But the accord could pave way to U.S. scrutiny of other firms, jurisdictions. The Swiss government has insisted that UBS' handover of confidential client data to U.S. authorities as part of the bank's settlement of its legal dispute does not violate Swiss bank secrecy law.

The two countries have agreed to have UBS hand 4,450 sets of UBS client data. "With this agreement, we have managed to avoid a conflict between the sovereignty of two states," Swiss Justice Minister Eveline Widmer-Schlumpf told journalists yesterday. She said the pact will fully comply with Swiss law and not violate banking secrecy -- which, she emphasized, isn't meant to protect criminal behavior.

The big picture

In what appeared to be a significant erosion of Switzerland's bank-secrecy laws, the IRS said it had obtained "substantially all of the accounts" it sought from UBS. And it warned that it could leave open its demand for data if information is not passed over by 24 August 2010.

The data-transfer agreement between the U.S. and Switzerland raises the possibility that Swiss bank secrecy -- a large part of the sector's historic success -- is fading, and that money will flow from Switzerland to rival financial centres such as Singapore.

Following the news about the data transfers, the Swiss government said it plans to sell its $5.63 billion investment in UBS -- money it put in UBS last year to help keep it from drowning in toxic assets.

UBS's handover of data was a significant victory for the U.S. authorities, according to Jay Krause, partner at the international law firm wWithers Worldwide. "Switzerland prevented what it saw as a U.S. fishing expedition, but the IRS still managed to catch a record haul with today's agreement," he says. "The decision will provide a useful roadmap for obtaining U.S. taxpayer information from other Swiss financial institutions and will likely be tailored to target institutions in other jurisdictions."

And Krause says that it's not just wealth-management firms that have to worry about the the Swiss-U.S. accord: the information will lead to U.S. scrutiny of law firms, accountancies and other tax advisories.

"This is just one piece of a larger U.S. initiative to close the tax gap, and taxpayers with undeclared accounts, in Switzerland and elsewhere, will need to strongly consider compliance in the wake of the UBS settlement agreement," says Krause. "In this brave new world of increasing transparency and information sharing, it would take ever more courage to bet against the IRS." -FWR

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