As part of the settlement, UBS has agreed to reveal the names of some of its clients, a move that represents a potentially significant loosening of Switzerland’s legendarily tight bank secrecy traditions.

UBS will also complete its exit from the business of providing offshore banking to US citizens, the Zurich-listed bank said in a statement.

The settlement represents a halt to what has been a long-running case that has added to UBS’s woes, already severe as a result of booking massive losses from the credit crunch.

Under the terms of the agreement, UBS and US authorities have agreed that any prosecution case should be deferred for a period of 18 months. If UBS completes its withdrawal of offshore banking services in the US, then the Justice Department will “refrain from pursuing charges against UBS relating to the investigation of its US cross-border business”, the UBS statement said.

“We accept full responsibility for these improper activities,” Peter Kurer, UBS chairman, said in the statement. “We are firmly committed to the terms of the settlement agreements which we have reached with the DOJ and the SEC .”

The DOJ has charged that over several years, UBS provided Swiss bank accounts to approximately 20,000 US clients with assets of about $20 billion. About 17,000 of those clients concealed their identities and the existence of their UBS accounts from the Internal Revenue Service, the Justice Department alleged.

Neither the Justice Department nor UBS would say how many clients the bank would give up or the criteria they will use to identify them. The details were spelled out in a document filed under seal.

A Justice Department news release stated that, to avoid being tried on criminal charges, UBS agreed to stop letting US clients use Swiss accounts to hide money from the IRS. However, the commitment wasn't new: the Swiss bank promised to do just that last year.

Meanwhile, lawyers acting for Raoul Weil, former wealth management chief executive at UBS, expressed their disappointment that US authorities have not abandoned a case against him. Last month, Mr Weil, indicted by the US for conspiring to help US citizens dodge taxes, was declared a fugitive by the US.

A statement from law firm Freshfield Bruckhaus Deringer said: “It is extremely disappointing that the indictment of Raoul Weil was not dismissed as part of the bank's settlement with the United States. Mr Weil is an innocent victim of a political dispute between the United States and Switzerland over Swiss bank secrecy.”

“Mr Weil is a highly respected banking executive in Switzerland who engaged in no misconduct. Indeed, following an extensive investigation, the Swiss Financial Market Supervisory Authority expressly found in a report released today that there was no evidence that Mr Weil was aware of or participated in any conspiracy to violate US law,” it said.

“We continue to expect that Mr Weil will be fully vindicated,” the statement added.