swiss and global economic repercussions. (UBS' bad management already has lost over US$50 billion in the subprime mortgage crisis).

But even U.S. prosecutors knew the global financial system could hardly weather the destruction of UBS by American prosecutors. (And that would have been ingratitude. As I revealed last year, candidate Obama was very cozy with UBS officials and UBS was one of his biggest donors, giving $505,017 to his 2008 Presidential campaign).

Switzerland's justice minister will today meet her US counterpart in a crucial week in UBS's efforts to fight attempts to reveal to US authorities more names of rich American clients with undeclared accounts.

Eveline Widmer-Schlumpf's meeting with Eric Holder, the new US attorney-general, comes amid belated attempts by Bern to counter the impact of the US legal onslaught against Switzerland's biggest bank and, more broadly, hallowed bank secrecy.

Swiss government officials declined to disclose the agenda of the meeting. But the tribulations of UBS, which last month agreed a $780m deal with the US Department of Justice to settle criminal charges about its private banking activities, were expected to be prominent.

At a meeting today, the government decided privacy protection for bank clients should be preserved, though international cooperation on tax offences should be improved. The government also set up a group of experts that will look at issues such as how to define tax fraud and will advise on talks with other countries, Merz said at a news conference in Bern.

Levin, who oversees the U.S. Senate subcommittee investigating UBS, proposed new laws this week to stop Americans from using offshore financial centers to evade taxes, supporting legislation previously sponsored by President Barack Obama. The Michigan Democrat wants to impose tougher requirements on taxpayers with offshore accounts and give the Treasury Department the authority to take action against foreign jurisdictions that impede tax enforcement.

‘Cash Cow’

“Bank secrecy is a cash cow in Switzerland,” Levin said at the March 4 hearing held by the Senate’s Permanent Subcommittee on Investigations. “Conduct that actively facilitates tax evasion amounts to a declaration of war by offshore secrecy jurisdictions against honest, hardworking taxpayers. We’re determined to fight back and end the abuses inflicted on us by those tax havens.”

U.S. Treasury Secretary Timothy Geithner told the Senate Finance Committee on the same day that the government will mount an “ambitious” program to crack down on companies that use offshore locales to avoid paying taxes.

Merz said last week he’s willing to make an agreement with the U.S.

UBS, Switzerland’s largest wealth manager, has lost 22 percent of its market value since the U.S. obtained the client data last month, compared with a 17 percent drop in the 65- member Bloomberg Europe Banks and Financial Services Index. It has beaten the index in all but three years since the start of the decade.

“The government put its head down and ignored the situation and then panicked when they realized they were up against a wall,” Cocca said. “They’ll have to give in to reduce the pressure on Switzerland.”

Luxembourg, Austria and Switzerland vowed on Sunday to protect their banking secrecy and speak with one voice to influence how the G20 group of nations crack down on tax havens.

The G20 holds a summit in April and tackling tax havens is on its agenda but the three small countries with their long-cherished bank secrecy rules are not members of the group.

The Swiss government said Friday it would cooperate on cases of international tax evasion, breaking with a long-standing tradition of protecting wealthy foreigners accused of hiding billions of dollars in the Alpine nation.

The government insisted it would hold onto its cherished banking secrecy rules, but said other countries could now expect Swiss cooperation in cases where they provide compelling evidence of tax evasion.

"We want assistance to be restricted to individual cases to prevent fishing expeditions," President Hans-Rudolf Merz told a news conference, referring to the practice of seeking information about many individuals in the hope of discovering a few tax evaders.