Bloomberg has reported that:

Switzerland asked the U.S. not to pressure UBS for client data located in the Alpine country as investigators look into whether the world's largest wealth manager helped American clients evade taxes.

Swiss State Secretary Michael Ambuehl, who met last month with U.S. officials including Undersecretary of State William Burns and Treasury Undersecretary Stuart Levey, told his U.S. counterparts that any request for client data must be decided by the government, as UBS would breach Swiss bank secrecy law by handing out the records, he said in an interview.

According to Bloomberg:

The Swiss Finance Ministry is examining whether to allow UBS to identify U.S. customers who may have committed fraud while using accounts at the bank to evade taxes, after the bank received a summons from the Internal Revenue Service. Switzerland's largest bank, which may have hidden as much as $17.9 billion for 19,000 Americans, according to a Senate subcommittee report, said July 17 it will stop servicing accounts for American clients at units that aren't licensed in the U.S.

The Swiss Finance Ministry hasn't yet replied to the U.S. request for assistance, spokesman Dieter Leutwyler said. He declined to comment on which action his ministry would take should UBS disclose client data, saying he doesn't answer ``hypothetical questions.''

Don't underestimate the significance of what is happening here: what is developing is a real test of whether a country has the right to impose its taxation law on its own citizens despite the pro-active and deliberate intervention of a financial services institution that has knowingly assisted those persons to break the law within its domain and did so because it knew it could hide behind the laws of a secrecy jurisdiction like Switzerland in which it was ultimately incorporated.

If Switzerland refuses to co-operate we have a breakdown in international law and order. More than that, we have one OECD member states effectively declaring economic warfare on another. Do not expect the international market to survive in its existing format if Switzerland does that. It won't. Protectionism will increase. Taxation at source will increase. The withholding of tax on payments to tax havens will become normal.

Places like Switzerland have a choice: they must comply with international norms of expected behaviour where criminality is to be condemned and cooperation in dealing with it is expected or and they can suffer the economic cost of being outside accepted society. They can't have it both ways.