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* Applies to banks not yet under U.S. investigation
* Banks to pay penalties, disclose information
* Swiss bankers' body sees fines at upper end of acceptable
By Patrick Temple-West
WASHINGTON, Aug 30 (Reuters) - The U.S. Justice Departmenthas signed an agreement with the Swiss government to allow someSwiss banks to pay penalties to avoid or defer prosecutionstemming from a long-running probe of tax dodging by Americansusing Swiss bank accounts.
The settlement programme 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 theprogramme raise questions about its potential for rooting outU.S. tax evaders, tax lawyers and watchdog groups said.
Under the programme, eligible banks would pay penalties anddisclose account information about U.S. customers in order toavoid prosecution, the department said on Thursday.
"The programme's requirement that Swiss banks providedetailed account information will improve our ability to bringtax dollars back to the U.S. Treasury from across the globe," Attorney General Eric Holder said in a statement.
The Swiss government said in a statement the deal provided aframework for cooperation while respecting Switzerland's legalsystem and sovereignty.
Fourteen Swiss banks already under investigation by U.S.prosecutors are excluded from the programme, the JusticeDepartment said. The programme is not available to individuals.
Some critics of the Justice Department's previous taxcrackdown efforts welcomed the settlement programme.
"On the whole it's a pretty strong agreement," said HeatherLowe, director of government affairs at anti-graft watchdogGlobal Financial Integrity.
Still, the settlement programme 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 programme's penalty provisions, a Swiss bankseeking a non-prosecution agreement must agree to a penaltyequal to 20 percent of the total dollar amount of all hiddenU.S. customer accounts 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.
"The fines in particular are at the upper end of legallyacceptable and economically bearable levels," said the SwissBankers Association (SBA) in a statement.
"It is, however, the sole remaining solution for enablingthe banks to resolve the legal problems with the U.S.conclusively, and for creating legal certainty."
The SBA also flagged what it called "certain ambiguities inthe programme" which would need to be discussed between the U.S.Justice Department and the banks to enable the banks toimplement the programme.
To determine whether or not to participate in the programme,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."
Wegelin & Co, the oldest Swiss private bank, said earlierthis year it would close down following a U.S. indictment.
The programme 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 stepis still an open question."
