By Patrick Temple-West
WASHINGTON, Aug 29 (Reuters) - The U.S. Justice Departmentsaid on Thursday it had signed an agreement with the Swissgovernment to allow some Swiss banks to avoid or deferprosecution stemming from a long-running probe of tax dodging byAmericans using Swiss bank accounts.
The settlement program will apply to about 100 second-tierSwiss banks, provided they agree to disclose certain previoushidden assets of U.S. customers. It will be open only to banksnot already under U.S. criminal investigation.
The deal is a step forward in a three-year U.S. effort topierce the shroud of Swiss bank secrecy, but some details of theprogram raise questions about its potential for rooting out U.S.tax evaders, tax lawyers and watchdog groups said on Thursday.
Under the program, eligible banks would pay penalties anddisclose account information about U.S. customers in order toavoid prosecution, the department said in a statement.
"The program's requirement that Swiss banks provide detailedaccount information will improve our ability to bring taxdollars back to the U.S. Treasury from across the globe," Attorney General Eric Holder said in a statement.
Fourteen Swiss banks already under investigation by U.S.prosecutors are excluded from the program, the JusticeDepartment said. The program is not available to individuals.
Some critics of the Justice Department's previous taxcrackdown efforts welcomed the settlement program.
"On the whole it's a pretty strong agreement," said HeatherLowe, director of government affairs at anti-graft watchdogGlobal Financial Integrity.
Still, the settlement program has "gaps," specificallywhether banks could settle without turning over U.S. clientnames, Lowe said. "That is definitely one open question here."
STEEP PENALTIES
Under the program's penalty provisions, a Swiss bank seekinga nonprosecution agreement must agree to a penalty equal to 20percent of the total dollar amount of all hidden U.S. customeraccounts held by the bank on Aug. 1, 2008.
That was roughly when the United States started crackingdown on tax avoidance by Americans with secret Swiss accounts.
The penalty amount increases to 30 percent and then to 50percent, depending on how active a bank was in continuing toopen secret accounts for Americans after the crackdown began.
To determine whether or not to participate in the program,Swiss banks will need to weigh the cost of potential penaltiesversus the risk of a U.S. prosecution, tax lawyers said.
"It's a choice between two evils," said Walter Boss, a taxlawyer with Poledna Boss Kurer AG in Zurich. If they don'tcooperate with the U.S., the U.S. might indict them."
The program also requires cooperating banks to tellprosecutors about Americans' assets that left Switzerland andwere moved to other tax havens.
Though the Justice Department declined to identify the Swissbanks it is investigating, a number are known to be facing U.S.probes. These include Credit Suisse, Julius Baer, the Swiss arm of Britain's HSBC, privatelyheld Pictet, and state-backed regional banks ZuercherKantonalbank and Basler Kantonalbank.
Several of these banks have said they are preparinginformation on client withdrawals as demanded by U.S.investigators, after the Swiss government said it would allowthem to circumvent secrecy and privacy laws to do so.
"The U.S.'s goal ultimately is to get untaxed money into thetax system," said Jeffrey Neiman, a former federal prosecutorinvolved in other Swiss bank investigations who is now inprivate law practice in Fort Lauderdale, Florida.
"Whether or not this is going to be a big step isstill an open question."